Merchant account – What is it?

Selling products or services on the internet inevitably involves accepting payment by credit or debit card, unless you’re selling big-ticket items such as cars or property. But, how do you charge a payment to a card and furthermore, how do you get the money into your bank account? Access to a merchant account will help you set up a Credit Card Processing facility.

Merchant accounts are a special type of bank account that lets you charge money against a customer’s card and then have that money deposited into your merchant account. Funds are transferred from the merchant account into your business bank account periodically or shortly after a transaction takes place. Effectively it is a go-between account that works as the intermediary between your business bank account and your customer’s card account.

There are three ways to get access to a merchant account facility. The most direct way to go about it is to apply for a merchant account at your current bank. Even though this appears to be the most straight forward route, you may find it very difficult: banks evaluate applicants by very strict criteria – criteria that are not exactly friendly towards small start-ups – not to mention their onerous application requirements.

Along the same lines you could contact an intermediary, their expertise can be a helpful go-between you and the bank where you’d with whom you’d like to open a merchant account though you’ll still face obstacles. If you find that you are completely unable to get access to merchant accounts, you probably have little choice other than to use a third party merchant account: payment will be authorized and received by the third party who then pays out the charged amount into your bank account ñ taking a big bite for the favor. So you’ll still have access to the use of a merchant account, but the merchant account won’t be in the name of your business, it would be in the name of the third party.

Keep in mind that having access to a merchant account facility is not on its own sufficient to operate a Credit Card Processing facility; you also need to find a suitable payment gateway. The payment gateway authorizes payments for online retailers and is the internet equivalent of a point of sale terminal which retailers use to read your chip and PIN card. When the payment has been authorized, the funds will be transferred from your customer’s card account to your merchant account, though there will be some delay depending on how your merchant account is configured.

This may all sound very complicated but understanding how merchant accounts and payment gateways work is a one-off learning experience, once you have a grasp how a Credit Card Processing facility is set up, you won’t find it difficult to maintain or to set up your next Credit Card Processing facility for your next store. If you find it far too daunting you may ask a software development house to take care of the setup process for you ñ at a price.

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