What Is a Merchant Account

November 9, 2020/ Posted in Credit Card Processing

Around 190 million Americans are cardholders. If you are starting a business and want to accept credit and debit card payments, you will need to know what is a merchant account and how to open it. Accepting cards will not only increase your sales, but it will prevent possible loss of sales from cardholders that don’t use cash.

Since the number of credit card accounts increased by 2.5% last year, having an MA will be crucial for your company’s growth. However, before you rush info opening one, go over the questions like Why do I need a merchant account?, Is a merchant account the same as a business account?, and How do you get a merchant account?

What Is a Merchant Account Exactly

Have you ever wondered What does the merchant account mean? Basically, an MA is a specific type of business bank account that allows entrepreneurs to accept various credit, debit, and other electronic payments. Owning an MA will allow the customers to pay for services and products with cards as well, not only with cash. Those entrepreneurs who want to have MA will have to partner up with an acquiring bank that is a facilitator in the electronic payment procedure.

What Kind of Roles Banks Play in the Whole Process

If you want to understand MA better, you should get familiar with terms related to it:

  • Acquiring bank – a financial institution that maintains an MA and enables credit and debit card purchases. The acquirer passes the transaction to the issuing bank and then receives payment.
  • Issuing bank – an institution that distributes credit cards to clients on behalf of Visa, MasterCard, and other networks. The issuers are basically middle-men for the customers and networks. They contact cardholders for the repayment.
  • Processor – an organization that works with the acquirer to ensure that credit card processing is fulfilled.

Do You Really Need MA

When you look into all the unfamiliar terms and processes, you might wonder, Why do I need a merchant account? and is it really worth the trouble getting one? If you want to stay competitive in the industry, you should follow trends and make sure you give the customers the best possible experience. One way to make customers buy services and products from you is by offering more than a few different payment options. Since there are 1.06 billion credit cards in use in the US, allowing your customers to pay with them is good for the business. That’s why you will require MA if you want to take payments directly without a gateway or online.

Being able to take plastic will increase your sales

What Types of Processors Are There

If you want to put your MA to good use and grow your enterprise, you will require a credit card processing company to help you. However, depending on their relationship with MasterCard, AmEx, and Visa networks, they can be classified into three categories.

Who are Direct Processors

These are companies that have direct access to AmEx, Visa, and MasterCard networks. Essentially, these enterprises are banks or their subdivisions. You won’t run into many of these around the US, which means that many credit card processing companies are subsidiaries of these gigantic corporations.

What Are Independent Sales Processors or ISOs

Independent sales organizations are partners with acquiring banks, not part of associations like MasterCard and Visa. ISOs and acquirers will provide you with everything your enterprise needs to achieve success.

Who are Payment Facilitators

The main thing facilitators do is allowing enterprises to make money by using their infrastructure. Mostly they help small or micro-businesses with few resources and time to apply for MA. Facilitators make the MA application faster because they adapt to the needs of the company they service.

Always make the choice that will be good for your enterprise

How Does the MA Work

Those brick and mortar companies that decide to allow only cash don’t necessarily require MA, as they can rely on a basic deposit account. However, enterprises that want to grow and attract new clients should establish MA. Since MA is a key to business operations for many companies, owners should know how they work.

Essentially, MA allows you to receive money your company earned through customers’ purchases. The whole procedure your MA partakes in can be described like:

  • When a customer purchases your services or products with a card, the processor sends purchase data to your MA.
  • During the processing, the MA provider sends transaction information to the customers’ card issuer.
  • When the issuer confirms there are enough funds to cover the purchase, they contact the processor who contacts MA with approval.
  • Networks like Visa and MasterCard supervise the process of information exchange.
  • Finally, MA transacts the proceeds to the business bank account.
Figure out how MA works before opening one

Do You Need Both Merchant and Business Bank Accounts

The answer to this question will depend on the needs of your enterprise. If you want to be able to accept all kinds of electronic payments such as credit, debit, and gift cards, you will require both accounts.

Some services provide credit card payment processing, and they don’t ask entrepreneurs to apply for a separate MA. These services are known as payment facilitators or Payfac. These services gather all merchants under one main MA. Some of these include PayPal, Stripe, and Square. However, even though the sign-up process is simpler, they come with some visible disadvantages:

  • Partial customer service
  • High fees
  • Long funding time that takes up to eight days.

