What is a Merchant Account for Businesses?

November 19, 2021

What is a Merchant Account and Why iit Necessary?

If you are a new business owner that wants to offer customers the ability to pay over the phone and onlineyou will need to open a merchant account. What exactly is a merchant account and why do you need one? This article explores what a merchant account is, why you might need one and easy steps for obtaining one. 

What is a Merchant Account for Businesses?

merchant account enables businesses to accept debit and credit card payments. Acceptors and merchants enter into agreements to create merchant accounts for the settlement of payment card transactions.

For a more precise understanding, let's look at the process of receiving electronic payments from credit cards and debit cards. 

merchant account is a bank account that receives electronic transactions such as credit card paymentsdebit card payments and ACH payments. It’s required for any business that offers online payments because it is the only way these funds can be received. At the same time, this bank account is only necessary for these types of payments. For instance, if you only work with cash, you won't need a merchant account. Just a basic business bank account will do. 

Banks aren't the only merchant account providers. You can opt for third-party merchant account vendors that offer money transfer services. Some third-party payment processors offer a merchant account in their business structure. Funds arrive in a shared account with all users, and you have the authorization to withdraw your specific funds from this account.

Obtaining Electronic Funds Using Merchant Accounts

How do merchant accounts work?  

The process begins with you and a merchant services provider, also called a merchant acquiring bank, agreeing to terms of service. Often a third-party payment processing company is involved, though the bank may handle all merchant account services. The bank you sign-up with receives electronic bank transfers from a given card processing network and deposits them into your business bank account. 

A payment processor is a company that stands between a merchant acquiring bank and a card issuer. The entire payment process works like this: 

When a customer places an order, credit card information is captured by your store terminal, online payment system, or mobile payment device and sent to your merchant acquiring bank, which sends the payment request to a card processor. In some cases, the card processor and merchant acquiring bank are the same institution, but not always. This processor then uses the credit card network (VISA, Mastercard, American Express) to communicate to a coordinating bank listed on the card for the funds. The coordinating bank does fund availability checks, verifying the customer has sufficient funds and that the account is in good standing. The funds are then transmitted through the credit card network and processor to your merchant acquiring bank to start the settlement process. Then final funds are placed in your business bank account. 

The merchant acquiring bank informs you of all approval and denial communications along the way. The whole communication process happens in minutes, though the actual receiving of funds can take a few days. These final batches are sent at the end of the day or sometimes multiple times a day. 

How Much Does a Merchant Account Cost?

Your merchant acquiring bankpayment processor, and credit card network charge fees for services. The merchant account cost varies depending on the institution and whether you are considered a low or high-risk merchant account. 

The costs are outlined in your cost of service. It is a good idea to shop around to find the best blend of competitive merchant account fees and services to meet your needs. 

Common Pricing Models for Accepting Credit Cards 

The following key terms define various electronic payment options.

  • Interchange-plus pricing model: This model consists of a percentage rate from a credit card company (the interchange fee or interchange rate) plus the markup from the payment processor, which is typically a flat fee per transaction. The fee per credit card will vary depending on the card type.
  • Flat-rate pricing: Flat pricing is a fixed percentage charge for each transaction, such as 3%. This option is ideally suited for small businesses with low sales-volume or for low-priced items.
  • Tiered pricing: In this option, credit card processing fees are put into different price levels. Each processor determines the categories and amounts, but typically card-present transactions cost the least because they are considered low risk.
  • Membership pricing model: This model includes added services from the processor, some of which may be free in exchange for a higher monthly fee.

