What is a merchant account? Everything you need to know

Merchant accounts are essential if you want to run a business that accepts debit and credit card payments. Not doing so can impede on your ability to attract customers and grow your business. Luckily, setting up a merchant service account is straightforward once you understand how they work.

Read this guide to learn more about what a merchant account is, how to receive one, the cost of a merchant account and some of the top providers.

Featured credit card processing offers

Stax

Learn More

Via Stax’s website

Monthly fee

$99

Swiped transaction fee

7¢ to 10¢ + interchange rate

Merchant One

Learn More

Via Merchant One’s website

Monthly fee

$13.95

Swiped transaction fee

0.29% to 1.55% per transaction

Payment Depot

Learn More

Via Payment Depot’s webiste

Free Trial

No

Offers

$0 Setup & No Cancellation Fees

Pricing

Customized Interchange+ Pricing – Rates as low as 0.2% – 1.95%

Clover

Learn More

Via Clover’s website

Monthly fee

$14.95

Swiped transaction fee

2.6% + 10¢

What is a merchant account?

A merchant account is a business or commercial bank account that allows companies to accept and process credit cards, debit cards and other types of electronic payments. The aim is to help ensure efficient payment and receipt of funds. 

When processing a transaction, the merchant account confirms and processes the payment information — such as when a customer swipes their credit or debit card or manually inputs payment information — and funds will become available. Then, the money will go into the merchant account before being deposited into the business’ bank account. 

How to get a merchant account

Businesses need to sign up and get approved for a merchant account through a merchant acquiring bank. This type of financial institution has the ability to process card payments for a business. Merchant banks will each have their own application process and pricing models. 

List out your needs

Understanding what you need for your business will help you when researching different merchant service account providers. Taking the time to figure out what features are a must-have and which aren’t will save you time when narrowing down your choices. 

Shop around

Create a shortlist of merchant account providers that ticks off the boxes of your desired features. Compare features such as pricing structure, contract length, customer service support and any hardware costs for payment processors. You may also want to look at other items, like cancellation fees, in case you want to opt out of the contract early.

Gather necessary documentation

Merchant providers typically ask for information such as your:

• Business name.
• Owner name and contact information.
• Employer identification number (EIN).
• LLC (or other business entity) details such as how long you’ve been in business.
• Business banking information. 

Fill out an application

Complete all necessary steps required by the merchant account service provider, including submitting an application form and sending the required documents. 

Wait for approval

Before making a decision, merchant providers typically look over your application. Some factors providers may take into consideration include:

• Your personal and business credit history.
• The type of transactions your business conducts.
• How long you’ve been in business. 

If approved, follow the next steps to help set up any necessary hardware and software to start accepting card payments. 

How much does a merchant account cost?

The fees you’ll pay for merchant accounts vary depending on the provider. Read over the fine print to determine what the pricing model is and any other potential fees you could be on the hook for. 

Some common fees merchant account providers charge include:

• Setup fee: This one-time fee is to help open your new merchant account. 
• Monthly fee: Some providers charge a fee each month to help maintain your account. It’s also sometimes called a statement fee since your merchant account provider typically sends you a monthly statement. 
• Chargeback fee: Businesses may occasionally encounter chargeback fees when a customer disputes a charge and asks for a refund. You pay a chargeback fee to cover the costs of processing the funds to the customer. 
• Gateway fee: Think of the gateway as a middleman that helps to facilitate the transfer of funds from the customer to a business. Merchant account providers may charge you an additional fee if your business accepts payments online. 
• Minimum fee: Some companies may require you to meet minimum transaction requirements or else you’ll be charged a fee. 

Merchant account providers also offer different pricing structures and charge payment process fees. 

Typical pricing structures

You will commonly encounter different types of pricing structures when researching providers. Pricing models include: 

• Flat rate: Providers charge businesses a fixed rate for a certain type of transaction, no matter how many payments are processed each month. For instance, you’ll be charged a 2.5% fee each time your business processes a debit card transaction. 
• Tiered: You’ll be charged based on the type of transaction: qualified, mid-qualified and non-qualified. The types of transactions for each tier vary, with qualified transactions receiving the best rate, whereas the non-qualified ones cost the most. For example, a point of sale (POS) transaction using a physical credit card counts as a qualified transaction, whereas processing a credit card transaction over the phone counts as non-qualified. Some merchants may also offer different fees based on the number of transactions you make each month. 
• Interchange-plus: This pricing structure is broken down into the interchange fee (what the credit card company charges) and an additional markup by the processor. As such, this fee often varies based on the type of credit card your customers use to pay.

Payment process fees

A payment processing fee is an amount a business pays each time a customer pays with their credit card, debit card or another form of electronic payment. This fee is charged by the credit card issuer, the card network and the merchant account provider. 

For example, if your customer pays with a Capital One Visa credit card, a percentage of the fee will go to Capital One, some will go to Visa and a markup will go to the merchant account provider.

How much you’ll pay in processing fees depends on factors such as: 

• The type of credit card your customer used. 
• How the customer pays for goods and services. 
• The payment amount. 
• The type of business you run. 

How does payment processing work?

Here’s how payment processing typically works:

1. The gateway receives payment information: Depending on the type of transaction, the payment gateway may be used to collect the customer’s payment information. Some transactions have customers input their card information, whereas those shopping at brick-and-mortar locations tend to use POS systems. 
2. Funds are taken from the customer’s account: If there are enough funds, the transaction is verified. The merchant account provider then places a hold or deducts the amount from the customer’s card. 
3. Funds deposited into the business’s account: Before money is deposited, the merchant account provider deducts any applicable fees. Funds are then sent to the business’ account through the settlement process, usually at once at the end of the day. 

Top merchant account services

The best merchant account services allow businesses to process many payment types and card issuers, offer transparent pricing models and provide user-friendly tools. The providers below are from our list of best payment processors for small businesses. 

Stripe

Stripe stands out for its pricing transparency. There are no setup or other hidden fees. Its pay-as-you-go pricing model helps businesses estimate costs and the multitude of software integrations help customize payment and other business processes. Integrations include Hubspot, Salesforce and Zapier. 

Businesses will need to pay for hardware (like credit card readers) to process card payments with Stripe. 

National Processing

National Processing offers subscription plans, and businesses can compare pricing based on payment types, plan features and transaction costs based on industry. The merchant account provider also has a price-match guarantee for businesses that process at least $10,000 per month. 

While monthly fees will be different based on the business type, customers won’t have to pay for hardware or gateway setups. 

PayPal

PayPal is one of the simplest merchant account services to set up, and there are no account setup costs. Like Stripe, PayPal has a pay-as-you-go pricing model — businesses pay a percentage plus a fixed fee, depending on how the purchase was made. 

The merchant account processor also offers:

• Advanced fraud protection.
• Buyer authentication.
• Chargeback protection.
• Seller protection programs. 

Featured credit card processing offers

Stax

Learn More

Via Stax’s website

Monthly fee

$99

Swiped transaction fee

7¢ to 10¢ + interchange rate

Merchant One

Learn More

Via Merchant One’s website

Monthly fee

$13.95

Swiped transaction fee

0.29% to 1.55% per transaction

Payment Depot

Learn More

Via Payment Depot’s webiste

Free Trial

No

Offers

$0 Setup & No Cancellation Fees

Pricing

Customized Interchange+ Pricing – Rates as low as 0.2% – 1.95%

Clover

Learn More

Via Clover’s website

Monthly fee

$14.95

Swiped transaction fee

2.6% + 10¢

Frequently asked questions (FAQs)