Online Payments – Essential Survival Guide
The technical details of accepting payments is often near the bottom of the priority list for entrepreneurs or developers. You’re more than likely focused on your next big app or product, not payments. This guide will help clear things up and make sure you are prepared and getting the best service possible when it matters most.
In the previous post you learned what Merchant accounts are and why you need one if you plan to accept credit card and other payments online. Now we will talk about the different types of merchant accounts available to you.
Types of Merchant Accounts
There are two main types of merchant accounts you can obtain: a dedicated account or an aggregate account. A dedicated account is used to process transactions for a single merchant. When a purchase is made it will be deposited directly into your business’ bank account, after the processor or gateway take their fees. An aggregate account on the other hand is a shared account. When a purchase is made the money will go into a single pooled account that many businesses share. After the processor takes their fees the appropriate funds are delivered to your business’ bank account.
Each type of account has its benefits and disadvantages, so lets take a look at them.
It is generally quicker to create an aggregate account than it is to set up a dedicated account. This is largely because of how automated the process is and the amount underwriting that a processor must perform for each account. This setup time can range from a few minutes to a few hours to a couple of weeks, and is largely based on the adjudication needed for a particular business type.
A processor is on the hook for chargebacks if a business cannot afford to pay them. So when a business signs up for a merchant account the processor needs to decide if it is worth taking the risk with that company. They will want to know that the company is a solvent, has liquidity, and has good credit. In an aggregate account the rules can be a little more relaxed because the funds are pooled and thus the risk is spread out among several merchants. If the majority of the merchants in that pool are successful their income will cover some of the cost of the merchants that are being hit with a lot of chargebacks and don’t pay the costs. Since a dedicated merchant account is not pooled there will be more focus placed on the business’ activities and thus there is a higher chance your business might be turned down from obtaining a merchant account.
When a transaction takes place in a dedicated merchant account the funds, minus the fees, are deposited directly into your business’ bank account. The processor can hold the money for a period of time and have fees deducted directly from it. But these accounts are protected by industry-standard credit card processing rules so there is a level of guarantee while using them. However with an aggregate account the account is owned by the processor. Fees from purchases are removed, and then at a later date the funds will be released to your business’ bank account. While the funds are sitting in the pooled account you do not have access to them. You have to wait until they are settled out to your business’ bank account. This is because the pooled account is owned by the processor and they can set their own terms and conditions. It is very common for a processor to hold onto the funds for a period of days or weeks to ensure that they are protected from any chargebacks so you’ll want to be careful in reviewing the experience and ultimately the solvency of your provider to ensure your funds are always received in a timely manner.
Dedicated merchant accounts most often provide more flexibility and room for growth. Since they are your own account they can be tailored to your needs. As a business grows internationally they will encounter different payment types These payment types might not be present in an aggregate account while a dedicated merchant account in that country will support them.
Some payment gateways will provide both accounts, and some will only have the one option. Here at Beanstream we recognize that each business is different so we offer both types of merchant accounts.
While an aggregate account can be quicker and easier to set up, a dedicated account has more guarantee when it comes to when you get your money. Dedicated accounts often are more customizable in terms of features and pricing, as well as being able to exceed thresholds and expand internationally. It is up to you to determine which best fits your company’s needs.