What is a Merchant Account?
On the simplest level, a Merchant Account allows your business to accept your customers' credit cards rather than only money orders, checks, and Third Party Processors like PayPal. With a Merchant Account, you can begin to accept MasterCard, Visa, Discover, American Express, and other cards, but all for different fees.
What is a Third Party Processor? Should I use one?
A Third Party Processor is used mainly by smaller businesses doing a smaller volume of transactions. A Third Party Processor like
PayPal or
2Checkout allow you to sign up with them to use their Merchant Account and Gateway. They're basically acting as a middle man that's vouching for you. These Third Party Processors will only charge you transaction fees and not Gateway fees or Monthly Fees.
The downsides of using a Third Party Processor is that their fees tend be quite large if you're doing a large volume of sales. You will definitely want to consider switching to your own Merchant Account if you are doing over $1000 a month in sales. Furthermore, their terms of service tend be much more restricting in what you can do with your account.
Some final points of consideration are that if you are using a Third Party Processor, the charges on your customer's billing statement will show up as from them and with a Merchant Account they will show up as from you. The last point is that you will need an SSL certificate on your order page when using a Merchant Account, but won't when using a Third Party Processor.
What is a Gateway?
A Gateway is basically the middle man between your website and the Merchant Account that you're using. Your website receives the customer's information, submits it to the Gateway and then the Gateway passes it on to your Merchant Account so that you can get paid. Some popular Gateways are:
A Gateway is not a Merchant Account, however, so you will need to also sign up with a Merchant Account. It is recommended that you first sign up for a Merchant Account being signing up for a Gateway, because sometimes the Merchant Account you sign up with comes with a Gateway or recommends one.
What is a Chargeback?
A Chargeback is either when a customer of yours was unsatisfied with the service they received from you and asks for a a refund for the service purchased through their bank or, more legitimately in other circumstances, their credit card was used fraudulently do to theft and they were not the ones to have ordered the service in the beginning. In almost every circumstance the customer will win the chargeback and receive their money even if the customer never spoke to you beforehand about bad service or anything. On top of having to pay back the money the customer paid to you, normally you'll have to pay a fee on top. You want to avoid chargebacks as much as possible.
What is a Reserve?
A reserve is when the Merchant Account/Bank holds a certain percentage of your businesses' sales each month and puts it into a reserve. This money is usually returned to you after six months, but is held to ensure that if your business was to fail and go bankrupt that the Merchant Account/Bank would be able to pay back all chargebacks by former customers with this money. This is to protect the Merchant Account/Bank rather than anything else. You may not find that your business warrants a reserve, but this is up to the Merchant Account/Bank and not you.
What is a Cancellation Fee?
A cancellation fee is just what it reads: a fee that you can be charged by the Merchant Account you sign with if you cancel service with them before your contract is up. These fees can range anywhere between $100 to $1000, but are typically around $500. Not all Merchant Accounts come with a cancellation fee, however, but you should inquire with the Merchant you're looking to sign up with about the cancellation fee before you sign the dotted line.
Merchant Account FAQ 
Linear Mode
