Merchant Account Services – Detailed Guide for Business Owners
What is a merchant account and who needs one?
A merchant account is a special type of business bank account that allows people to accept different types of payments, usually in the form of credit and debit cards.
All types of business owners whether dealing in e-commerce or not can establish a merchant account. To do this, there must be an agreement between the bank, the merchant account provider, and the individual.
It’s always a good idea to open a merchant-type account with your local bank. However, it should be duly noted that not all banks offer these types of accounts, and sometimes other payment services (third parties) are involved when processing credit card payments.
If you’ve just started running your business, getting a merchant account will prove very useful. This is because more and more consumers are using cashless money transactions to buy their goods and services. There may be additional fees that other businesses avoid by accepting only cash but recent studies have shown that merchant accounts increase sales by up to 40%.
To help you make the best decision for your business, we have created this detailed guide that contains all the important aspects of having a merchant-type account. We will look at the different types of merchant accounts available, how these accounts work, processing fees, and other important features that will help your business grow.
So, how does a merchant account work? Here’s what you need to know.

How Merchant Accounts Work
After choosing an account provider and creating an account, you will be able to accept credit and debit cards as payment methods. Some of the most popular payment cards include Visa, American Express, and Mastercard.
There are various methods of presenting a payment card to your system. However, the easiest involves using card readers or card terminals. A card reader is a small electronic device that allows customers to swipe their credit card or enter other necessary information regarding their card. The main features of a card reader include keypad, network connection, and an in-built printer. Other card terminals may be connected to points of sale systems.
Once swiped, the credit card information is sent to the account provider. The account provider thereafter contacts the card processor who authenticates the transaction and runs the necessary security checks. Once authenticated, the card processor sends the approval to the merchant account provider who authorizes the transaction and begins settling the funds.
All this happens in a matter of minutes and once the transaction is fully processed, you will receive your funds. However, note that these funds are first deposited into your merchant account and from there, transferred to your personal bank account.
It’s also worth mentioning that most merchant account providers offer some form of account access where you can check all your transactions, fees, and other account details. Others also provide a monthly account statement that you can download. With these features, you can keep track of everything.

Types of Merchant Accounts
Service providers offer different types of merchant accounts such as retail, internet, mobile, telephone, and mail order merchant accounts. With so many offers available, choosing the right account for your business can become a strenuous task. That is why there are a few things that you should consider before opening a merchant account. For instance, the type of business you’re establishing, the type of debit or credit cards being accepted, transaction fees, and the overall security of the service provider.
Retail Merchant Accounts
A retail merchant account works best when it comes to small businesses that have stationary locations. These businesses are normally equipped with a physical point of sale system that can be used in payment processing or card processing, inventory keeping, and payroll management.
With this account, a merchant can receive credit card payments faster and at a lower per-transaction rate. Additionally, retail accounts can also be programmed to accept your store’s gift cards and electronic checks. If you’re considering getting a retail merchant account, you will need to install at least one card terminal/ reader in your store.
Internet Merchant Accounts
Also known as an e-commerce merchant-type account, an internet merchant account is used for selling products and services online when there isn’t a physical store. Both small businesses and bigger enterprises can use these online accounts to enter their customer’s credit card information. However, transaction fees are usually higher.
With an internet merchant account, your customers will be able to enter their credit card information into the system via a website. Payment processing takes a few minutes and it’s completely encrypted using state-of-the-art technology.

Mobile Merchant Accounts
With a mobile merchant account, you will be able to receive card payments using your mobile device. Setting up the account is easy and you can enter your customer’s credit card information via any smartphone, be it iOS or Android.
The per transaction rate is a bit higher than other accounts. However, we can confidently say that the payment process is fair and works especially well for small businesses that are constantly on the move. People who own food trucks, taxi drivers, and electricians often use these accounts to accept card payments regardless of their location.
Telephone Merchant Accounts
A telephone merchant account can be used to accept payments for online, retail, and mobile businesses. It may be available independently or as an additional feature for your retail account. With a telephone merchant account, you will be accepting payments without the card or the customer being physically present in your store. Doing this may make payment processing more complicated as well as attract fraudsters. Nevertheless, a telephone account can be a useful tool for your business and especially if you will be dealing with the elderly who are not as tech-savvy as the younger generations.
Mail Order Merchant Accounts
Although old and traditional, mail order merchant accounts are still being used globally by thousands of small businesses. A mail-order merchant account works similarly to a telephone account. Meaning, to accept payments, you will first be required to enter your customer’s credit card information on a terminal or on your company’s computer system in the absence of your customer or their card.
All businesses that accept credit cards can establish mail order merchant accounts. However, they are considered the best option for businesses that sell their goods and services via catalog.

