An introduction to merchant accounts: What they are and how to get one


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  1. Introduction
  2. What is a merchant?
  3. What is a merchant account?
  4. Do I need a merchant account?
  5. What are merchant account providers?
  6. What is a merchant service provider?
  7. Which fees are associated with merchant accounts?
  8. How do I choose a merchant service provider?

If your business accepts payments from customers, you'll probably hear the term "merchant account" related to processing payments.

If you're not immediately clear on what a merchant account is or whether you need one, we'll explain what you need to know.

What's in this article?

  • What is a merchant?
  • What is a merchant account?
  • Do I need a merchant account?
  • What are merchant account providers?
  • What is a merchant services provider?
  • Which fees are associated with merchant accounts?
  • How do I choose a merchant service provider?

What is a merchant?

A merchant is a person or business that accepts payments from customers and clients for goods or services. Whether you are an e-commerce business, a software company that offers paid subscriptions, a consultant whose clients buy video courses through your website or a contractor who works remotely, if you accept payments from customers, you are a merchant.

What is a merchant account?

A merchant account is a bank account that is specifically used for accepting customer payments, usually by credit card, debit card or other electronic transfer. It’s not a standard business bank account. A merchant account holds on to funds before they’re transferred to the merchant’s primary business bank account.

Do I need a merchant account?

If you’re accepting payments from customers, then you’ll likely need access to the functionality of a merchant account, but you might not need to acquire one on your own. An end-to-end merchant service provider like Stripe can provide this functionality as part of its regular payment processing services.

Similarly, if your business operates on a marketplace or platform such as Etsy, Amazon or eBay, you probably don’t need to open a separate merchant account.

If you’re just starting out in your business and plan to independently accept card payments from customers without going through a third-party platform or marketplace, you should set up access to merchant account functionality as soon as possible. A payment processing provider like Stripe can extend merchant account functionality to your business, and you won’t need to open a separate merchant account.

What are merchant account providers?

Merchant account providers take a pared-down approach to supporting merchants. They simply help merchants set up the merchant account that they’ll use to accept debit and credit card payments. Major banks operate their own merchant account services.

What is a merchant service provider?

Merchant service providers usually offer a more comprehensive scope of services that supports not just payment processing but the broader business overall.

Stripe is a merchant service provider that offers both merchant accounts and related services. For instance, Stripe combines the functionality of a merchant account and a payment gateway, which is the mechanism used to accept debit or credit card payments. Some merchant accounts require you to use a separate payment gateway.

Which fees are associated with merchant accounts?

The biggest expenses that you’ll encounter are ongoing payment processing fees that are charged for each transaction. These fees vary by provider.

In addition, your merchant account provider might charge you any of the following fees:

  • Setup fee
    This is a one-off fee associated with the initial setup of your merchant account.
  • Monthly minimum fee
    Some providers set a minimum amount that you’re required to pay each month, and if you don’t hit that amount in payment processing fees, you’re charged the difference.
  • Annual fee
    Some providers charge a fee for every year of service on the merchant account.
  • Batch fee
    Your transactions from any given day are often bundled together in a "batch" and sent for payment processing. A batch fee covers this service.
  • Chargeback fee
    If a customer disputes a charge from your account and the charge is reversed, you could receive a chargeback fee.
  • Early termination fee
    This fee usually applies if you terminate your account before a certain period of time, as defined in your service agreement.

How do I choose a merchant service provider?

Before choosing a merchant service provider, think about what matters most to your business. To narrow down your options, here are a few questions to ask:

How important is cost savings?

Merchant accounts are not free. Different providers charge different fees, and you’ll need to weigh the cost of your investment against the value of the services provided. Do you want the absolute best, no matter what it costs, or do you need to minimise expenses? There’s no single correct answer that applies to every business.

What services do I need?

As a minimum, you’ll need an account to process customer transactions. But what else is on your must-have list? Is it more important to have better fraud protection or lower fees? This is a good time to evaluate your priorities.

Do I want a specialised merchant account provider or a best-in-class generalist?

Some merchant account providers focus on specific industries or types of businesses. Some providers integrate with other products and services, such as accounting software. Alternatively, providers like Stripe aim to enable the merchant experience as a whole, building out a suite of products and services that can be customised to support practically any merchant of any size in any industry.

Is your top priority to have the best technology and well-rounded support or is it more important to work with a team that has a detailed, niche understanding of the particular work that you do? Regardless of your preference, look for a merchant account provider that will give you everything on your list of priorities.

What features would be nice to have?

Your nice-to-have features may not be deal breakers, but it’s helpful to identify them so that it’s easier for you to spot the providers that add the most value.

Do I care if I have to switch providers in the future?

The merchant account provider that’s currently the best fit for your business might not be an ideal match as your business grows and evolves. For example, you might choose an out-of-the-box merchant account solution that is perfectly adequate for your present needs but lacks the robust, expanded functionality that you’ll need in the future. Would you rather start with the more expansive option, knowing that you might not use every feature you’re paying for straight away? Or should you choose the simpler (and probably less expensive) option now, even though you might need to switch providers later?

It’s a matter of evaluating your individual circumstances. If you have abundant cash flow and don’t mind paying a bit more in fees to onboard with the merchant service provider that is more likely to support you best in the future, that decision might make the most sense. If you’re still at an early stage of your business, it might be better to choose the most economical option and upgrade later if necessary.

In our admittedly biased opinion, the ideal solution is to work with a merchant service provider like Stripe that has low fees, easy onboarding and setup and dynamic, customisable functionality that will adapt to your changing needs.

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