What is a merchant account?

Merchant accounts are a type of bank account that give businesses the ability to accept credit and debit card payments by serving as an agreement between a business, a merchant bank and a payment processor. When a customer pays a business using a credit or debit card, the funds go directly to a merchant account before being transferred to the business’ bank account at the end of the day or week.

When and why does a business need a merchant account?

If you plan to accept debit and credit card payments, whether online or in-person, you need a merchant account. Without a merchant account, your business has to rely on cash transactions to receive payment for goods and services.

Related: What is the Definition of Account Management in Business?

How to get a merchant account

To obtain a credit card merchant for your business, follow these steps:

1. Assess your needs

The services you should choose for your business depend on your business’ unique needs. If you run a storefront, a conventional point of sale (POS) system syncs merchant software with your register. There are also mobile setups and attachable card readers that allow you to accept card payments from anywhere. Additionally, if your business operates online, setting up an online payment gateway can be the most beneficial solution.

2. Compare merchant account providers

Once you’re aware of how you plan to accept debit and credit card payments, evaluate banks and merchant account providers that can support your business’ needs. Some providers may specialize in certain types of payments, so keep that in mind when evaluating your options. Aside from considering their services, compare the pricing and fees associated with each vendor.

3. Fill out your merchant account application

Most merchant account providers allow you to complete your application online in a few simple steps. To complete the application, you generally need to:

• Select the services and equipment you require.
• Fill out both your personal and business information.
• Provide additional details if applicable or necessary.
• Wait a few days to hear back.

Merchant account vendors usually approve applications based on details like what type of business it is, how long it has been in business, the business’ financial history and the business owner’s personal credit score.

4. Receive and set up the software and equipment

Once you’re approved, the vendor ships your software and equipment to you for you to install and set up. This process is typically pretty simple if you follow the instructions provided. Most vendors provide a lot of onboarding support as well, so you can contact them if you experience any issues.

FAQs about merchant accounts

How much does it cost to get a merchant account?

How much merchant processing services cost is dependent on the company you choose for your business, the type of services your business needs and how you use them. There are some merchant services that offer a flat-rate pricing for each transaction, while others are more complicated. Aside from the transaction fees, you also need to pay for:

• Application fees
• Setup services
• Discount rates
• Interchange rates
• Monthly fees
• Cross-border fees
• Rental fees for the payment gateway or POS system
• Credit card processing fees

Is a merchant account the same as a business account?

Though merchant accounts are a type of bank account, they differ from standard business accounts because they allow you to accept debit and credit card transactions. Additionally, the money you make through customer transactions stays in a merchant account for only a short period of time before it’s eventually transferred to a business account.

Is PayPal a merchant account?

PayPal is a payment service provider, not a merchant account provider. Both types of providers function similarly in every way except for how the funds are collected and distributed. Instead of funneling funds into a customer’s unique merchant account, payment service providers combine funds from all of their clients into one merchant account. They then transfer the appropriate amount to each of their clients’ business accounts from this singular merchant account.