Should You Open A Merchant Account With Your Bank?

You want to accept credit cards for your small business, but is your bank the best place to get a merchant account? We'll address the pros and cons in our guide.

WRITTEN & RESEARCHED BY
Frank Kehl
Expert Contributor

Last updated onUpdated August 12, 2024

REVIEWED BY

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Key Takeaways

Opening a merchant account with a bank often provides better customer service, security, and the ability to integrate with existing business accounts.
Banks typically have a more stringent and lengthier approval process compared to third-party providers, often requiring more documentation and financial scrutiny.
While banks offer reliability, they may also have higher fees and stricter terms than independent merchant service providers.

New business owners looking to open a merchant account so they can start accepting credit cards are often tempted to sign up with the bank they already have a business banking account with. This practice can consolidate your business services under one roof and streamline your recordkeeping.

However, it can also cost you a lot of money, as banks frequently don’t offer the most competitive pricing for merchant services. We recommend shopping around and obtaining quotes from multiple providers before choosing the best merchant account provider that fits the needs of your business.

In this article, we’ll explain the difference between business bank accounts and merchant accounts and explain the pros and cons of using your bank as your credit card processor.

Finally, we’ll give you some tips on how to tell if your bank is really offering you the best deal on merchant services or if you should look elsewhere.

Table of Contents

Merchant Accounts VS Business Bank Accounts
Benefits Of Signing Up For A Merchant Account With Your Bank
Disadvantages Of Signing Up For A Merchant Account With Your Bank
Do Banks Offer High-Quality Merchant Accounts?

Merchant Accounts VS Business Bank Accounts

You’re probably already well aware that a business bank account is just a business version of a regular checking account. Your funds are in the account; they’re not borrowed, and they’re accessible to you anytime. A separate bank account is often legally required in businesses larger than a sole proprietor. While you don’t necessarily have to open up a business bank account to keep funds separate, doing so offers many benefits for your business. It helps you build up your credit score for your business in the event you ever want a business loan, for starters.

A merchant account, on the other hand, is a separate account where funds from credit/debit card transactions are temporarily deposited while the transaction is being processed. Once processing is complete, those funds are deposited in your business bank account.

A merchant account provider, whether it takes the form of a bank or a company that specializes in merchant services, sets you up with the tools to securely swipe, dip, tap, key in, or accept credit card payments online for your business. Most providers today also offer a number of ancillary products and services along with your merchant account.

Another big difference between a merchant account and a business bank account is that your merchant account is essentially fronting you the cash whenever your customers pay with a card. It’s a bit complicated, but it all has to do with how the money travels behind the scenes. In this way, your merchant account provider takes some inherent risks with every merchant. This is why often your credit history — and your business — will be examined before they sign you on. At the end of the day, your merchant account provider is the one who deposits funds in your bank account for your business.

So it’s all a pretty big deal, and one you’ll want to get right from the beginning.

Benefits Of Signing Up For A Merchant Account With Your Bank

Many other products and services may come bundled with your merchant account or are available as add-on services, including:

POS Systems: A bank that offers merchant accounts and a default POS can be a good thing. We’ve also seen it be a horrible thing. Choosing the best POS system for your small business is no small consideration, and you need one that works for all of your business needs. For instance, Chase actually has partnerships with more than 400 software companies to give you a bit of freedom. Wells Fargo, on the other hand, pushes Fiserv’s Clover platform, which can be very expensive for a small business that doesn’t need a lot of bells and whistles.
Mobile Payments: Almost all major banks today offer some sort of mobile payment system as part of their merchant services portfolio. In most cases, the mPOS offered will be a third-party product. For example, Wells Fargo Merchant Services offers the Clover Go card reader. However, if you only plan to accept payments in the field, providers such as Square, QuickBooks GoPayment, or PayPal Zettle will usually be less expensive overall.
Payment Gateway: If you want to sell online and in-person, look for a merchant account that offers easy integrations or an all-in-one solution. Integrated payment platforms that use a gateway to process both online and in-person transactions are becoming more common, and your bank might offer a popular third-party gateway (such as Authorize.Net) or a proprietary product.
Virtual Terminal: Turn your computer into a register to take payments over the phone, via mail, or even in person using a virtual terminal. Just make sure you need this service, and you aren’t paying for it if you don’t need it. Note that most payment gateways today include an integrated virtual terminal feature.
Gift Cards/Loyalty Programs: Both of these can be invaluable tools for businesses, and not just during peak shopping times. More people than ever buy gift cards during holidays, and studies show a loyalty program can considerably boost sales.
Payroll & Scheduling Services: Add-on software that helps business owners save time and money on payroll and scheduling services is a win, and you can often find these come with merchant accounts.
Customer Service: High-quality customer service and technical support are essential. 24/7 service is a good thing — as long as it’s good service. Larger companies tend to fail in this regard. In our reviews over the years, we’ve noted an undeniable trend in customer feedback on places like the BBB, Consumer Affairs, and Capterra that lead us to believe bigger banks offer less-than-stellar customer service once you’ve signed on the line.
Loans & Lines Of Credit: Most people will naturally trust a bank over any other institution when it comes to borrowing money. However, qualified borrowers can often get the best deals from nontraditional lenders.

