Setting up a Merchant Account

A merchant account is a special type of account allocated by banks to allow businesses and organisations to accept credit card transactions. Internet merchant accounts allow organisations to accept credit card payments over the Internet. All of the high-street banks and some building societies offer merchant accounts including:

• Alliance & Leicester
• American Express Services
• Bank of Scotland
• Barclays, using Barclaycard Merchant Services
• Lloyds TSB
• Nat West Bank
• Royal Bank of Scotland

You don’t have to currently bank with any of the above to have a merchant account with them. When applying for a merchant account, the bank will ask you a variety of questions, this will include details like your forecast turnover, business history and average transaction value. This information will help them to calculate the commissions you’ll pay for each credit and debit card transaction. You will also need to open different merchant accounts if you wish to sell offline as well as online.

The cost to set up a merchant account is £50 to £125 depending on which bank you choose. You could expect to pay commissions between 2% and 4% per transaction, with no annual costs.

(This information is correct as of February 2005. Please check with your chosen supplier.)

Unlike credit card transactions which have a fixed percentage charge per transaction, debit cards such as Switch, Solo or Visa Delta have a fixed cost per transaction, e.g. 32 pence.

You would also receive the monies into your bank account 2-3 business days after the transaction occurs. If you are a new business, the bank may withhold the money for a longer time period. The application process for a merchant account can take up to 4-5 weeks so it is essential to set this up as soon as possible.

Reducing the Risk of Fraud
With any Internet sales, you will not be able to check the customer’s signature, so you have to utilise other security checks yourself. For example, only deliver goods to the card holder's address.

It’s advisable when accepting payments online to use online authorisation for your transactions which will validate the customer’s credit card details (including their address) with the bank details.

To do this, companies such as Protx provide this mechanism which links in seamlessly with Zarr Retailer. When a customer pays online, your website will connect to Protx and wait for an Authorised or Not Authorised message to come back.

Authorised means that the card number, address, expiry date and CV2 numbers all match, AND that the customer has funds to be able to make the purchase. The customer's card is then debited and Protx sends information to your bank to put the money for the transaction into your account (within the time period that has been agreed – generally 2-3 days).

A Not Authorised message means that the customer’s card, expiry date or CV2 numbers don’t match or are incorrect or that the card has been reported as stolen or that the customer has reached the credit limit on their card. The customer is informed that the transaction was not authorised and that the order does not get placed.

Protx charge a rate of £20+VAT per month to provide their secure payment solutions for your website – which is a small cost to know that you’ll only receive genuine orders.