A merchant account is an account that enables merchants to accept credit card payments. They can be obtained through a bank, credit card company, or other payment processor. Any merchant who wants to take credit card orders must establish a merchant account.
There are three main types of merchant accounts to choose from:
Retail merchant accounts: This type of account usually offers the lowest transaction fee, but often has restrictive rules. Retail merchant accounts require that a very high percentage of credit card sales be conducted with the "card present" and that the card be "swiped" by passing it through a physical credit card terminal. Retail accounts are usually associated with businesses such as restaurants, grocery stores, and small hotels. This type of merchant account is best for merchants who don't plan on conducting business through the mail or online at any point.
MOTO merchant accounts: Mail Order - Telephone Order accounts tend to charge a higher transaction rate and are used when credit cards cannot be physically swiped. Merchants usually process credit card payments by entering the credit card information directly into a terminal installed on a personal computer, or through a normal Web browser to process transactions on a payment service provider's Web site.
Internet accounts: Internet merchant accounts are similar to MOTO accounts, but can only be used for internet transactions. Merchants with internet accounts use a virtual terminal or payment service gateway to process credit card payments. These payment service gateways can are now included with most business web hosting packages, and have custom-designed HTML forms or a shopping cart application.
It is important to choose the right type of merchant account and payment processor for the kind of business you will be conducting. While there are many payment service providers out there, it's a good idea to read their terms of service very carefully, as many of them charge exorbitant fees and have strict rules regarding transactions. If anything sounds questionable, ask questions and do some research before agreeing to anything.