Accepting Credit Cards does not process credit card transactions.

In order to accept credit cards as a payment method on your Web site you need to have a merchant account.

The exception to this rule is if you use a service who will process payments on your behalf such as Paypal, iBill or E-GOLD. This is a viable alternative for low volume merchants but they do have their down-sides. In the case of Paypal and E-GOLD in particular, the customer has to open an account with them first although this is done within the course of the transaction. They all, at some level, impose their brand on the transaction. They have to because it's their name on your customer's card statement. Read on to see how the system works...

Merchant accounts

A merchant account is not a business checking account. It is a special facility that is arranged with a credit card clearing bank that allows you to process card transactions through their facilities. In general, as internet merchants you are required to declare to the acquiring bank who gives you this facility that that is how you trade. In many cases you will also have to pay higher rates than offline businesses such as shops or restaurants who obtain a signature from their customers.

The mechanism for obtaining a merchant account varies from country to country. In the US merchant accounts are sold by third party vendors, in the same way as many other financial services. In the UK and many other parts of Europe a merchant account is provided by a high street clearing bank. Either way, you are not required or expected to use the same bank for any other purpose so you are pretty much free to use who you like.

In general the best place to start searching for a merchant account is at the websites of the payment gateways, for example, Cybercash and in the US and Secpay in the UK.


The cost and ease of obtaining a merchant account varies from country to country. In the past the US has probably suffered some of the highest set-up costs (more than $500) but that is changing now. In Europe you may pay little or nothing to set-up but are likely to pay at least 1% more in transaction fees, say 3.5% to 4% of your turnover. Always check the hidden costs such as minimum monthly charges or flat rate maintenance fees.

Using a merchant account

There a two basic ways of clearing a credit card through a merchant account. Either you do it manually by entering the details into a card swipe terminal (the type you see in shops) or you use a payment gateway such as Cybercash. There is I suppose a third alternative which is to run terminal software on your PC but this is really the same as a card swipe machine.

Which ever mechanism you use, the card terminal or payment gateway will make a telephone call to the acquiring bank that has your merchant account requesting Authorization. If approved the card may then be charged, this is often called capture of funds. The capture may take place at the same time as authorization or latter, maybe when you ship the product. The timing depends on your merchant account and the nature of your product. The actual cash will then appear in your bank account some two or three days after capture (yep, bank computers are very slow).

These days Visa and Mastercard are now requiring a special electronic "flag" indicating that the sale originated from the internet. This is so they can identify internet transactions from others where there isn't a card present; telephone and fax orders. It is sent along with the card details when the authorization request is made. All the payment gateways do this as a matter of course but you may wish to check if you use a terminal or PC software that it does too.

Payment gateways

You generally can't just turn up at a payment gateway's website with an existing merchant account and expect them to hook it up for you. That's because they will need to ensure that someone is going to pay them for their services.

On the whole their fees are very low and may be absorbed by the acquiring financial institution but that will depend on their policies and their relationship with that bank. Secpay, for UK merchants, charge you directly a fixed 39 pence per transaction, others may not be so transparent.


You will always need to price and charge in the currency of your merchant account. So if you are a US business and have a US merchant account you will need to price in US Dollars. To price in a currency other than your own you would normally have to have a merchant account and probably a corporate business based in that country.

There are a couple of possible exceptions. I understand that Canadian businesses can make a arrangement to trade directly in US Dollars. United Kingdom based businesses may be able to obtain a merchant account from NatWest Bank PLC that allows them to trade in a number of pre-arranged foreign (to the UK) currencies. This is what I personably use.

Any merchant account can be used to accept payment from foreigners.


  1. You need to have access to a merchant account to clear credit card payments unless you use a third party such as Paypal or Internetsecure.
  2. You can either clear transactions manually (after collecting the data using my secure server) or through a payment gateway; Cybercash, Authoriznet et al.
  3. You should shop around for the best deal.
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