What is a Merchant Account? And How do you get one?
If your business accepts payments from customers, you’re probably familiar with the term ‘merchant account’. A merchant account allows you to accept payments in multiple ways. And with online payment preferences changing and growing all the time, it is essential for most businesses to get one – and it might be vital for you, too.
In this article, we’ll cover what a merchant account is, how it works, and how to get a merchant account for your business.
What is a merchant account?
A merchant account is a type of bank account that allows businesses to accept and process electronic payments via debit or credit cards, as well as open banking payments, such as instant account-to-account payments.
Merchant accounts are established under an agreement between a business and a merchant acquiring bank to process and settle electronic card transactions. Through this agreement, the business is contractually bound to follow the operating regulations established by the card associations.
For most businesses, merchant accounts are a key aspect of business operations. They act as an intermediary between a business and a payment processor. They facilitate transfers from a customer’s account to the business’s account, holding on to the funds before transferring them to the merchant’s primary business account.
This means that instead of waiting for the customer to pay their credit card bill, a business with a merchant account can receive the money for transactions immediately.
Do you need a merchant account?
Merchant accounts are essential for businesses that want to accept various payment types from their customers. A wide range of business types and industries require merchant accounts, making it highly likely that your business will need one.
When deciding on whether you need a merchant account, here are some key considerations to take into account:
- Transaction volume: Merchant accounts typically offer competitive rates and efficient processing for businesses with a high transaction volume. This means the higher your transaction volume, the more you’ll benefit from a merchant account.
- Customer preference: Consider your customers’ payment preferences. A merchant account is crucial in markets where cards and newer payment methods are popular.
- Integration with existing systems: Your merchant account needs to work perfectly with your existing sales systems or e-commerce platforms to ensure a seamless customer experience.
Regardless of your industry, if you want to be able to accept debit or credit cards for your business, you’ll likely need a merchant account.
How do merchant accounts work?
There are three primary steps to taking payments via a merchant account:
1. Taking payment
The first step is accepting payment. If your business is exclusively online, customers only need to submit their card details. If the payment is powered by open banking, customers only need to submit their bank account details.
For in-house payments, you need a card reader. Card readers are typically provided by your payment processor and can accommodate various payment types, including digital wallets and phone payments.
You might also be interested in: ‘Payment Processing: What Is It, and How Does It Work?’
2. Processing payment
When the payment is accepted, the card reader or payment form sends the customer’s payment details to the payment gateway, which then forwards them to the payment processor.
Next, the information is sent to the card network, which forwards it to the customer’s bank. Assuming the account contains sufficient funds, the customer’s bank authorises the transaction and sends confirmation back to the card reader or payment form.
3. Receiving payment
The final step of the process is receiving the payment, which is where the merchant account comes into play.
The customer’s bank deposits the funds into the account. Here, the funds wait before being sent to your business bank account. This typically takes between 24 hours and seven days – a timeframe known as the ‘settlement period’.
How do I get a merchant account?
If you want to open a merchant account for your business, you need to apply and be approved for an account with a merchant acquiring bank, for example.
To apply for your merchant account, you need to provide information about your business, which typically includes the following:
- Company name
- Company tax ID or employer identification number
- Contact information
In addition to your company details, you may also need to include information about your product or service, monthly turnover (or predicted turnover) and average amount per transaction.
Get in touch with our payments experts
If you would like to find out how you can use instant payments for your merchant account, contact one of our payments experts today. From recurring payments and Pay by Bank to open banking-powered account information services (AIS), Brite has you covered.
