What is a Merchant Account?

If you have a bricks and mortar business then you have a merchant account that enables you to accept point of sale (POS) transactions where the buyer is present to ‘swipe’ his or her credit card at the time of purchase. If you have a mail order or telephone order business then you probably have a MOTO (Mail Order/Telephone Order) merchant account. If you want to accept credit cards over the Internet you will need the latter type of account.

A merchant account for an online business is similar to a merchant account for a mail order business in that there is risk associated with the fact that the buyer and credit card are not physically present – this is called a ‘cardholder not present’ (CNP) transaction. While authorization for a CNP transaction validates that the cardholder has sufficient funds in his or her bank account, it does not assure payment of the transaction since there is no guarantee that the cardholder is initiating the transaction. In other words, the chance of fraud is increased and because of the amplified risk these types of accounts tend to be more costly.

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