A Merchant Account is a type of bank account that allows businesses to securely accept credit cards, debit cards, and other forms of electronic payment for goods and services. Besides that primary function, a merchant account offers additional benefits to your business. Merchant accounts are available through banks and independent payment processing companies.
This post will explain what Merchant Accounts are, how they work for small businesses, how to get one, and how to choose the best merchant account services provider for your company.
How Does a Company Benefit from a Merchant Account?
Businesses need a merchant account to accept credit and debit cards, and other kinds of electronic payments. And merchant accounts offer additional benefits to businesses:
Increased payment options make it easier for customers to shop at your business at both point of service POS terminals (and cash registers) in ‘bricks and mortar’ stores and/or online, with an Internet Merchant Account.
Merchant accounts help you get paid faster and improve cash flow with faster access to funds. You’ll have access to the latest e-commerce, hardware, software, and mobile technologies. And chip cards and mobile payments have advanced encryption and safeguards to help prevent chargebacks and fraud.
Some merchant accounts offer management tools to view your transaction activity, create and schedule reports, and research customer data online. Merchant accounts make it easier for businesses to track and manage transactions. And besides credit and debit card payments, a merchant account lets businesses accept ACH, e-checks, and contactless payments like Google and Apple Pay so your business can expand and grow.
How Do Merchant Accounts Work?
When a customer makes a credit card payment at a merchant terminal or online by internet gateway several technologies work together to authorize the transaction and schedule payment to the account.
The customer’s card payment information is sent to the merchant’s financial institution-the acquirer bank.
The acquiring bank sends the information to a payment processor and the card association-Visa, Mastercard, American Express, or Discover.
The card association sends the information to the customer’s bank-the issuing bank and requests an approval. The issuing bank sends a response and an approval code if approved.
The merchant sends the transaction to a payment processor for settlement and the processor deposits funds into the merchant’s account.
An acquiring bank
is a financial institution or bank that processes debit and credit card payments on behalf of a merchant. The acquiring bank passes the merchant’s transactions along to the issuing bank to receive payment.
Types of Merchant Accounts
There are two main types of merchant accounts:
A merchant account for Card Present Transactions is used when the cardholder and the credit card are physically present at the time of the sale.
In a card-present transaction, the customer physically swipes a card, or dips, i.e. inserts an EMV chip or shows a mobile device with the card loaded into a digital wallet.
Note: transactions that are manually keyed into a credit card machine do not count as a card-present transaction even when the card is physically present. Card Data must be captured electronically to qualify as a card-present transaction.
A Card Not Present
Internet Merchant Account is used when neither the cardholder nor the card is present at the time of sale, as in online e-commerce, telephone orders, and mail orders. Internet merchant accounts have online payment gateways that link a business website to the payment processor.
When a customer makes an online purchase, the card information from the business website is sent through a payment gateway
to obtain an authorization for a payment card transaction to be completed. Payment gateways work with a variety of e-commerce service providers such as shopping carts and digital wallets. Typically, internet merchant account fees are higher because of the assumed higher risks of online payments.
Most independent credit card processing companies offer both merchant accounts and Internet merchant accounts.
How Do You Get a Merchant Account?
Merchant accounts are available through banks and financial institutions and independent payment processing companies. You’ll be asked to fill out an application and provide supporting financial documents. The bank or financial institution will assess the level of risk of your business may have when processing credit card payments. And you’ll need a regular business account to open a merchant account
It may be easier to get your account through an independent merchant service provider. A merchant service provider can help you through the application process for a merchant account. In general, an independent merchant service provider will offer access to more services than a financial institution will.
Getting a Merchant Account
Think about your current business needs and how your company might use credit cards and other electronic payments in the future. Consider different credit card brands.
Gather your financial information. Different banks and merchant account providers may ask for different supporting documents from different businesses. In general, you’ll need a business bank account, financial statements, business license if applicable, (EIN) employer id number, articles of incorporation, a physical address, and a completed application.
You might also be asked to provide additional supporting documents including a voided check, business forecasts, and inventory reports. If your business has already been accepting credit cards, previous processing statements are helpful so the underwriters can see what types of payments you’re accepting.
Choose a payment processor: Determine if you want to go with a local bank or an independent merchant services provider based on the services offered and fees assessed. Most independent merchant service providers offer access to more services than banks.
