Ah, the merchant account. Another payment processing term that often gets tossed around, the merchant account is required for any business that accepts payments.

What is it?

A merchant account is a certain type of bank account specified for the acceptance of payments, usually by credit or debit cards. It is established with a merchant acquiring bank, so that payments made can be settled (or fully go through, in other words). For more details on settlement, see our blog post about the basic steps in processing here.

On a side note, the merchant acquiring bank is a financial institution that processes the payments for you with the issuing banks. The issuing banks are the banks that provide your branded cards, like Visa, Discover, and MasterCard.

The merchant account is the account that collects all of your processed funds before they are deposited into your ordinary business bank account. Some gateway providers will let you process without one, but you will be subject to excessive fees up to 10% of your transaction amount. It is also the general practice to process using a merchant account, so it just makes sense to get one.

How do I get one?

A merchant account is a must-have for accepting payments, and you will need to apply for one. Typically, you will apply for a merchant account through a bank or payment processor. Some solutions provide everything you need for processing, so when you apply for the entire package you’ll receive a merchant account along with your gateway, terminal, checkout, and other features.

In order to get a merchant account, you will need to apply via the application method outlined by your chosen merchant account provider. Since the account will be used to house your funds before depositing into a normal business bank account, it seems like a merchant account should be just as simple as opening a checking account. It’s not quite the same. In fact, the merchant account is actually a line of credit. This is why you will typically undergo a process of underwriting in order to get one.

How so? Glad you asked. It’s something that’s not often made clear and can end up causing some serious headaches if you don’t know beforehand. The funds you receive are through a line of credit or a type of loan. The acquiring bank has to act in good faith by giving you the funds within a pre-determined schedule. Transactions can take several days to officially settle, but you often have permission to receive the funds a bit early. It’s also possible that funds are returned or found insufficient. This could happen post-transaction, leaving you with fees and other consequences. Customers can also contest charges and issue chargebacks, which would penalize both you and the acquiring bank.

The schedule for when you receive your funds is typically referred to as hold days. Hold days can range from receiving funds the very next day, or they can be more conservative and take up to four full business days to hit your business bank account. The amount of hold days you receive, as well as the amount you’re allowed to process, is determined during the underwriting process of applying for a merchant account. Generally, businesses at a higher risk are issued longer hold days and more restrictions.

You can contact your provider or bank for more information on applying for a merchant account, or you can give us a call at 866.290.5400. We’d be glad to answer any questions you have about processing, obtaining merchant accounts and our suite of payment solutions. Be sure to follow us on Twitter and LinkedIn for more updates on payments.

Photo credit: Jeff Belmonte


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