A merchant account is a business account that is used to accept payments from customers.
When a merchant operates a business selling digital (online) products, they need an account for those funds to go into. This is known as a digital goods merchant account.
And if you have this type of business and you do a lot of volume, you need a large digital goods merchant account.
Your merchant account is - for lack of a better term - a holding tank for your money to go into once a sale is made. From there, the appropriate transaction fees and other fees are removed before it is then deposited into your business bank account.
There are many businesses that sell digital products, such as:
There are many more, but you get the idea.
Payment aggregators, or alternatively, payment service providers, are very easy to work with. That’s why they’re often the first choice digital product merchants make.
But that doesn’t make them the correct or best choice, and in fact, they carry a lot of risk for these types of businesses.
Payment aggregators do not require you to have a dedicated merchant account. They typically have flat-rate pricing with no monthly fees and no long-term contracts.
Sounds perfect, right?
The problem is that companies like PayPal, Square, and Stripe all have strict policies against working with high-risk businesses. Knowing this, some merchants might consider not being completely honest about their business models, but this strategy could backfire.
Not only that, but in the event of a problem with your account (such as having too many chargebacks in a month), you could have your funds frozen and/or your account closed.
As a result, you could spend months trying to get your money, which is not good for your business, or you, personally.
As a digital goods merchant that has high-volume sales each month, you should know the payment processing options that are available to you.
There are some methods that are better than others in the following list, but choose the one that you think will work best for you.
Most digital goods merchants use payment gateways to process their payments. This is a very easy option because the gateway can be integrated with your shopping cart.
Integration is typically seamless, and many payment processors will offer white-label services. That means your brand will be featured on the checkout page, which can avoid any confusion for your customers.
Once your customers are ready to check out, they will be taken to a payment form. They’ll enter all of their information and click the submit button to complete their payments.
Depending on the nature of your business, you may find a virtual terminal to be more appropriate.
This method requires internet access, and to accept payments, you would log in to a website and enter your customers’ payment information there.
It is also possible to process payments if your digital goods involve an app. Your payment processor will simply need to integrate with the app’s checkout process.
As more and more people are using their phones for just about everything, this method makes a lot of sense. Many merchant account providers can offer this as well as one of the other methods listed above.
Any merchant that sells digital products online is known as a high-risk business. When there are high-volume sales involved, the risk is even greater.
This is because of the nature of the business, and there are a few reasons they are placed in this category:
Once you do some research, you’ll find that there are a lot of high-risk merchant service providers out there that sound like they might be a good fit.
But before you decide on doing business with one, there are a few things we want you to think about and check.
High-risk merchants should be aware of the fact that any company they work with for payment processing is going to charge them higher transaction fees than standard-risk merchants.
It’s completely normal for transaction fees to cost as much as 6% for each sale.
There are other fees to consider as well, such as:
You should know exactly what you will be paying in fees before you ever sign a contract. And it’s helpful to have a few to compare so you get an idea of the industry standard for your business and find the best deal.
It pays to take the time and do some research on every company you’re considering to find out if other businesses are happy with their services. Tip: That includes any of the ones we’ve listed here.
You can find out lots of information about a company’s reputation by reading reviews on Google Reviews, Facebook, Yelp, and other sites.
Pay close attention to what people say they like and dislike about a particular company. Factor in all of those reviews when you make your decision.
It’s possible that your business needs to accept - or would like to accept - recurring payments.
For example, if you have a game like Clash of Clans, you may want to make it possible for your customers to sign up to receive 1000 gems to use at the beginning of every month.
Without the right payment processor, that’s not something you’ll be able to offer.
Recurring payments are a great boost to your sales volume, so this is definitely something to keep in mind.
With all that information under your belt, it’s time to pick the company that will provide you with a merchant account and process your payments.
Here’s what you want to look for.
You might be thinking that the only real payment options you need to worry about are credit and debit cards. But that’s not entirely true, and it’s a good idea to offer alternatives.
ACH and electronic check payments are definitely something to consider adding as well.
These payments are processed differently, and they are considered lower risk than card-not-present credit and debit card transactions. Lower risk means you pay less in processing fees.
Also, credit and debit cards both have expiration dates, so eventually, there may come a time when your customers’ cards get declined. To avoid that, they’ll have to update their card information, or you could end up losing a customer.
But with ACH and e-checks, both are tied to customers’ bank accounts, which typically never change. Offering this payment method is much easier for you and them because unless they change banks, there will never be a need to update anything.
That means any recurring payments to your company will continue unless the customer decides to cancel them. And any future one-time transactions will go through seamlessly.
In the last few years, many digital goods merchants have seen an increase in credit card fraud. Consider the following statistics:
Fraud is serious business, and trust us, it’s not something you ever want to have to deal with.
It’s a good idea to choose a merchant account provider that can offer you fraud protection to keep your customers’ account information safe.
The top merchant account providers for digital goods merchants will have chargeback protection and prevention plans in place.
They may offer educational tips to help their merchant customers take the necessary steps to avoid them. Some may even be able to detect them before they become “official” so that merchants have time to intervene in the situation.
Too many chargebacks can result in your merchant account getting closed. Don’t be afraid to ask what any prospective payment processor can do to help you avoid that.
There are just a few other aspects of large-volume digital product payment processing we want to make clear.
Load balancing simply means that your merchant account provider offers you more than one merchant account. This is especially important for high-risk merchants that do a lot of business volume each month.
With more than one merchant account, your money gets split between them based on what you and your provider decide is best.
If something happens (like excessive chargebacks) within one account, you don’t have to worry about your funds being frozen quite as much because you still have other accounts that money can go into.
Your business can remain operational while the chargebacks are investigated and any issues resolved.
Not all merchant account providers’ contracts are the same.
Take the time to read every contract carefully before you sign on the dotted line. You’re specifically looking for:
A merchant account provider can make all the promises in the world about their products and services. But you need to know that help will be there for you in the event that something goes wrong.
And it will. It happens to every business.
The question is, will your provider’s customer service team be there to help when it does?
Find out the best way to get in touch with tech support, if you need to. It’s possible that the company you choose may provide you with a designated customer service representative or contact person.
Because of the nature of your business, it’s best if you can find a company that offers customer support 24/7. That way, if something goes wrong in the middle of the night, you can be sure the issue will be addressed quickly.