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

But what is a merchant account, and how do you know if you need one? Below, we’ll explain what you should know about merchant accounts.

What’s in this article?

• What is a merchant?
  
• What is a merchant account?
  
• Do I need a merchant account?
  
• How to get a merchant account
  
• What are merchant account providers?
  
• What is a merchant services provider?
  
• Which fees are associated with merchant accounts?
  
• How do I pick a merchant service provider?
  
• How Stripe Payments can help
  

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 ecommerce business, a software company that offers paid subscriptions, a consultant whose clients buy video courses through your website, or a contractor who works in many different locations—if you accept payments from customers, you are considered a merchant.

In order to facilitate credit or debit card payments, merchants need to use a merchant ID (MID) number, which is used to identify merchant accounts and mark them as the right destination for customer funds.

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.

In combination with an MID, merchant accounts are essential for processing credit or debit card transactions and allowing the flow of money from customers’ banks through payment processors to the business. This means that merchants need to partner with a merchant bank or service provider.

Do I need a merchant account?

If you’re accepting payments from customers, then you’ll probably need access to the functionality of a business merchant account—but you might not need to acquire one on your own. An end-to-end merchant services provider, such as 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.

How to get a merchant account

Unlike a standard bank account, getting a merchant account requires an application and underwriting process in which the provider assesses a business’s risk level, projected sales volume, and industry type. Businesses generally need to provide a Tax ID, financial statements, and a description of its business model.

The process typically involves choosing between a dedicated merchant account, which offers more stability and custom pricing for high-volume businesses, or a modern payment aggregator, which allows for faster setup.

What are merchant account providers?

Merchant account providers (MAPs) are financial intermediaries that enable businesses to accept and process credit and debit card payments. Their primary function is to set up a specialized bank account where funds from sales are temporarily kept before being transferred to a regular business bank account.

While major traditional banks often operate their own merchant services, modern providers have streamlined this process by bundling the account setup with the payment processing technology. Modern MAPs, such as Stripe, often provide dedicated accounts with custom contracts, as well as backend security and compliance functions.

What is a merchant services provider?

Merchant services providers (MSP) are financial entities that generally provide a full range of services for businesses, including the necessary tools and infrastructure needed to accept, process, and manage electronic payments. Compared to merchant account providers, MSPs usually offer a more comprehensive scope of services that supports not just payments processing but the broader business overall.

Examples of additional services include payment gateways for authorizing card transactions, point-of-sale systems for in-person payments, fraud mitigation tools, and analytics dashboards.

Stripe is a merchant services provider that offers 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 you’ll encounter with merchant accounts are ongoing payment processing fees that are charged for each transaction. Those fees vary by provider.

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

• Setup fee
  This is a one-time fee associated with the initial setup of your merchant account. Many service providers offer account setups without fees, although some might charge up to $200.

• Monthly minimum fee
  Some providers set a minimum amount that you’re required to pay each month, generally in a range between $20 and $50. 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, which can range from around $100 to $500.

• 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. It’s generally a small, per-transaction fee in the $0.10 to $0.30 range.

• Chargeback fee
  If a customer disputes a charge from your account, and the charge is reversed, you could receive a chargeback fee. These range from $15 to $50 per chargeback.

• Early termination fee
  This fee usually applies if you terminate your account before a certain period of time, as defined in your service agreement. It can range from $250 to $500.

How do I pick a merchant services provider?

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

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 minimize expenses? There’s no single correct answer that applies to every business.

What services do I need?
At minimum, you’ll need an account to process customer transactions. But what else is on your must-have list? Are comprehensive analytics part of your growth strategy? Is it more important to have better fraud protection or lower fees? Do you need in-person POS systems? This is a good time to evaluate your priorities.

Do I want a specialized merchant account provider or a best-in-class generalist?
Some merchant account providers focus on specific industries while others integrate with other products and services. Alternatively, providers such as Stripe enable the merchant experience as a wholeIs your top priority having 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 you do? No matter your priorities, look for a merchant account provider that will give you as much value as possible.

What features would be nice to have?
Specific service or account providers might offer additional features, such as built-in AI agents, instant settlements, or native stablecoin and cross-border payment support. Your nice-to-have features may not be deal breakers, but it’s helpful to identify them so you can more easily 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 the best fit for your business in its current state 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 right away? Or should you choose the simpler (and probably less expensive) option now, even though you might need to switch providers later?

The answer will be different for every merchant. Another option is to work with a merchant services provider like Stripe that has low fees, easy onboarding and setup, and dynamic, customizable functionality that will adapt to your changing needs.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods, and Link, a wallet built by Stripe.
  
• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.
  
• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalize interactions, reward loyalty, and grow revenue.
  
• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.
  
• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.
  

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.