A merchant account service provider is an organization with the ability to set up a merchant account on a business behalf. The most common providers are banks. However, the truth is that banks are not comfortable with transactions that take place without the physical presence of a credit card.

When credit card information is received through telephone, Internet or mail order, there is little evidence that the data is valid or that the customer is allowed to use the card. This very possibility for fraud is why banks characteristically need a big security deposit before it issues a merchant account ID.

Banks are also hesitant to issue merchant accounts to businesses with no credit history or, for that matter, businesses with poor credit history. Also, there may be other criteria which smaller businesses may find difficult to carry out.

Generally, several banks regard Internet-based businesses as being too risky and do not offer Internet merchant accounts. Banks also have stringent rules regarding chargebacks (credit card payments disputed by customers), and can actually terminate a merchant account if chargebacks go over a specific percentage of total transactions.

However, there are third-party Internet merchant account service providers that are less strict than banks. These service providers will simply take the business information and establish an account.

They allege to have high frequency of qualifying their clients despite the nature of the business - even though some will not handle adult sites and gambling - and most do without a security deposit. A retailer unable to meet the demands of the bank would have no alternative but use these sorts of services.

There are a plethora of services available, so it becomes imperative to research and compare each service thoroughly.