What Is A Merchant Account?

Small businesses with low processing volumes feel the impact most. If your provider is charging unexpected fees every month, it may be time to shop around. Start with providers that offer transparent pricing, then compare options by calculating your effective rate, which gives a clear picture of your overall costs.

In this guide, we’ll cover how merchant accounts work, typical costs and fees, how to set up one, and tips for choosing the best merchant account provider for your business. A dedicated merchant account is set up directly with the acquiring bank. It offers greater control over when your money is paid to you, and allows you to negotiate rates specific to your business.

Traditional brick-and-mortar businesses can go cash-only and then make regular deposits at their bank to bypass the need for a merchant account. To have any kind of successful online business, you must be able to accept credit and debit cards, so avoiding merchant accounts are not an option. If you’ve ever wondered how businesses accept payments from credit cards, debit cards, or digital wallets, the answer usually starts with something called a merchant account. If you don’t use a payment provider and you want to accept credit card payments from your customers, you’ll need a merchant account. A mobile merchant account allows users to accept debit and credit card payments via a swipe on a mobile device. This account requires a low-cost card reader that integrates with the mobile device.

Get A Business License

For example, PayPal and Worldpay typically charge a higher percentage for payments received from outside the UK. While most UK merchant account providers support international transactions, not all will so it’s worth checking with your chosen provider if you need that capability. For a small fee, merchant account providers offer PCI compliance guidelines and service — and we recommend you take it. Below, we highlight some of the most common questions that should be asked to ensure the merchant service provider can meet and handle your business needs and expectations. Remember, your MSP controls your cash flow, so setting high expectations can save you a lot of time and frustration down the line. Different providers charge different fees, and you’ll need to weigh the cost of your investment against the value of the services provided.

Providers that push PCI compliance to the background could expose your business to penalties and unnecessary risk. Discover how Shopify POS helps you manage in-store and online sales from one powerful platform. Our unbiased reviews and content are supported in part by affiliate partnerships, and we adhere to strict guidelines to preserve editorial integrity.

Merchant account fees are an unavoidable part of doing business, but understanding them makes a big difference. Even accounts with no monthly fees, like Square, pass costs on through higher transaction rates. For a deeper dive, see our complete guide to credit card processing rates and fees.

Stripe works with Verifone systems and other pre-certified card readers. Providers may check your credit score, especially for high-risk industries. While requirements vary, a score of 600+ is typically preferred for approval. Pay attention to common complaints like surprise fees, fund Chatpayment1 holds, or bad customer service. The approval process generally takes anywhere from a few hours to a few business days, depending on your provider and the complexity of your business.

Like chargeback, interchange isn’t anything to lose sleep over — but it’s worth understanding so you can impress your friends down the pub. It’s a mandatory fee paid by the merchant’s bank to the customer’s bank and forms a portion rates — discount rates, to use their proper name — charged by your merchant account provider. In the UK, interchange fees are capped at 0.2% of the transaction for debit cards and 0.3% for credit cards. For some small businesses, using a payment service provider (PSP) may be an attractive alternative option to traditional merchant accounts. PSPs treat their entire client base as one merchant account, so you can typically begin using their services right away (rather than waiting for approval through underwriting).

This is because PSPs take on more risk because they are operating accounts that serve multiple businesses in processing payments. To accept your customers’ debit and credit cards, you need a merchant account or a payment processor that uses aggregate merchant accounts. You also need a payment processor and in-person or online payment gateways.

Fortunately, many merchant service providers provide excellent information regarding pricing, hardware, software integrations, and more. If you don’t want to wait days or weeks to access funds from sales, you need to partner with a merchant service provider offering quick bank deposits. Recent evidence suggests more than 60% of businesses are now receiving faster funding than before, meaning you shouldn’t be working with a payment processor offering slow access to funds.3J.D. “Small Business Satisfaction with Merchant Services Providers Surges, Led by Big Banks, J.D. Power Finds“. Make sure to explore deposit timelines from MSPs and double-check if there are any same-day deposit options (although instant deposits often come at an increased price).

By Industry

It’s basically a series of checks to make sure you’re handling sensitive data in a responsible manner. Some people make the mistake of confusing a merchant account with a business bank account. Lastly, once you begin processing payments, it’s critical to maintain good payment practices. While the backend software facilitating your payments remains critical, never underestimate the power of your payment hardware. Whether it’s a card terminal, card reader, receipt printer, tablet, or any other piece of hardware, make sure it’s compatible with your needs.

You’ll get a free card reader, and can pay $10 for each additional reader you need. For every new merchant account that a partner bank approves, there’s a certain amount of risk involved. Because the merchant account bank releases funds to the small business account before the funds have fully cleared, such account acts as a kind of credit. These additional fees can increase your cost-per-transaction to well over 3%, so make sure to factor them into the overall cost of a vendor when shopping for merchant accounts. A merchant account isn’t just another business account—it’s the engine that powers how you get paid.

How Do Merchant Accounts Work?

Do you want the absolute best, no matter what it costs, or do you need to minimise expenses? If your business accepts payments from customers, you’ll probably hear the term “merchant account” related to processing payments. A merchant transaction refers to any payment made by a customer to a business or seller. It includes the transfer of funds from the customer’s bank or digital wallet to the merchant’s designated bank account. At regular intervals (daily or weekly), the funds—minus transaction fees—are transferred to merchant’s business bank account. If you have friends in a similar field, consider asking them for recommendations.

• Merchant accounts are typically set up by merchant banks or payment processors in order to process payments.
• Consider signing up for a merchant account if you want to accept credit and debit cards and expect to process more than $5,000 per month.
• The editorial content on this page is not provided by any of the companies mentioned and has not been reviewed, approved or otherwise endorsed by any of these entities.
• Merchant fees are typically calculated based on a percentage of the total transaction amount.

Establish a dedicated business bank account before applying for your merchant account. Providers will take your business more seriously, and your retail accounting will be far more manageable come tax season. To lower risk, the merchant account provider may seek address verification. The merchant account provider will approve your application if you fall into its low-risk category.

The acquiring bank holds unsettled funds in the account, settles transactions, then deposits settled funds into the business bank account. Essentially, transaction funds are stored until payment processing concludes, at which point funds are released to the merchant. While a bank account stores company funds, a merchant account acts as an intermediary holding account for processed card transactions before payout. A merchant account is a type of bank account that allows your business to accept credit and debit card payments.

For example, if you operate a mobile business, such as a food truck, a mobile card reader will be beneficial. Card brands charge interchange fees that vary depending on the type of card being used, the way a transaction is processed, and the type of business involved. This guide offers localized steps for setting up your business finances efficiently. Just remember that if you do have a merchant account, it’s worth considering what type of business account you’re withdrawing your money to. Keep in mind that your fees can be influenced by a number of factors. For example, your type of business and its industry, your credit rating, as well as your sales volume, can all influence the fees you’ll have to pay.

A merchant account is used to process credit cards and other electronic payments. It is established with a payment processor, such as a bank or credit card provider, and is used to accept customer payments. A business account is a more general type of account used for managing a business’s finances. It typically offers more features, such as online banking and check writing, but it does not include credit card processing capabilities. In many cases, payment service providers charge flat-rate processing fees. While flat-rate fees are easy to understand and make it simple to predict processing costs, they often come at a higher price.

It’s great for businesses with higher sales volumes, as their basic plan covers up to $25,000 per month. Before thinking of opening a merchant account, it is important to evaluate your business needs. For instance, you need to decide which credit and debit cards you’ll have to process. Do you want to accept American Express, or will Visa and Mastercard do?