Deciphering the various types of merchant account services can be very confusing. Much of the sale and servicing of merchant accounts is unregulated, making confusion a valuable tool of an unscrupulous salesperson. Unless a merchant understands how banks classify merchant accounts, there can appear to be a confusing maze of merchant account types. Banks classify merchants and their accounts by the process used to harvest card data. The bank also considers the type of merchant and processes for transaction completion. This article serves to explain bank defined merchant account classifications.

Banks recognize two methods to harvest card data, Swiped and Keyed. These two methods are sub-classified by business type and transaction completion method.

Person-to-Person Transactions – Swiped Category

Merchants in this category have face-to-face interaction with customers who present their card at the time of transaction. A point of sale hardware terminal harvests the card data.

Merchant subcategories are as followed:

• Retail Merchant – Brick and mortar stores or offices where the transaction takes place using the POS hardware.
• Restaurants or Catering Merchants – This is a special category allowing a customer to add tips after receiving the transaction slip that has be authorized for the restaurant bill. All restaurant businesses fall into this category.
• Moving Merchants – These are merchant transact businesses moving from location to location. Food purchases on the Amtrak train network are one example. Travelling salespeople also fall into this subcategory.
• Lodging Providers – Hotels, Losmen and B&B merchants authorizes transactions based on expected length of stay, with the transaction finalized and reauthorized on checkout.

Keyed Transactions Categories

Merchants have communication with their customer but not face to face at time of purchase transaction. Card data is key entered at the merchant’s location but transactions are processed in many different ways.

Merchant subcategories are as follows:

• Merchants with customer contact only on delivery of product or services sold. Merchants in this category key harvest card data at time of order.
• M.O.T.O Merchants – These merchants’ carryout remote transactions from start to finish. Card data is key entered by merchant after receipt of card data via phone, fax or mail. Purchased items are shipped once payment is confirmed.
• Electronic Commerce Merchant – All business is e-commerce via secure online website. Card data is harvested with some form of payment gate that is part of a website shopping check out system.

High Risk or Adult Services Merchant Accounts

Banks rate some business types as High Risk. These merchants are in a separate category regardless of the standard classification system. The types of business in this category are adult services, legal escort services, gambling and offshore accounts. Most banks will not process these accounts. Those that do charge inflated rates.

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