If you have just started a business and are getting everything organized, you may be hearing more and more about a merchant account. You may be wondering “what exactly is a merchant account and why does my business one?” A merchant account is a particular type of bank account allowing businesses to accept multiple forms of electronic payments mainly with a credit or debit card. If your business is online or you want to accept credit cards, you will need a merchant account to facilitate the communications necessary to transfer funds.

There is a strong trend toward electronic payments because of their convenience. Consumers prefer to pay with credit cards, and their usage increased to 27% of all payments in 2020. This represents a large portion of transactions, proving how important it is to accept credit cards to stay competitive in business. Digital payments in 2020 globally reached $5.2 billion according to Statistica Market Outlook, which shows consumers are making more purchases online than ever before. It is necessary to have a merchant account to facilitate those transactions.

What Is a Merchant Account and How Do You Get One?

A merchant account is a particular type of bank account that is set up for your business to process cashless payments. Merchant accounts are established when an acquiring bank, or the financial institution that offers a merchant account to a business, and the business accepting payments sign a contract. Once a business has a merchant account, it can accept debit and credit card payments.

Getting a merchant account is much easier now than it has been in the past. It used to be a much longer process of submitting your business license, verifying your location, and checking your credit score information that could take days. Financial technology has made it a matter of simply completing an application online in a matter of minutes.

How Do Merchant Accounts Work?

Merchant accounts enable businesses to accept electronic payments from debit cards, credit cards, and online transactions. Accepting credit cards is a little complex, as the money just doesn’t go from the customer’s bank account into yours. The process begins when a customer makes a purchase with their credit card. The information is taken by the credit card processor and transmitted over a card network like Mastercard or Visa.

Once a credit card processor relays the customer’s transaction data into the network, that credit card network is ready to route the transaction to the issuing bank. The issuing bank is the bank that has issued the card to the customer. It has to approve the transaction that has been sent over the network and then allow the funds to be deposited into a merchant account.

If the transaction is approved, the merchant and the customer will receive notifications of a successful transaction. The transfer process may take between 2 and 14 days, and the merchant will only receive the funds after they have been deposited into the merchant account. If the transaction isn’t approved, both parties will receive notifications of a failed transaction.

What Are Merchant Account Fees?

Approving and transferring electronic payments isn’t free. There are fees associated with merchant accounts. The average credit card processing fee is between 1.5% and 3.5% of the item’s purchase price, which includes an interchange fee and an assessment fee.

The merchant account fees that are associated with credit card processing include:

  • Interchange fees: The issuing bank receives interchange fees on cashless and credit card transactions.
  • Payment processing fees: These fees are paid to the company accepting payment expenses and routing them to the payment network. The payment processing fees include per-transaction fees, monthly service fees, and the cost of the equipment needed for the transaction.
  • Assessment fees: The assessment fees are given to the payment network that routes the data for each transaction that used the payment network-related card. For example, Visa would get an assessment fee for each transaction that used a Visa credit card.

Selecting a Merchant Account for Your Business

Picking the right merchant account can seem like a daunting task. When researching your options, look for a merchant account provider with a proven track record. You can check with the Better Business Bureau. Steer clear of providers that have multiple complaints online.

Understand the fees that are associated with the account. Be wary of any providers whose fees seem too good to be true, as they may have some hidden fees they aren’t advertising. Be sure to read the fine print before deciding on your merchant account provider.

Make sure that the provider does not have transaction volume caps. You do not want to have a great month and suddenly not be able to process any more credit cards because you have hit your limit. This won’t just limit your sales, but it could ruin your business reputation when customers can’t buy what they want with a credit card.

Accepting credit cards and online payments is crucial in business today. Make sure that you understand how your merchant account works and which one can provide the best service for you. At NMA, we provide our members with the latest information on merchant accounts to help them save money on payment processing. We Work For You™! Learn more about how NMA can benefit your business. 

About NMA

NMA is a merchant advocacy group dedicated to reducing or eliminating the unnecessary fees associated with accepting credit card payments. Since 2004, NMA’s payment processing solutions have been delivering tailored solutions, best-in-class customer service, and high-quality service offerings for businesses across multiple industries. Whether it’s high-risk or low-risk, brick-and-mortar or e-commerce, NMA will create the best processing experience for your company. For more information, visit us at legacy.nationalmerchants.com or call (866) 509-7199.