Submit the completed application with the supporting financial documents, and possibly a cover letter.
Personal credit is also part of the application. If you have a low FICO score you likely won’t be able to get a low-risk merchant account. You’ll have to apply for a bad credit merchant account if you want to accept credit card payments. You’ll pay higher rates for your merchant account and it may have restrictions (they’ll decrease as you build your processing history). PayPal, Paypoint, and Chronopay could be workable merchant account alternatives. And GAMPayments is a highly transparent, full-service merchant services provider specializing in high-risk accounts.
How Long Does It Take to Get a Merchant Account?
If you submit a complete application and accompanying documents, a new merchant account can be set up in as little as one day, possibly less, but 2-3 days is more usual. High-risk merchant accounts can take longer.
How Much Does It Cost to Open A Merchant Account?
Startup fees range from $50 to $200, plus monthly and per-transaction fees. Monthly statement fees range from $4 to $20 and transaction fees typically from 5 to 50 cents per purchase. The discount rate i.e. the percentage rate charged per transaction varies generally from 1.5 to 3 % based on the degree of risk, card volume sales, and whether the card is swiped at a storefront or entered online (card present and card not present).
Do You Need a Merchant Account and a Business Bank Account?
You’ll need to have a business account before you can apply for a merchant account. The business bank account is the default destination for funds your business transacts as well as the account where transaction fees are debited.
What are Low Risk & High-Risk Merchant Accounts?
There are low-risk, medium-risk, and high-risk
businesses. The risk level of a given business is determined by several factors, including the type of business it is, processing history, country of incorporation, length of time a business has been in operation, and more.
A low-risk business
typically processes less than $20 000 a month, operates in a low-risk industry and country, uses secure technology, and has a low, 0-1% chargeback ratio. A large percentage of transactions will be Card Present.
Book sales, retail apparel, office supplies, and home goods are some of the businesses considered to be low risk. A low-risk merchant account in general can get fast approvals to be up and running and pay lower rates and processing fees than high-risk merchant accounts.
A high risk merchant account is a
payment processing account for businesses considered to be of high risk to banks. High-risk accounts usually come with higher processing fees. When opening a high-risk merchant account transparency and communication are chief among the things to consider.
High-risk businesses include travel agencies, casinos, credit restoration companies, e-commerce, and many others. High-risk businesses are more prone to
bank-initiated credit card payment reversals due to fraud or dispute, and they pay higher fees for merchant services.
While low-risk merchants can generally establish a merchants account, it can be more challenging to find a processor for a high-risk business and the costs for processing services could be substantially higher.
GAMPayments specializes in complex and high-risk accounts.
Merchant accounts come with a variety of fees including Monthly Fees, Setup Fees, Application Fees, Discount rates, Transaction Fees, and Cross-Border Fees. Additional fees can increase the total fee per credit card transaction to over 3%. These fees are not always clearly outlined in contracts.
There are 3 main categories of pricing fees associated with merchant accounts:
Flat Rate Pricing
: the processor charges a single fixed fee for all credit and debit card transactions regardless of the card used for payment. Either simple base rate fees between 1.75% – 3% or base rate plus small include transaction fees, for example, 2.9% + $0.20 per transaction.
Tiered Pricing fees:
These are broken down into three tiers: Qualified, Mid-qualified, and Non-Qualified based on card type, amount of risk in the transaction, and other factors. Qualified transactions get the lowest fees, non-qualified get the highest. Processing rates can range from 1.4% to 4% depending on tier with qualified at the lower end and non-qualified at the higher.
Interchange Plus Pricing:
Here, the merchant is charged a percentage of the transaction (the interchange rate) plus a fixed per-transaction fee. It’s considered to be the fairest and most transparent pricing model.
What Is a Merchant Services Provider?
A merchant services provider simplifies the payment acceptance process. Merchant Service Providers enable your business to take credit and debit card payments and ensure that customer card transactions are secure and efficient. They act as intermediaries between customers, banks, and financial institutions and make it easy to accept and process payments. Independent merchant service providers generally offer more services than banks or financial institutions. Merchant services may include:
- Point-of-sale (POS) systems and card readers
- Payment solutions for specific business needs
- Responsive Customer Service
- Online payment gateways and eCommerce platforms
- Software and apps for business management and many other services
How to Choose a Merchant Services Provider
- Transparency is vital. Look for merchant service providers who are clear about their pricing and offer reasonable and understandable rates and fees. Make sure processing rates, monthly fees, and other fees are fair. Uncommonly low rates may be disguising undisclosed hidden fees and rates that will show up later.