Difference between Regular and High-Risk Merchant Account
For businesses to accept card transactions with little to no difficulties, entrepreneurs must first understand the difference between a regular and a high-risk merchant account.
As the name suggests, high-risk merchant accounts refer to those accounts that are created for businesses that have more financial liabilities. Such businesses include health and beauty products, real estate, and online gaming.
When applying for a merchant account, the bank or service provider will first evaluate the nature of your business. Some of the few things that will influence their decision include your company’s location, consumers, financial stability, and reputation. If your business has a poor reputation or numerous cases of fraud, the bank might allow you to open a high-risk merchant account. In doing so, you might end up paying more fees than with a regular account.
Other times, banks or service providers might reject your application.
On the other hand, to open a regular account, your business must have few financial liabilities. For instance, you must have less than $20,000 processed monthly and your business must have a zero to low chargeback ratio. The average credit card transaction should also be less than $500 and your business must sell low-risk goods and services such as clothes and household items.
It’s also worth noting that all account providers have different guidelines when it comes to categorizing businesses and evaluating applications.

Establishing an account – How to pick a service provider
With so many companies offering merchant services, knowing which one to pick can be a daunting task. The type of merchant account you create will depend on the nature of your business. However, there are a few general qualities that all merchant account providers should have. So, what are these qualities?
First, the provider must have enough pricing plans. Most account providers offer only one pricing plan which can negatively affect small businesses during off months. A good account provider should have three pricing plans; flat, tiered, and interchange pricing.
Another thing to consider when picking a merchant account provider is the amount of fees they charge. There are providers who charge hefty fees per transaction plus other miscellaneous monthly fees that may affect your revenue. Others may charge additional fees if you close your account early.
The third quality you should look for is security. All account providers should be PCI compliant. A PCI-compliant provider will offer multiple security technologies such as two-factor authentication and antivirus software that will protect your personal information as well as funds.
Additionally, merchant account providers should offer both swiped and online card processing. Doing so makes it easier for those who have both retail and eCommerce businesses.
Last but not least, look for a provider who has excellent customer service. Many merchant account providers are now offering 24/7 customer support through various ways such as email, telephone, and live chat.

Cost and fees of a Merchant Account
All businesses that accept debit and credit card transactions must pay a wide array of fees before receiving their funds. The amount of the processing fees you’ll pay will vary depending on the provider you’ll use, the merchant account you’ll open, and the type of cards your customers will use.
When your customer swipes their credit card, you will be required to pay authorization fees. Authorization fees are always charged per transaction. Other times, you might end up paying this fee even if your customer lacks sufficient funds and the transaction is denied.
If your customer requests the transaction to be reversed, your provider might charge you a chargeback fee which may also include a separate processing fee.
On the other hand, with every successful payment, you will be charged a small fee per transaction. This fee can be charged independently. However, many providers simply include it in the authorization fee.
When your customer uses their credit card or debit card, your provider will run security operations and check for fraud. Thereafter you’ll be charged a small assessment fee. This fee is charged per transaction and the rates are usually between 0.13%- 0.15%.
Other providers may charge monthly fees and processing commitment fees. In the processing commitment fee, you will be charged a small amount of money if your business fails to transact the agreed amount of money stated in the contract.
Other times, you might get charged a small fee for requesting early termination of your account or agreement.
Conclusion
Although there are a lot of steps involved when creating a merchant account, the benefits are countless. The greatest benefit is the fact that your sales will increase because modern consumers prefer using credit cards over cash. In fact, a recent survey showed that people tend to spend more when they are given the option of using payment cards.
Additionally, it will attract more customers and help improve cash flow. You will also be able to manage your funds better and avoid dealing with bad checks.