A merchant account is a sort of banking account that stores all the debit and credit card payments a business receives.
In essence, it is a deal between a business owner, a merchant bank, and a payment processing company to enable the completion of debit and credit card transactions.
When a shopper makes a payment, the finances enter the retailer’s merchant account and later go into their business bank account. This bank account transfer can be on a per-day or per-week basis, depending on the agreement.
Opening a Merchant Account
Acquiring a merchant account is not a walk in the park. Many merchant applications flow in, and banks underwriting processors can be unforgiving.
For banks and payment processors, thorough scrutiny and clearly defined acceptance criteria help minimize risks, and determine who qualifies:
- Nature of business-is prone to, or at low risk of credit card returns and fraud?
- How much time in business?
- History of Business – defaults, bankruptcies, etc.
- Any previously owned merchant accounts
- Retailer’s personal credit status
Applying for a merchant account with the bank that holds your personal and business banking account can increase your approval chances.
A high-risk nature, however, does not mean that requests will be turned down. Nevertheless, the service provider may charge a higher transaction fee or add extra charges to cover the risks.
Businesses consider high-risk are entitled to high risk merchant accounts. Not all payment services and banks want to work with companies from these sectors, so your best bet lies with high-risk service providers.
The retailer can hammer out a better fee later once their merchant account is well established,
Merchant Account Fees
Opening and running a merchant account comes with multiple fees. Some of these fees are hidden in contracts, so businesses must double-check deals for any loopholes.
The fees include;
- Setup fees
- Account opening fees
- Per-month fees
- Discount rate
- Per-transaction fees
- Overseas charges
- Card terminal rental fees
Extra charges can inflate the total fee per card transaction to way over 3 percent. Businesses are advised to search and compare fees when applying for a merchant account.
An early contract termination fee applies to businesses that end their merchant account contracts prematurely on top of these charges.
Both eCommerce and brick & mortar retailers can rely on merchant account solutions to begin accepting customer payments.
Searching in the right place can increase the merchant account experience and reduce related expenses.
Your small business needs a low or high risk merchant account to start taking customer payments.