First, let’s clarify what a merchant is. A merchant is a businessperson who trades products/services. In payment processing, a merchant is a legal entity that opts to accept payments online.
A merchant account is a type of bank account used for storing funds from card transactions until those transactions are settled completely. Thereafter, the funds are transferred to a business account.
Merchant accounts are opened at a merchant services provider such as an acquiring bank. The merchant services provider acts as a middleman between the merchant, the customer’s credit card company, and the customer’s bank, and offers a range of services such as payment processing.
Unlike a business account, the owner of a merchant account has no control over the account. It is a holding account only. Merchant banks or acquiring banks leave money from transactions in the account for a number of days, to ensure that if any chargebacks or refunds occur, the funds are readily available.
How does a merchant account work?
As stated before, a merchant account is a type of bank account. How does it work? Basically, there are two main stages:
- The funds’ clients spend on your website transfer into your merchant account after the purchase is made.
- Then, all the funds deposited to your merchant account are transferred to your banking business account.
The regularity of transfers from your merchant account to your business account varies on a PSP of your choice. It usually takes from one up to 14 days. When signing up for a merchant account through a PSP, you are getting more than just an account. The PSP also provides you with access to the merchant interface. It allows you to monitor the dynamics and volumes of sales.
You can also get PCI compliance, fraud and chargeback prevention, recurring billing, credit card authorization hold, e.g.Some of these options are free, while others will cost you extra. It depends on the PSP of your choice. The traditional merchant account allows you to accept Visa and MasterCard payments only. However, you can also opt to receive a wide range of other payment methods like:
- eWallets (Skrill, PayPal, Stripe);
- wire transfers;
- mobile banking.
What are the merchant account fees?
Merchant accounts go hand in hand with different fees attached to them. However, not all of which are always clearly identified in contracts, including:
- Application Fees;
- Setup Fees;
- Monthly Fees;
- Discount Rate;
- Per-Transaction Fees;
- Cross-border Fees;
- Rental fees for a credit card terminal ( in case you run a brick-and-mortar store).