Should You Open A Merchant Account With Your Bank?

New business owners often assume that signing up for a merchant account with their existing bank is easiest, since it keeps all services under one roof and can simplify recordkeeping.

But banks rarely offer the most competitive pricing, so it makes sense to shop around for the best merchant account provider. This guide explains the difference between business bank accounts and merchant accounts, the pros and cons of using your bank as a processor, and tips for evaluating whether their offer is the best deal.

Merchant Accounts VS Business Bank Accounts

A business bank account is a business version of a regular checking account and is used to store and access your company’s funds. It keeps business and personal finances separate and can help you build business credit.

A merchant account is a separate account where credit and debit card payments are temporarily held while transactions are processed. Once processing is complete, the funds are deposited into your business bank account.

Your merchant account is essentially fronting the cash whenever a customer pays with a card. Behind the scenes, the provider takes on some risk with every transaction. That’s why your credit history — and sometimes your business itself — is reviewed before approval.

Your merchant account provider gives you the tools to securely swipe, dip, tap, or key in payments, both in-person and online. Most providers also offer add-on services, like:

• POS systems
• Mobile payments
• Reporting tools

At the end of the day, the merchant account provider is the one who gets the money into your bank account, making it a critical piece of your payment setup.

Benefits Of Signing Up With Your Bank

Banks may bundle additional services with merchant accounts:

• POS Systems: Some banks offer software flexibility; others push costly proprietary systems.
• Mobile Payments: Bank card readers are available, but third-party options like Square or PayPal may be cheaper.
• Payment Gateway: Integrated platforms can handle online and in-person sales; banks may offer a gateway or a proprietary solution.
• Virtual Terminals: Take payments via phone, mail, or computer using a virtual terminal.
• Gift Cards / Loyalty Programs: Boost sales and customer retention.
• Payroll & Scheduling Tools: Save time and money with add-ons.
• Customer Service: 24/7 support is valuable, but larger banks often deliver inconsistent service.
• Loans & Lines of Credit: Banks are trusted lenders, though nontraditional lenders sometimes offer better options.

Note that most of these services aren’t exclusive to banks. Compare costs of standalone services versus bundled options to see what’s truly the best deal.

Disadvantages Of Signing Up For A Merchant Account With Your Bank

While getting a merchant account through your bank has some advantages, there are some drawbacks to consider before committing.

• Rates Are Often Not Competitive: Marketing gimmicks may waive some fees, but hidden charges or tiered pricing can cost more. Independent providers like Dharma Merchant Services or National Processing often publish transparent pricing.
• Banks Are Usually The Middleman: Many banks use backend processors, meaning you’re still paying a middleman.
• Funding Speed Isn’t Always Faster: Next-day funding is sometimes included, but independent providers often offer it too, sometimes for a small fee.

Quick Comparison: Banks VS Independent Processors

Let’s pull it all together to see the differences between banks and independent payment processors.

Do Banks Offer High-Quality Merchant Accounts?

Banks can move money from point A to point B, but most small businesses get more value and flexibility from independent processors. For a list of top providers (most of which aren’t banks), check out our blog post on the best credit card processors for small businesses