- Look for responsive 24/7-available quality customer service and account support.
- Consider the specific needs of your business. Does the merchant account provider offer the type of processing that you require? Innovative technology and hardware solutions?
- Payment security is critical. Is there protection against credit card fraud?
- Expandability: a merchant account provider that supports many payment technologies (POS systems, online payment gateways, virtual terminals, and mobile credit card processing) lets you scale your business over time.
- Independent merchant services providers generally offer more services than banks do. And many banks outsource their merchant services to independent providers.
Be aware that merchant service providers using third party processors don’t offer the same level of service as full-service merchant service providers.
Look for a provider that can offer as many services as possible, so you don’t have to use multiple providers. It will simplify your payments.
GAMPayments is a full-service merchant services provider offering innovative technologies and transparent, safe, customized payment processing solutions.
Will a Merchant Account Prevent Fraud Transactions?
Merchant accounts offer data-driven fraud prevention tools such as real-time behavior analytics, 3D, and enhanced security. ENV 3-D Secure allows greater data exchange between merchants and issuers during cardholder authentication for e-commerce transactions.
Tokenization replaces sensitive account information with a unique digital identifier called a token, allowing in-store, online, and in-app payments to be processed without exposing actual account details that could potentially be compromised. PCI DSS Compliance chip activated terminals address verification services. Merchant accounts also offer chargeback representation.
How Do You Close Your Merchant Account?
Many merchant service providers offer long term contracts that require an early termination fee of generally about $500 to exit the contract. Recently some merchant service providers have offered month-to-month contracts though that is not the industry standard.
How Do You Transfer Money from Your Merchant Account to Your Bank Account?
When a credit card payment is made, funds are deposited into the merchant account first, then transferred to the business account on a daily or weekly basis.
How Many Merchant Accounts Can You Have?
You can have multiple merchant accounts, but you can only set up one merchant account processor for processing credit card transactions for each card type. Because only one processor can be set to perform real-time authorizations and manual transmissions. With multiple accounts, you can process more payments, increase card processing options, and distribute chargebacks.
What Is a Merchant Account Summary?
A merchant account summary is part of the information on the account’s monthly statement. It’s a summary of the money that came into and left your account during the statement period. It shows sales processed by card brands as well as the total fees paid to process the sales. Adjustments to the account, chargebacks, number of refunds, and sales trends may also be included.
What is a Payment Solution?
Payment Solutions, in general, are technologies and/or systems of technologies that make processing credit cards and other electronic payments possible, efficient, and secure.
What Is a Chargeback?
A chargeback is a demand by a credit card provider for a retailer to remedy the loss on a fraudulent or disputed transaction. More simply it is a reversal of a credit card payment that comes directly from the bank.
What Is PCI Compliant?
Payment Card Industry (PCI) compliance is a set of standards that ensures that customer data is being uniformly secured throughout the payment card industry. The Payment Card Industry Security Standards Council was established to help regulate the credit card industry and improve payment security throughout the industry.
provides customized payment solutions for a broad range of payment types made via physical and virtual terminals, internet gateways, and mobile payment with CRM and POS integration; multiple payment options on one platform, including credit cards, ACH, and more-solutions to fit your business and payment needs. We offer a full range of services, high-level account servicing and responsive customer support, real-time forecasting and analytics, and intelligent chargeback representation.
GAMPayments can serve virtually all industries and they specialize in complex and high-risk accounts. The core of GAMPayments is trust, transparency, and partnership. Their partnerships with clients are based on trust and transparency and providing clear, understandable information to find the best payment solutions for their businesses.
Merchant accounts are indispensable to your business. But navigating the ins and outs of payments can be tricky. A truly transparent, responsive, and forward-thinking merchant services provider makes payments efficient, secure, and easy.
GAMPayment’s high level of service and customized payment technology solutions make them a smart choice for any business. Their expertise in high-risk accounts and commitment to transparency makes them an excellent choice for complex and high-risk businesses.