What is an E-Commerce Merchant Account?

To sell products online, businesses need to offer a wide choice of payment methods, for which they need processing solutions. An e-commerce merchant account is the basis for them, the backbone of online transactions which closes the gap between the sellers and their customers. In this article, we will take a closer look at the role of the merchant account within an e-commerce platform – we encourage you to read on!

E-Commerce Merchant Accounts Explained

In general, an e-commerce merchant account is a bank account used for specific purposes: to accept multiple online payment types. It is used as a part of the multi-step online payment and acts as a link between the three involved parties:

  • the customer
  • the merchant (your business)
  • the financial institution

Whenever a transaction is made in e-commerce, the money spent by the customer is first transferred to the merchant account. Then it undergoes several steps:

    • Authorization – through the payment gateway.
    • Approval – the bank approves the transaction based on the available funds.
    • Settlement – sending the query for the approved transaction to be transferred to the primary accounts.
    • Processing – waiting for the settlement process to be completed.
    • Acquiring the funds – the money is sent to the primary bank account.

The Key Components of E-Commerce Merchant Accounts

Let’s now take a look at the elements that work along the merchant account to let customers purchase your products and services. Here, we need to mention:

Payment Gateway

A payment gateway is an essential element of e-commerce merchant accounts. This is the technological solution responsible for encrypting sensitive information, securing transaction details (e.g., credit card information), and transmitting them from the client to the merchant.

Acquiring Bank

The acquiring bank also plays a pivotal role in the transactions. It is the institution responsible for managing the risks regarding the payments.

To add to that, it has a major impact on the time that it takes from the beginning of the transaction to the moment the money reaches your primary bank account.

What Does It Mean That E-Commerce Merchant Accounts Are High-Risk?

If you have already done some research on this topic, you might have stumbled upon the term “high-risk payment processing” or “high-risk merchant accounts.” These are used for businesses that are more susceptible to fraud, chargebacks, or other issues.

Unfortunately, e-commerce merchant accounts are almost always high-risk. It is so because you don’t see the cards physically when processing online payments. This, however, means that you might have less favorable conditions than a non-high-risk merchant.

Firstly, a high-risk merchant account means that your e-commerce will pay higher fees. Secondly, you will likely be required to have higher reserves in order to handle chargebacks. Finally, your account will be strictly monitored, and many banks will require you to work only with specialized high-risk payment processors.

The Takeaway

E-commerce merchant accounts are indispensable in the digital marketplace – without them, collecting payments would be severely difficult. They are responsible for connecting all the parties involved in transactions and ensuring a secure and swift transfer of funds. Remember that as an e-commerce owner, you will likely be required to have a high-risk merchant account – you don’t want to set up the wrong one, right?

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