What is a merchant account?
If you own a business, you probably already know that it’s important to accept payments by card. Even if cash hasn’t disappeared yet, taking card payments is the one way to make sure you never lose a sale.
To accept card payments, you have to open a merchant account. During payment processing, this account holds funds received from your customer’s card transactions before they are transferred to your business account.
But don’t confuse a merchant account with a business account. A business account is like a regular bank account – you can withdraw money to pay for the expenses related to your business. With a merchant account you can’t make withdrawals, it’s just an intermediary account.
A merchant account comes with fees and offers extra services like online account reporting, PCI compliance and cheque processing.
How does a merchant account work?
Let’s see the different steps – from the customer’s purchase, to the moment funds are received on a business bank account:
In a shop, a customer pays for a product or a service with their credit or debit card using a card reader.
The card details are sent from the card reader to the merchant account held by an acquiring bank which sends the information to the card association used for the transaction (common card associations are Visa, Mastercard, Amex and Discover).
The card association sends the info to the issuing bank (the customer’s bank) to check if there is enough money to pay for this transaction.
Once verified, the issuing bank gives a signal to the card association that there are enough funds, this info is transmitted to the acquiring bank and then to the card reader which displays the message: “transaction approved”.
The customer’s money is held in the merchant account for 2-3 days - called the “settlement period” and then transferred to the merchant’s business bank account.
How do I get a merchant account?
First, you need to decide which type of merchant account you need for your business and pick a provider. It can be tricky because pricing models and fees vary a lot from one provider to another. Moreover, contracts last 18 months minimum, so it’s important to take some time to do research prior to making a decision.
To help you choose, know that there are 3 types of merchant accounts:
The aggregated merchant account: it’s offered by a payment facilitator (EG: Paypal or Zettle) who proposes shared merchant accounts - also called “master merchant accounts”. They recruit merchants on behalf of the acquiring bank and by pooling transactions from multiple merchants from the same industry, split the costs to offer lower rates. This solution is the best for small businesses as they can benefit from rates that are usually only offered to large size businesses. The downside is that you don’t control when the money is paid to you and you can’t negotiate the rates.
The dedicated merchant account: you set it up directly with the acquiring bank and can negotiate the rates according to your business. This solution is great if your business is stable as fees are quite important for this type of merchant account.
The high-risk merchant account: if you own a business considered “risky” by traditional providers, this is the type of merchant account to choose. It has higher fees but it’s basically the only option left when you had liability issues in the past or if you are in industries like gambling or travelling.
Second, you need to contact a merchant account provider and apply in providing them with:
Information about the nature of your business
Monthly turnover for card payments (or the predictions if you are a newbie)
Average transaction size
On occasion, a credit check
Get started with Zettle
Zettle can help you set up your a merchant account, without the hassle of needing to research your options and negotiate with the bank. With easy-to-understand fees and no hidden charges, you know where you stand and your money is deposited directly into your account in just 1-2 working days.
Related content