Even as globalization and the information superhighway brings the world closer together, the global payment industry landscape remains fractured. Today, in addition to the multitude of banks and credit card companies, there is a plethora of FinTech startups that have entered this space. Although this means lower costs, better service and faster transactions for everyone, it does increase the complexity of managing an online business. In a global marketplace hosted digitally, it is critical to have the ability to accept payment in whatever form the customer is most comfortable with.

This is where a merchant account comes in. A merchant account is a special type of bank account that has been designed specially to accept payments made through debit and credit cards. Since card payments are processed differently and special rules apply to them (like for chargebacks for example), these special merchant accounts become necessary for merchants.

Now that we understand why we need a merchant account, let's have a look at how such transactions may be processed in the first place.

Processing methods for credit cards

A point-of-sale/ payment terminal is a small machine which can read the details embedded in your credit card. Earlier, the credit card would be swiped and the information read from the magnetic strip on the card. These days, many cards come embedded with electronic chips and even Radio Frequency Identifiers for contactless processing.

Unfortunately, these physical payment terminals can't be used for digital transactions. This is where a payment gateway comes in. A payment gateway acts as a virtual point-of-sale machine that can accept payments from credit and debit cards. However, advanced payment gateways like Payzoff can not only accept cards, but dozens of other payment options from across the world. In a way, such platforms can provide a one-stop solution to merchants for their payment processing needs.

In addition to these two popular methods in the physical and digital marketplace, there are a few other methods as well. These include Automated Response Units for processing via an audio call, applications for turning your Smartphone into a card, card imprinting machines, virtual terminals etc. However, most of these are a modification in some way of the primary methods for processing.

The cost of doing business

Operating merchant accounts do have a cost associated with it- something to compensate the bank for services rendered. The key to choosing your bank is to understand the payment terms of each merchant account service provider and choose one that best suits your business. Some banks might stress on a percentage based fee, while others might ask for a higher per-transaction fee and so on. The choice should be based not only on the lowest rate, but a structure that is optimal for you based on your average transaction amount, frequency or number of transactions, requirement for currency conversion, processing time etc. Even then, there are certain fees that are not in the control of the banks - card companies like Visa and MasterCard set their rates and even government regulation plays a part in some countries. It is, therefore, highly recommended that merchants spend at least some time in order to choose a good banking partner which might save the business a lot of money over time.