Social Commerce also known as Social Media eCommerce refers to selling goods and services directly within social media platforms like TikTok and others. It meets consumers where they are, allowing them to make a purchase immediately and seamlessly on social media rather than redirecting them to a business website allowing shopping and payment processing. This is quickly becoming the modern-day trip to the mall.
Social Commerce integrated payment processing platform requires a banking merchant processing account for businesses that wish to sell directly to consumers right on the social platforms. Why is the merchant account key to this? Let's exlore the use and the need for merchant accounts for credit card processing.
As social Commerce refers to selling goods and services directly within social media platforms, businesses need to accept any type of electronic payment – credit card, debit card, gift card. To do this businesses need a merchant account as well as a business bank account. There is also payment processing services third party processing what is known as a payment facilitator service, or Payfac. With this service, all merchants are boarded under one main merchant account, such as PayPal, Square, or Stripe – but this has many disadvantages such as higher transaction fees, higher costs, longer periods for a business waiting to get paid for its sales, very limited customer service, and a few other inconveniences. It is well known that PayPal is one of the most hated customer service companies as it blocks accounts for no fault of businesses, keeps their sales for 6 month to a year, for reasons of chargeback or any reason they see fit.
By comparison, instead of getting PayPal or a third-party processing, by far majority of buinesses get a merchant account from a bank or merchant service company. This offers an all-in-one merchant account that takes care of payment processing, hardware, and support which costs a lot less and offers flexibility with social commerce payment processing.
Merchant account is an account provided by a merchant bank (also called Acquirer) to businesses and companies (merchants) for the purpose of accepting credit card payments from their customers for goods and services sold. Merchant accounts are not a bank account as such, i.e. you do not deposit money and withdraw money or write checks from its funds.
The "merchant account" in reality is an underwritting account providing a risk-based credit card transaction payment transfer which allows a merchant to receive their money within a couple of days while the bank will take care of cardholder payment receipt and settlement.
Without this service provided by merhcant banks, the merchant would have to wait for payment clearence just like they would for a check, and if the fund is not available, then they have to pursue the customer for payment. The merchant bank takes care of all the clearing of funds and final settlement between the cardholder and the merchant bank. For this service, the merchant bank charges a "discount rate", or a fee of approximately 2% (1.5%-2.2% depending on the rist associated to the way the order was processed and where it was processed, (in person or online).
As mentioned above, merchant account discount rates are approximately about 2%. Some banks offer slightly lower rates but higher fees, such as transaction fee per order. Some merchants banks offer a wholesale rate to merchant account providers (which add a few basis points to the rate) so the final discount rate for your merchant account would amount to 2.2% or 2.3%.
Some merchant account providers are ISO's, or Independent Sales Organizations. Those merchant accounts have discount rates of 2.6% and the ISO keeps the portion of the merchant account discounts for every order although in reality they provide no real service.
Some may offer support services and work as a liason between you and the merchant bank. Sometimes this is a major problem since if you have an issue with your merchant account, you have to wait for the ISO to contact the merchant bank and this delays getting service promptly.
There are normally quite a few different types of fees associated to merchant accounts such as per transction (per order) transaction fee of approximately 15 cents, or monthly fees, or even account fees. Some ISO and agents charge all their fees by adding to the transaction fee and hence why you would pay about 45 cents per every order.
Most common and realistic transaction fees are about 15-25 cents. If your merchant account provider is suggesting that you pay higher, negotiate that down without any adjustment to other fees. Or simply go direct to the merchant banks and bypass the agents and their fees.
There is a monthly service fee associated to almost all merchant accounts. Usually there is a minimum charge of $15 per month if you do not process any transactions through your merchant account for that specific month. This only really effects you if you process less than $750 in that month ($750 x 2% = $15), i.e. if you process more than $750 on a say discount rate of 2%, then your fee would be $15 which covers the minimum. Above $750 in sales per month, you simple have no minimum.
There are other fees depending on whether you process a corporate credit card or if you cannot process a credit card with Address Verification and sometimes your rates also increase as a result of processing a foreign transaction. Please consult with your merchant account provider or merchant bank to get a list of all the merchant account fees that apply to the type of merchant account you need.
- Merchant accounts are a critical part of modern business, where accepting debit and credit card payments is a basic necessity.
Here at Payment Online, we continue to offer dynamic and innovative payment processing solutions for businesses by working with merchant account banks and global credit card merchant banking that offer $0 fee merchant accounts, these are becoming popular and the fees are passed on to consumers at the time of the purchase when transactions are being processed.