If you want your web site to be able to accept credit cards and debit cards you're going to need to set up a merchant account. And since it's nearly impossible, thought not entirely impossible, to run an online retail store without accepting those electronic forms of payment, you are going to definitely want a merchant account.

What is a merchant account?

It's an account you'll open up with a payment processor so that you can accept credit cards and debit cards on your site. During the checkout process your customer will enter their credit card information, that credit card information will then be encrypted and sent to whoever you have your merchant account set up with. That company will then actually charge the customers credit card and place those funds into a savings or checking account for you.

Most shopping cart software packages (which we just discussed) are set up to automatically tie into merchant accounts for the most popular processors. So basically, once your shopping cart software is set up, you just tell it what merchant account to tie into and you're set.

Of course, the payment processors don't give you a merchant account for free. There are three types of fees associated with most merchant accounts.

1) A monthly or annual fee just for having the merchant account with the payment processor. Usually something like $25 a month.

2) A fee called the "Discount rate" which is basically a percentage of the total transaction. So if a customer purchases $50 worth of goods from you and your discount rate is one quarter of one percent, your payment processor would charge you 12.5 cents for the transaction.

3) Finally, there is also a "transaction fee" that is generally a flat fee per transaction. Let's say you get a merchant account with a transaction fee of 50 cents. You'd be charged that 50 cents whether a customer purchased a $7 item or a $700 item. You'd still pay the same flat 50 cent transaction fee.

To figure out the total cost of having a merchant account with a specific provider you'll need to add up all three fees above. When choosing a merchant account for your business be sure to keep in mind what kind of transactions you'll be likely to have.