You cannot just receive credit card payments from your customers in your personal bank account as a business. And if you just deal in cash, you'll be potentially missing out on a lot of customers who use debit/credit cards to shop. So, you need a special kind of business bank account where all the payments made via credit and debit cards will be processed and stored.

For this, you will apply for a merchant account with a payment processor. This kind of account clears transactions from banks that issued cards to customers then settles those funds into your business account.

It doesn't matter if you run a physical retail store with POS, mobile terminals, an e-commerce store, or all of these; your merchant account provider will process all of these transactions.

If you don't go for your own merchant account, then you'll be working with aggregate payment providers like PayPal, Stripe, and more. You don't have to worry about setting up your own merchant account with these services. They will aggregate the credit card transactions from hundreds of businesses using their services and process all of these transactions through their own merchant account.

There's no doubt that aggregate payment providers offer one of the most convenient ways to receive credit card payments. However, if they see any irregularities in the transactions, they typically terminate the merchant's account and cut their losses instead of solving the issues. They prefer to lose business by letting merchants go instead of working with them towards a solution.

If you apply for your own direct merchant account, you don't have to deal with any of these problems or processing interruptions.

Every transaction that goes through the payment processors comes with a certain risk that the processor takes on. So because of this, processors try to protect their business and interests as much as they can to mitigate the losses that bad transactions bring with them.

To ensure they are only putting their trust in the merchants that are safe to work with, processors consider a certain type of business as risky or 'high risk' and avoid them. These businesses are likely to have higher chargebacks, more fraudulent transactions, and scam risks, along with other problems.

These issues put a big financial liability on the shoulders of the processing company because they're the ones taking the risk of accepting and processing payments on behalf of the merchant. Here are a few characteristics that make a business high risk:

• A bad financial history of the business owner
• A bad financial history of the business itself
• The industry of business is risky
• Products or services being offered are risky or objectionable
• The reputation of other businesses similar to it is bad

The process is not as complex as one may expect. Here are the typical steps involved in a credit or debit card transaction.

1. The customer will input card information on your business website or the POS terminal on your physical store.
2. The data will travel through the payment gateway, which is a direct and secure way to your payment processor.
3. Next, the automated payment processing algorithms will use the customer's information to determine whether they have the funds available to complete the transaction.
4. If there are funds, the payment processor will transfer the transaction information to the customer's card company or bank. This communication network will take the funds required for a transaction out of the customer's balance and deposit them into your business account.
5. If there's an anomaly at any point in this process, like if the customer files a dispute later against this transaction, the payment processor will ultimately be accountable for the funds in question. This is the reason having everything in writing is necessary upfront before the payment processing process starts instead of after when the payment processor has your funds.

Feel free to contact us if your merchant account application is rejected or if your account is terminated due to being high risk. At Shaw Merchant Group, we go out of our way to ensure our clients are back on track with the best possible payment processors.