DEFINITION of ‘Merchant Agreement’
A contract between a business and a credit card service provider. The merchant agreement states the rules and responsibilities that apply to each party regarding payment card acceptance, authorization, processing and settlement. The merchant agreement also sets out the fees and charges that the merchant will pay the service provider. It explains how the service provider determines the rates for handling payment card transactions, and it defines the terms under which each party may renew or cancel the contract.
INVESTOPEDIA EXPLAINS ‘Merchant Agreement’
Here are some of the rules you’ll find in a merchant agreement:
- The merchant must accept all valid cards issued by the payment network. For example, a merchant agreement with Visa could require the merchant to accept all Visa debit, credit and prepaid cards.
- 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, such as $10.
- 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.
Further, the merchant agreement will generally contain requirements like these:
- 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.