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What is an Online Merchant?

By Josie Myers
Updated May 16, 2024
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An online merchant is a person who accepts payment, usually in the form of credit cards, in exchange for goods or services over the Internet. Special accounts, called merchant accounts, are often created with credit card processing companies, to enable the merchant to accept online payments. Sellers generally pay a fee to the processing company for this service.

In the early 1990s, the Internet became accessible to the general public. The web, email, chat rooms, and other online tools swept across the world. In the midst of this new technological frenzy, businesses saw the huge potential that the Internet had for marketing and sales. Small businesses began cropping up all over the web, giving rise to dot-com businesses.

Within a few short years, thousands of companies had established an entirely online presence, and many used a website as their sole source of marketing. This major expansion of Internet merchant business came to be known as the dot-com bubble. That bubble would burst around 2000, when competition became so overwhelming that investors no longer trusted a solely Internet business to be productive, and pulled investment funding. Today, an online merchant is very different from its early ancestor.

Merchants today must use a variety of marketing tools to promote an online business. These sellers now understand that, with millions of online merchant accounts, a website alone will not sell goods. Some Internet companies also incorporate traditional marketing, such as direct mail or newspaper advertising. Other, creative forms of online marketing can include Internet ads, blogging, and social networking.

The ability to accept payment over the Internet is critical to the success of any online merchant. In fact, a business is usually only classified as a merchant account if it has the ability to process credit or debit cards. Some merchants have agreements with credit card processing companies that take a portion of the merchant's sales total as payment for this service. Other businesses may choose to use a service, like Paypal™, that processes payments connected to an email address.

Along with traditional independent, online stores, there are numerous websites that offer a kind of storefront on a larger website. These are usually based on the early Internet concept of a web-based mall. Merchants can purchase a store on the site for a monthly fee, and sell their goods through the larger entity. This can save on individual marketing costs, but typically does not entirely eliminate them.

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Discussion Comments
By sehiggins — On Jul 03, 2011

There is a lot of advantages for businesses to sell their products online. The number one reason is a major decrease in overhead costs.

When a business sells items online, there is no need to pay for a building that customers come into to buy the products. Sure, companies still have to pay for a warehouse to hold the merchandise, but in terms of an actual retail facility, there is no need.

In addition to the facility, business can cut down on all other costs associated with a traditional brick and mortar store. This includes store employees, displays, advertisements, and a host of other expenses.

I would encourage companies to try and sell as much merchandise online as possible. It is a very sustainable way to run a business.

By croydon — On Jul 02, 2011

One type of online merchant that has been getting popular recently are the ones who sell group vouchers.

The principal is that you and a bunch of other people all buy in bulk together so it ends up being much cheaper.

It's also a really good way for local businesses to drive traffic to their store.

I have bought all sorts of things through these sites, like hairdresser appointments, film tickets, meals, and park entries.

I don't know if I'll ever pay full price for a hairdresser again, that's for sure.

By Mor — On Jul 02, 2011

My favorite kinds of online merchants are small craftspeople who sell goods on auction sites, like Ebay or marketplaces like Etsy.

I love knowing that my items are unique and no one else on my block has the same one. I also really like knowing that the money is going directly to the craftsperson.

I just wish someone would set up a marketplace that could be used to sell goods from the developing world.

Etsy only allows people to sell their own handmade goods, not on behalf of others.

But, unfortunately, this cuts out the many people who live without direct internet, but could easily sell through a middleman.

By SZapper — On Jul 01, 2011

@indemnifyme – I do a lot of online purchasing as well. I switched to an e-book reader and e-books awhile ago and I think a lot of other people are following the trend too. I actually read an article awhile ago that said e-books now make up a significant share of the market.

I can’t help but thinking the e-books and book purchasing online are contributing to the decline of the bookstore. I know Border’s recently closed a lot of their stores and some other bookstores in my area aren’t doing very well. I think the physical bookstores are going to need to find a way to keep up or risk going out of business!

By indemnifyme — On Jul 01, 2011

The majority of people I know do most of their non-food item shopping online. Between online merchants like Amazon.com or drugstore.com you can get really good discounts on all your everyday stuff.

My purchasing habits have changed a lot since the advent of online shopping as well. I now purchase my contact lenses online instead of at my eye doctor. I also buy my knitting supplies, toiletries, and books all online. I think online merchants are definitely direct competition to brick and mortar stores these days.

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