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What Is A Merchant Account?

Published 22/01/2020

Essentially a merchant account allows your business to accept cards payments (credit and debit cards) online, over the phone or in person. A merchant account is a go-between in the different parts of the card payment process and where money sits until the transaction is approved or declined. It’s important to remember that without a merchant account you won’t be able to process card payments. 

A merchant account is: 

  • A holding account for transactions while the payment is processed

  • Works directly with card networks (Visa, Amex, etc.), card issuers (customer’s bank) and card processors (typically the merchant’s terminal provider) to clear transactions into your bank account.

  • Merchant accounts are, by definition, provided by acquirers or acquiring banks.

  • Comes with a contract, card processing fees and other costs.

  • Has a unique merchant ID for your business.

  • Provides an extra level of security to card payments.

Does Every Business Require A Merchant Account?

The bottom line is yes, every business which accepts card payment does require a merchant account. A merchant account is commonly set up with payment service providers or payment facilitators and take the work out of setting up a payment system and offer other services. Typically you are more likely to get a better rate if you use a PSP than if you go it alone. However, some businesses may decide to have a merchant account with its own contract which has pros and cons, including bigger setup and monthly fees.

What Is Required To Open A Merchant Account?

Before you open a merchant account it’s worth getting things in place to make the process that bit easier. The process isn’t too complicated and it’s now a lot faster. You may be required to provide the following when applying for a merchant account: 

  • Business licence  

  • Business account details 

  • EIN (Employer Identification Number) 

  • Average transaction value and the average number of transactions

  • Bank statements 

It can take around one to four weeks to open a merchant account and each business will be considered based on the risk involved in supplying your business with an account. The terms that are offered will reflect this. 

How Do I Open a Merchant Account?

Once you have all your documents you need to open a merchant account the next step is to decide on the provider. While ‘best rates’ and ‘attractive conditions’ might look great it does depend on the type of business you own. It’s worth noting the following when choosing which provider you should open an account with:

1. Choose credit card brands to work with

Look at what credit card brands are important to you. For instance, you might only need Visa and MasterCard or you may need to consider where your customers are based and what type of credit card they use and how you can provide for them.

2. Figure out how you want to accept payments

As a merchant, you might offer your clients various payment methods, be it in person with a countertop card machine, via your website with an online payment, recurring billing or one-time payments. If you opt for a payment service provider they can advise you with this.

3. Look at what merchant account providers there are out there

Before opening an account it’s worthwhile checking out and comparing which provider will work best for you. Fees are a big thing to consider if you opt to go it alone and perhaps are a larger business but again payment service providers may be the best option for you if you are a smaller business as you are more likely to get a merchant account with one. PSPs can assist you with the opening, setup and integration process.

4. Ensure your website is secure

This is essential, particularly if you run an online business. Make sure it complies with all the Visa and MasterCard requirements and protects against fraud. A payment service provider can help you with this. Otherwise, it’s up to you to make sure it’s secure and clear.

5. Collate all your documents

Gather all the relevant documents we’ve mentioned above to ensure the process runs smoothly. Again a payment service provider will advise you on the right documentation you need and find the right solution for your company.

6. Submit an application form The application form will be assessed together with the documents provided. Once approved the account is set up so you can start processing and accepting credit card payments.

If you need further help from us with how to apply for a merchant account request a call back / contact us here