What is a Merchant Agreement

A merchant agreement is a contract governing the entire relationship between a business and a merchant acquiring bank. The merchant agreement documents the full range of services that the merchant acquiring bank will provide. Merchant acquiring bank relationships are needed by any merchant choosing to offer electronic payments since merchant acquiring banks are responsible for facilitating all aspects of the electronic transaction process for a merchant.

Merchant agreements detail the full range of services that a merchant acquiring bank will provide for their customer. Generally, these services include banking and transaction processing. Some merchant banks may also serve as the credit card provider for both open loop and closed loop merchant cards.

Acquiring Bank Relationships

Acquiring bank relationships make it possible for merchants to allow electronic payment transactions. If a merchant chooses not to allow electronic payments and only accepts cash they will generally setup a standard bank account which will have its own requirements and contract provisions.

Acquiring banks assist merchants in the electronic transaction process. This includes obtaining information from the merchant’s payment gateway technology, communicating with card issuers through the acquirer’s network, receiving authorization, and communicating and settling the transaction in the merchant’s account. Throughout this process, acquiring banks may have certain specifications that merchants must abide by in order to use their services. One important specification is the use of the acquiring bank’s processing network. Most acquirers will have relationships with all of the market’s processors to facilitate transactions however some may only have limited relationships. The acquiring bank’s processing network will dictate the types of cards a merchant can accept in electronic payment transactions.

Fees are also a primary aspect of a merchant agreement. Many merchants pay a broad range of fees for the service of electronic payment processing. Payment processing will vary based on online and brick and mortar transactions. Generally, the merchant will be required to pay a comprehensive fee to the acquirer for each electronic transaction which covers both the acquirer’s fees and the processors fees. Acquirers typically also charge a monthly fee for the settlement and bank account services they provide for merchants.

Rules and Requirements

Numerous rules and requirements may be integrated into a merchant agreement, including the following:

  • The merchant must accept all valid cards issued by the payment network.
  • The merchant must prominently display the logos of the payment cards it accepts.
  • The merchant may not require customers to pay a surcharge on payment card transactions, except in certain countries where this practice is allowed.
  • The merchant may establish a minimum transaction amount for payment cards.
  • The merchant cannot accept the card for illegal purchases, such as the sale of alcohol or tobacco to minors.
  • The merchant must charge the sales tax to the payment card along with the purchase amount.
  • The merchant cannot authorize the transaction to include an estimated tip for transactions where a tip might apply, such as restaurant purchases and taxi rides.
  • The merchant cannot refund a payment card transaction in cash; they must issue the refund to the payment card.
  • The merchant must not print the cardholder’s full account number or expiration date on the receipt.
  • The merchant must safeguard the cardholder’s personal information.
  • The merchant must train employees to recognize potentially fraudulent transactions and cards.
  • The merchant must provide its customers with a clear refund and return policy.