One important thing to remember is that none of these services are exclusively offered by banks. You can usually get most (if not all) of these value-added services from any decent credit card processor.

A final note: In some cases, it might be worth paying higher rates for credit card processing to get these other products and services for free or at a discount. You should compare the costs of standalone services to what your merchant service provider offers and see where the better deal lies. Don’t fall for the supposed value of “free” services.

Disadvantages Of Signing Up For A Merchant Account With Your Bank

Unfortunately, there are also significant disadvantages to signing up for a merchant account with your existing bank. The primary disadvantage is that it will frequently cost you more money overall, as the major banks have little incentive to offer lower prices for credit card processing services. Consider the following factors before you let a representative from your bank talk you into signing up for a merchant account:

Rates Are Not Competitive

Despite cleverly worded marketing gimmicks that “guarantee” you can’t find a better rate, the truth is that these guarantees are often regarding only one particular fee that the bank waives when you open a merchant account. If they waive a fee and it’s free, you’d be hard-pressed to find something cheaper than free, right? Sure, banks may waive specific fees if you also process credit cards with them, but not all banks charge them anyway. In all likelihood, you’re not really saving anything. Don’t fall for this ploy.

Oftentimes we find that hidden fees or tiered processing rates hurt a merchant’s bottom line far more than waiving setup costs (which most processors don’t charge anymore anyway). Compared to banks, for instance, credit unions often offer much better terms and lower fees to merchants who want an all-in-one banking solution.

You also need to be wary of customized pricing quotes from banks that don’t publish any pricing information on their website. In all likelihood, you won’t be offered the lowest available rates in your initial quote. Providers know that most merchants aren’t aware that these prices are negotiable, and will set their initial quotes higher in the hope that you won’t ask for a better deal. Top-rated merchant services providers like Dharma Merchant Services or National Processing, on the other hand, publish fully transparent pricing schedules on their websites. This allows you to determine in advance how much you’ll pay for credit card processing, and also to skip the negotiation process altogether.

Banks Are Usually The Middleman

While a few banks (e.g., Chase Payment Solutions) process payments directly for clients as the acquiring bank, Wells Fargo and other major banks use a backend processor, such as Fiserv (formerly First Data). While this isn’t unusual in the payment industry, it also invalidates any explicit or implied claim that you can “eliminate the middleman” by signing up directly with your bank. In most cases, your bank is still the middleman, and you’ll pay inflated prices as a result. In other words, you’re unlikely to save any money by signing up with your bank instead of going with a third-party provider.

You Don’t Get Paid Faster

A big draw for banks that offer merchant accounts is next-day funding — if you also have a business bank account with them. Both Wells Fargo and Bank of America Merchant Services offer this feature. Oddly enough, Chase Payment Solutions (which is by far the largest and best-rated of the three) doesn’t provide this. Most funds are available within two business days, which is standard for the industry.

In fact, most merchant services providers now offer next-day funding to businesses that need or want it. However, you’ll often have to pay an additional monthly fee for this feature. In contrast, next-day funding is often included for free if you sign up with your bank.

We’d also caution you that next-day funding doesn’t guarantee that your funds will arrive on time. We’ve found many complaints from merchants alleging that funds still took up to five business days to be deposited into their accounts.

Do Banks Offer High-Quality Merchant Accounts?

While many small business owners can find what they need through their bank, it’s often watered-down services that you’d be better off finding from a company that specializes in the needs of small businesses.

While any merchant account can get funds from point A (your customer) to point B (your bank account), other important features (e.g., customer service, processing hardware, software integrations, etc.) can often be found at cheaper prices — and with better quality service — if you look beyond your bank and sign up with a provider that specializes in credit card processing.

For more information on the best merchant services providers in the business (most of which aren’t banks), check out our blog post on the best credit card processors for small businesses.

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Frank Kehl

Expert Contributor at Merchant Maverick

Frank has been writing about payment processing and business services since 2015. He is a retired Air Force officer and a former practicing attorney. He has a Bachelor of Science degree in Psychology from The Pennsylvania State University and a Juris Doctorate degree from the Ventura College of Law.