Is a Merchant Account the Same as a Business Account

Entrepreneurs, especially new ones, are swamped with a lot of things they must commit to the memory if they want to succeed. One of the essential concepts they must grasp is the difference between MA and business bank accounts:

  • Business one is used when handling expenses related to the company’s maintenance, for example, rent and utilities.
  • MA is used, as we said before, to deal with purchases made with plastic.
Most likely, you will require both accounts

What Are the MA Fees

When you are opening a MA, be aware that your provider will be charging you fees for many merchant services and credit card processing they offer. They need to protect themselves from the risk they take when working with your company.

You will be required to pay monthly maintenance, an ongoing charge for MA services. This charge is typically a flat fee that can cost you somewhere between $10 and $30. It can also be called a statement fee. Furthermore, depending on a provider, you might be charged with more than one fee, some can be for a few services and also for additional tools, setup, software, hardware, and maintenance.

What Is a Setup Fee

You might be expected to pay one-time upfront for the service of setting you your MA. Before hiring providers, call and ask for a free quote just so you can get an idea of how much money you will need to set up your enterprise. More often than not, the fee will depend on your sales volume.

What Are Transaction Fees

When it comes to accepting credit card purchases, you know that there is more than one entity that is involved in the process, from processors and networks to issuers. All of them will want their share of every transaction that is processed. That’s why the amount of money your MA receives won’t be the full amount. These per-transaction fees are what middlemen claim through the whole process. They will depend on the pricing model you pick, and they are divided into three different charges:

  • Flat rate charges the same rate for every purchase you process. This means that no matter what issuer or network you are working with, you’ll be charged on average like 2.75% or 2.4% + $0.10.
  • Interchange-plus transaction charges are the most transparent option. The charge consists of wholesale and markup cost (the fee MA charges you). Since it is a very transparent option, you will be able to tell how much each purchase costs your company.
  • Tiered transaction charges classify transactions, based on the risk they pose, into qualified, mid-qualified, and non-qualified tiers. Qualified ones always involve physical cards, in-person payment, and fast batch settlement. When transactions are classified as qualified, your fees will be low. However, if the transactions are keyed in, you might be charged with qualified, mid-qualified, and non-qualified fees.


Do the research before you pick the pricing model

How Do You Get a Merchant Account

You went over all the things you should know before getting a MA, now it’s the time to actually open it. Before you find a top-notch provider, consider all the factors that will affect your business, like:

  • The way you are going to accept payments, whether it will be in person, or online, or both.
  • Will you require POS software and hardware?
  • Will you require a payment gateway to accept online purchases?
  • The overall money you are willing to spend.

When you get a clear picture of what your company needs, it will be easier for you to research and evaluate different merchant service providers (MSP). The reputable MSP will make sure the MA fits all the needs of your company, making the process of accepting credit card payments smooth and problem-free.

Reputable MSP will help you open an MA in no time

How to Choose a Merchant Service Provider for Your Small Business

Picking the right MSP is an essential part of every company’s growth. The MSP you choose will be assisting your firm, so make sure you choose the best one. When you know what your enterprise needs, you will know what to look for in MSP. However, there are several general things you should consider.

First things first, does the MSP offer the type of transaction you need, such as Apple or Android Pay, in addition to POS terminals. Because if they don’t, your business strategy might require some adjusting. Next, check the payment fees they have for keyed in and swiped transactions as well as the costs of equipment rentals. Sometimes MSP provides its clients with basic equipment for free, but there are some that charge rental for everything you use, from receipt printers to scanners.

Since you will be entering the contract with MSP that should help your enterprise grow, make sure they are PCI compliant and have clients’ safety as their main priority. Finally, you should check for the waiting time before you receive the funds.

Always put the needs of your company first

What Are the Benefits of Having an MA

Did you know that around 60% of Americans think the US will soon become a cashless country? If you want to keep up with these trends, you must have an MA. It comes with more than a few benefits, not only for your clients but for your company as well.

The first thing is, of course, the ability to accept debit and credit card payments that are becoming a necessity. Approximately 40% of Americans are more likely to use cards on a purchase, so make this option available both online and in your store. Furthermore, the MIT report shows that cardholders spend more money on impulse when using cards. Also, Intuit Inc’s research shows that 83% of small companies who began accepting plastic payments have seen an increase in sales.

The next thing that should convince you to open MA is increased security because working with MSP that is PCI compliant will convince clients that their data is protected. A survey by ACI Worldwide shows that more than half of cardholders are afraid of data theft, so knowing that their info is secure will persuade the clients to purchase through the online store.

Finally, by using MA, you can easily stay organized and manage your cash flow without any problems. You’ll get monthly statements with all transactions and other additional information. In a day and age where around 14% of Americans have at least ten cards, entrepreneurs shouldn’t hesitate to open MA, because it can only be beneficial for their growing businesses.