What is a Merchant Account?

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what is a merchant accountApproximately four out of five consumers own and use credit cards. Some use them sporadically, while others rely on them for day to day purchases. Businesses that accept credit cards are more likely to produce higher sales and even up-sale customers. But while you already know that accepting credit cards is imperative to growing your business, in order to do that, you must have a merchant account via a credit card processing service provider.

A what?

A Merchant Account. What are merchant accounts? Put simply, this is an account you establish with a credit card processing company that helps connect your customers’ funds with your wallet. Yay for money! Businesses and processors need each other to stay in business. They go together like Batman and Robin, copy and paste, celebrities and Botox, Bill Cosby and pudding pops….I could go on. But all joking aside, without a merchant account, you simply cannot accept credit cards from your customers.

What Does a Credit Card Processor Do?

When you process a credit card transaction through a merchant service provider, the processor acts as a middleman between you and the customer’s credit card company. Once you swipe the customer’s card, the processor sends the transaction to the credit card interchange, which then reroutes the transaction to the issuing bank to be approved or declined. If approved (cross your fingers), the money from the transaction is deposited into your merchant account through your credit card processor.

Generally, you cannot immediately access money held in your merchant account. Instead, that money hangs out in there for a short time until your processor decides to release it to you via direct deposit into a personal business account. Every month, you will receive a merchant account statement from your credit card processor explaining the totals of your transactions, the types of cards used by your customers and the total cost in fees that you paid for the services of your credit card processor.

How to Get a Merchant Account

Setting up a merchant account is a relatively simple process in and of itself, but you better do your research before choosing a credit card processor. Simply put, your processing company will either be your greatest partner in business, or it will suck the life right out of your profits. Newbie merchants don’t know what bad treatment is until they sign up for a merchant account with the wrong processor. You might as well give your earnings away – because either way they are going to be plundered.

Not only do you have to watch out for excessive processing rates, but you should also be mindful of nickel and dime fees like authorization fees, statement fees, account maintenance fees, annual fees, batch fees, charge-back fees and even customer service fees. That’s right. Your processor can charge you for answering a question. Sure, you expect to pay for your processor’s services but a customer service fee? Seriously, WTF?

So be absolutely certain to shop and compare the rates and fees of multiple credit card processors before signing on the dotted line. Be sure to ask for interchange-plus pricing and don’t get suckered into a contract that carries a hefty early termination fee a la liquidated damages.

When you choose the processor that’s right for you, you’ll supply the usual information like your business name, contact information and tax information. You’ll also have to provide your routing and account number for the bank account you plan to accept your deposits into. However, few business owners expect to submit to a credit check when applying for a new merchant account. After all – you are accepting money, not borrowing it. But a merchant account is, in some ways, a line of credit. The credit card processor is counting on you to be liable for all charge-backs and refunds on your account, and your detailed credit history can provide a glimpse into your ability to handle money and prevent fraud.

So in closing, if you are ready to open a new merchant account, be sure to acquire quotes from two to three leading credit card processing companies. The company you choose should offer innovative solutions for your business with affordable fees and rates that won’t break the bank. Whether you prefer to conduct business online, through a traditional point of sale system or using your mobile device, be sure to choose a company that best fits your needs and budget.

Amad Ebrahimi
Amad has worked in the eCommerce and online marketing world since 2002. He started as an eBay seller, then slowly graduated to building & marketing his own websites and consulting others to do the same. He founded Merchant Maverick out of frustration with all the misinformation and shady tactics that he encountered when trying to find a merchant account for his and his client's businesses. He's the man behind most of the merchant account reviews, and articles posted on MerchantMaverick.com. Have any questions related to credit card processing? Talk to him.
Amad Ebrahimi
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    great imfomation \ need to select a processing company.


      Very informative website. I am working in a global company. Currently we have only one merchant ID and planning to expand to other countries. How many merchant IDs should we have being a global company to broaden the credit cards and alternate payment methods? Thanks,

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