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7 Min. Read

What Is a Merchant Account And How Do I Get One for My Business?

What Is a Merchant Account And How Do I Get One for My Business?

You want to make it as easy as possible for your customers to pay you, don’t you? If you want to be able to take credit card and debit card payments, you need a merchant account. There's a full list of other reasons why you benefit from being able to take card payments in our 'How To Accept Credit Cards' Guide.

But what is a merchant account, are you eligible, and how much will it cost you? Find all your answers here.

Here’s What We’ll Cover:

What Is a Merchant Account?

How Much Does a Merchant Account Cost?

What Different Types of Merchant Account Are There?

Am I Eligible for a Merchant Account?

What Is a Merchant Account?

A merchant account is a type of commercial bank account. It allows businesses to take credit and debit card payments. Your merchant account provider processes the payments and keeps you safe from fraud.

This is where it differs from a business account. A business account is optional. But you can’t accept any card payments without first setting up a merchant account.

It’s a third party in the transaction between you and your customers. The journey of the money from your client’s bank account to yours, goes like this:

  • You make a sale
  • Customer pays with their debit card
  • Their money immediately goes into your merchant bank account for payment processing. This includes several security checks like confirming available funds and authorising the transaction.
  • Money sits in your merchant account for 1 – 3 days ‘settlement time’ and merchant account fees are deducted
  • Money moves into your bank account

How Much Does a Merchant Account Cost?

There are different types of merchant account fees depending on the type of account. They might be:

  • One-off fee
  • Credit card terminal rental
  • Monthly
  • Transaction fees
  • Discount rate
  • Cross-border fee – to account for currency exchanges during international business transactions

And there are individual charges for all the different services you get from your merchant account provider:

  • Application
  • Joining
  • Payment gateway – for online transactions
  • Virtual terminal – to take payments over the phone
  • Contract termination fee – if within a certain timeframe
  • Debit card transactions
  • Credit card transactions
  • Authorisation
  • Minimum monthly service charge – when you set up your merchant account, you’ll agree to a minimum level of transactions running through the account. If your business doesn’t generate this minimum volume, you’ll have to pay the monthly service charge. It’s so the company running the merchant account always makes its minimum, even if the transaction fees are down.

It’s absolutely crucial to identify every possible fee you might be charged before you enter into an agreement with your merchant account provider. There are other smaller charges, like AVA address verification, that can mount up over time. Because of the range of different potential fees, it’s not always clear what you’re being charged for at the outset. It’s up to you to check that you only pay for what you need.

Lots of merchant accounts also offer an optional extra of PCI Compliance, which is usually an additional monthly fee. If you’re looking into taking card payments, you’ve probably already come across the Security Standards Council Payment Card Industry (PCI) requirements. It’s a mandatory security requirement, with the expected assessments, recording and reporting implications. It may be worthwhile adding this to your merchant account as you need to invest time in making sure you’ve met all the requirements.

You need to choose the type of merchant account that’s the best fit for your business. For example, if you only take online credit card payments, you don’t need an account with a card reader rental option. But you do need one that has a payment gateway.

What Different Types of Merchant Account Are There?

There are 4 different types of merchant accounts.

Aggregate Merchant Account

Most small businesses use this kind of account. The ‘aggregation’ comes in because you’re grouped together with other merchants in the same industry sector to form one merchant account. This helps everyone to get a better rate. These are sometimes called ‘payment facilitators’ or ‘payment service providers’.

The main benefit to this type of account is the pricing. With an aggregate merchant account you usually, you only pay per transaction and avoid the set-up and monthly fees.

Independent Sales Organisation (ISO) Merchant Account

This type of merchant account is all yours. And there are positives to having an account tailored to your business. But you pay for this privilege with higher set-up and monthly fees. These are the best option for larger companies with a reliably high volume of sales. The thresholds are set by the card processing companies.

High Risk Merchant Account

The high risk element of this might be you as the business owner, or it might be the type of business you’re in. You are considered a high risk proposition if you have a low credit rating. And your industry may be at high risk for a variety of reasons. For example:

  • Fraud – a particular problem for online healthcare companies
  • Greater likelihood of cancellations – like the travel industry
  • Low cash flow reliability – with a subscription service

This doesn’t mean that you can’t get a merchant account. You just need to find the right one. And there is some reassurance in knowing that you can renegotiate fees as your business grows.

Internet Merchant Account

If you’re an e-commerce business, you need an internet merchant account so you can take online payments. You can’t operate your online business without one. Even if you already have one of the other merchant accounts, if your business then goes online, you also need to establish an internet merchant account. The fees for this type of account usually include a set-up fee and then per transaction costs. There are sometimes benefits to using the same merchant account provider for both.

Am I Eligible for a Merchant Account?

Credit History

The most important factor for merchant account providers is your credit history. They will scour your business’s credit reports to see how you’ve handled past debts and make sure there are no defaults. If you’re a start-up business, they will look at your personal finances. So, if you do have blemishes on your credit history, perhaps get in touch with a credit reporting agency to get things removed before you start your application.

Don’t despair if you still have negative indicators. It doesn’t necessarily mean outright rejection. You may have to pay higher fees though – to account for the extra risk.

Other things that count in your favour are having spotless business records and never missing an HMRC filing or payment deadline.

Business Birthday

Merchant account providers also take the age of your business into account. With the attitude that you understand the risks of card payment transactions more if you’ve been in business longer.

Have You Had a Merchant Account Before?

If you’ve had a merchant account before, and been in a positive position, this inspired trust in your current application.

Once you’ve decided what type of merchant account is best for your business, you need to search for a provider that will give you the best rate. Just like most other financial products, it’s all about shopping around for the best deal. You do need to invest some time, but being able to take debit and credit card payments will be worth it. Boosted sales, happy customers, increased margins - what’s not to like?


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