What is an Internet Merchant Account and How do they Work?
Before you begin filling out internet merchant account applications, it is a good idea to understand the big picture...knowing how an internet merchant account fits into the process can help you determine your specific needs.

What is an internet merchant account?
an internet merchant account is a relationship and a trust you have with a bank that has agreed to allow you to charge people's credit card, while they honor it and deposit the funds into your account. The bank is responsible for debiting the funds from the customer and depositing it into your account. There is usually a processor that is involved that processes the credit cards for the bank and lets them know when the funds are available. When you are given an internet merchant account from a bank, they are relying on you to uphold your promises to your customers by delivering the products and/or services to them in a timely manner.

Why do I need an internet merchant account?
Without an internet merchant account, you can still accept payment, but not by credit card. In order to get money from a credit card into your bank account, there has to be an internet merchant account involved. There are a few services that allow you to accept credit cards without a traditional internet merchant account, but the concept is the same, you still need a bank to underwrite you to manage the risk.

What are the requirements for getting an internet merchant account?
Generally, most internet merchant account providers require you to be an official US-based business, with a valid business checking account and good credit. Because of the risk involved, many internet merchant accounts also require an extensive amount of paperwork, as well as a credit check on you. It is possible for just about everyone to get an internet merchant account, although as the risk increases, so do the fees and rates charged by the internet merchant account. It is possible for non-companies to get a personal internet merchant account, and there are international companies that issue internet merchant accounts for non-US citizens.

How does it all work from end to end?
It depends a little upon whether your transaction is a face to face transaction, over the phone, or over the Internet, but lets take the case of an Internet order. Basically the order starts at a web site, where a customer views and decides to purchase your product. Usually when the customer clicks an "add to cart" button, that product is added to a 'shopping cart, which is software that resides on a server that calculates tax, shipping, and helps the customer enter their credit card information. Once all the order information is approved by the customer, the shopping cart software sends it to the "gateway" (also called a payment processor) which attempts to verify the validity of the credit card and whether there are available funds. If there are funds available, it then tells the customer's credit card company to "reserve" that amount of money, and tells the shopping cart that it is okay to proceed with the transaction--which then tells the customer her order was successful and provides some sort of receipt. In most cases it is not lawful to charge a customer for products that have not yet shipped, so you are required to wait until you have shipped the order, and then transfer the customer's money "for real". For most merchants, this means "batching" all the shipped orders at the end of the day by calling in via telephone using a credit card terminal, or by accessing the secure web site of the payment processor. When this happens, the gateway contacts the customer's credit card company and requests the money to actually be transferred to your merchant bank account. It then usually takes a couple days for the transaction to "clear" before the merchant bank then makes a deposit into your business checking account.