Merchant accounts and chip and pin machines

A merchant account is special form of bank account which modern retailers use take payments from customers payment cards - be it debit, credit or American Express cards. Any retailer who wants to take card payments in their business, either by chip and pin machine, or over the Internet in ecommerce transactions needs to have merchant account with their acquiring bank.

A merchant account also serves as the agreement between the retailer and the bank. The bank provides the service of taking the money from the customer, and for this service they charge the retailer fees. These are known as interchange fees, and are largely set by major companies like Visa. The amount of the fee varies a lot depending on the type of the transaction. A Chip and pin transaction might get a lower fee than a keyed customer not present transaction. The fee also varies on the card type - debit and credit cards often have different fees. The interchange rates for debit cards are normally lower than those for credit cards. It is always interesting that retailers never seem to pass this along to customers. Imagine that - "Pay by debit card only - no credit cards please!".

These fees are the reason why a lot of smaller retailers cannot take payments for low amount on card machines. On a low value transaction, the interchange fee on a chip and pin transaction can simple eat up almost all the margin in the sale.

Up until recently, most retailer have had one simple merchant account. However, times are changing, and more often than not, these days a bank will insist that the retailer has different merchant account for different classes of transaction. A merchant account for chip and pin cannot be used for ecommerce transactions. Whilst most retailers tend to ignore this, banks are becoming increasingly fussy. This is due in the large part to the increase perceived risk in ecommerce transactions versus chip and pin transactions.

The merchant account attracts a lot of other fees - statement fees, monthly minimum fees, chargeback fees and early termination fees: Most merchant account contracts last for between 3 and 5 years.

The important thing for the small retailer to remember this that they cannot have a chip and pin machine until they have a merchant account. If you are setting up a small retail business, you need to talk to your bank sooner rather than later and make sure that the merchant account you need is in the process of being setup.