Additional Bank Costs

In addition to the pricing models above, you can incur additional fees like:

  • Merchant Account Application Fee just for applying for this service
  • Setup Fee for setting up a merchant account
  • Monthly fee/statement fee for statements and customer support
  • Gateway fee for phone or online transactions
  • Monthly minimum fee which is the difference between the set minimum and actual monthly fees
  • PCI compliance fee for assistance with PCI compliance
  • PCI non-compliance fee for when you are found to be non-compliant with PCI requirements.
  • Batch fee for batching payments from your business to the merchant account and payment processor at the end of the business day.
  • Address Verification Service fee for verifying a cardholder's address during a phone or online transaction.
  • Chargeback fee for covering any re-processing cost from your provider
  • Retrieval fee when your bank requests your sale records to prevent a chargeback
  • Cross-border fee for covering the cost of currency exchange during international transfers
  • Termination fee for covering the provider's cost for closing an account early

When factoring in all your costs, keep in mind that you may have fees from your merchant provider such as:

  • Sale software fees for using their software systems
  • Sale hardware fees for terminals and printing devices

There is a wide range of software and hardware options on the market, including some customizable options and many inexpensive options well suited for small businesses.

The Three Paths to Accepting Card Payments

Your merchant account will be categorized in different ways, each with fees corresponding to individual risk: 


These are credit card purchases at a brick-and-mortar location made through card reader hardware or mobile purchase using a credit card readein-person with the customer. Running orders through credit card processing equipment has the lowest transaction cost due to the lowest risk of fraud. 

Online via a Payment Gateway

Known as a virtual terminal, this model has a higher risk than in-person orders, though pricing for online businesses can be reduced with the addition of a payment gateway for more secure payments. This option can significantly increase your potential customers and sales, making them well worth the fee.  

Phone Orders

Taking card details over the phone comes at the highest cost because it has the highest potential for fraud. However, it still is advantageous for additional sales and business for specific industries like restaurants.  

7 Essentials You Need to Apply For a Merchant Account

Your merchant acquiring bank will request information such as:  

  1. Your type of business 
  2. Your business license 
  3. Your time in business 
  4. Your business history (such as loan defaults, etc.) 
  5. Your prior merchant account information 
  6. Bank statements 
  7. Your personal credit history 

How to Find a Dedicated Merchant Account Provider

A third-party processor can provide an aggregated merchant account.  

How do you choose between a merchant bank account or an aggregate account through a payment service provider? The choice will depend on your needs. Here is a brief explanation of the differences between the two. 

Choose a Dedicated Merchant Account When: 

  • You value your financial relationships. Keep in mind that even with a strong business relationship, you may still do the bulk of work through another third-party processor unless the bank offers processing services.
  • You want discounted transaction fees for higher sales. The added savings helps compensate for the longer setup time.
  • You need to process high-risk transactions. Many payment service providers won't honor them.
  • You want to save on credit card fees. Keep in mind that banks often require longer card processing contracts, which can affect your profit in the long-term.

Choose a Third-Party Processor When:

  • You want to immediately take credit cards and with less hassle. These companies allow for ultra-fast application times, some with same-day approval. Conversely, a bank's approval time may take a few days or more. Additionally, you will need to apply for each card type, which increases the average wait time even further. A third-party processor offers a faster setup that encompasses all payment types. 
  • You want to keep as many services as possible under one roof. A third-party provider may also offer the hardware and software you need, keeping everything you need under one roof.  
  • You want to avoid providing extensive business data for approval. 
  • You want stronger assistance with PCI compliance, such as complete encryption configuration. PCI compliance is a requirement for all credit card transactions. 
  • You want a minimum term. Avoiding long contract terms helps you negotiate lower rates sooner. 

How BNG Payments Can Help

When shopping for a third-party processor to connect to your merchant account, be sure to choose one with experience and a strong reputation in the business. BNG Payments has been serving business owners for years with a comprehensive list of merchant services, including:

  • Credit card transactions processing
  • Debit card transactions processing
  • ACH processing
  • Payment gateway
  • Mobile processing
  • Online payments
  • EMV processing

In addition to these services, we pride ourselves on high quality support that’s entirely based in the United States. Contact us to learn more. BNG Payments may be able to help save you time and money, specifically for your type of business.




(C) 2024 BNG Technologies. All rights reserved.