Finance Wanted.

By Jennifer L Loganathan

The use of plastic money or credit cards is fast becoming the preferred mode of payment for all kinds of purchasing activities, not just in the developed world but also in emerging economies. Two key factors are contributing to this trend:

1. Convenience and Security: Credit cards mean that hard cash does not have to carried around in large quantities for high value purchases. Credit cards also carry the convenience of remote purchasing and instant payment delivery, unlike in the case of pay orders or banker's cheques, which involve extra fees, delivery charges and the logistical time lag. In addition, there is a security feature attached to credit cards, and generally speaking, a credit card loss does not always mean an immediate loss of money.

2. E-commerce: with the growing prevalence of electronic purchasing options such as online, TV and telephone and growing adoption of the convenience factor, credit cards are becoming the only practical choice for payments.

Merchant accounts are accounts which enable acceptance of payments through credit cards, cheque cards and debit cards. A retailer can obtain a merchant account with a bank or through an independent merchant account provider, who specializes in setting up and maintaining merchant accounts for miscellaneous business entities. There are different types of merchant accounts available depending on retailer needs and the nature of business. For instance, for an internet retailing business, an internet merchant account is used, whereas a swipe based physical terminal is used for a brick and mortar retail business. Most merchant accounts can however, be classified as:

1. Swipe based: These merchant accounts depend on a physical terminal connected to a phone line. The credit card needs to be swiped through this terminal to initiate, process and complete a payment transaction. In the case of check verification, there will be a check reader, acting as the swipe terminal.

A new innovation in the swipe based processing segment is the wireless merchant account terminal, in which instead of a regular phone line, is connected wirelessly using cell phone technology. The advantage of this technology is that a merchant or e-tailer will not be limited geographically for accepting payments. For instance, at a retail exhibition, a merchant can easily set up without wires, a payment system for walk-by clients to submit credit card payments.

2. Non swipe based: These include all those methods of payment which require credit card information but the credit card itself does not need to be swiped. This also includes merchant accounts for online check payments and clearance. Some of the common non-swipe merchant accounts include:

a. Internet Merchant Account: This type of account is used by internet based retailers. Credit card payments are processed after receiving electronic credit card information received through a web-based form and transmitting it through a payment gateway. This type of merchant account is a very popular merchant account, particularly due to the substantial growth of the e-commerce industry.

b. Online cheque acceptance (e-checks): This type of processing utilizes cheque payments without actually having to receive a cheque by mail. The customer can provide cheque information on the physical cheque, such as depositor name, account name, cheque number and so on, and the retailer can, using a cheque processing solution, verify and receive a cheque via online submission or phone/fax or email. Using the special software, the cheque can then be printed remotely and submitted by the retailer in physical form.

c. Telephone order merchant account: Using a touchtone telephone, this type of account receives information about the credit card using the telephone keypad. This account is suitable Telephone Order businesses which have a substantial business coming in through the telephone.

An important factor to remember with merchant accounts if fees; merchant accounts involve a number of fees to run and maintain, including setup, monthly/annual, statement fees (which are fixed) and a number of variable fees such as discount rate, rolling reserve, per transaction fees and address verification (AVS) charges. The actual cost of setting up, running and maintaining a merchant must be understood and compared to actual business requirements, such as volume and frequency of transactions, nature of business and track record. Selecting the right merchant account provider will be critical from the cost-feasibility point of view as well as smooth transaction processing of credit card payments.

Jennifer Loganathan is the President and CEO of Stradafee Limited. Stradafee is an electronic payments company as well as an eCommerce and Internet merchant account provider. Merchant accounts make it possible for businesses to provide online credit card processing For more information on credit card processing visit http://www.stradafee.com