Ever tried to pay a street vendor but it was ‘cash-only’? (In business, we call that ‘lost-opportunity…’)
Today, merchant accounts are an indispensable tool when running any business, small or large. They enable businesses to accept card payments from customers or clients.
With a merchant account, you can process in-person transactions and bank deposits for your business. Customers plop money from their checking or savings accounts into yours.
What is a Merchant Account - At a Glance ⚓
This guide will give you a beginner’s introduction into what merchant accounts are via mission-critical data brought to you by the Hosting Data team. But at a glance - what is a merchant account?
- Merchant accounts are opened with a bank or a credit card processing company. They allow businesses to accept digital payments.
- 💵 In all, a merchant account is a practical way to receive money. It’s secure and easy to use, and it provides you with the ability to accept payments by credit cards and checks.
- Some merchant accounts also accept online ecommerce payments like PayPal and Google Wallet.
In more detail
Gone are the days when ships, sailing across the seas, and the market stalls selling their beads and bags of salt - transported from across the globe - were the main bulk of what it meant to be a merchant.
Today, merchants have fewer drinking problems, dealings with pirates, and all means of scandals involving dimly-lit inns.
And a merchant account is essentially a line of credit handling that allows you to accept payments for the products and services you sell. It's an account where financial transactions are processed and money is deposited. A merchant account is also referred to as an "acceptance" or an "acquiring" account.
Merchant accounts can be obtained by anyone who wants to accept electronic payments from customers, clients, vendors, etc. People who want to start their own business may open one as part of the process of getting their business up and running.
Businesses that already have a merchant account can apply for additional ones if they want to expand their operations by accepting online payments or setting up multiple locations where they sell products or services in-person (for example, at the same location).
Merchant accounts enable businesses to accept payments by credit card. These are sometimes referred to as “e-commerce” accounts or “online payment processors.” Many larger companies, especially retailers, use merchant accounts to manage their sales and marketing activities.
In addition to accepting payments, some merchant accounts also provide you with free credit monitoring services, which is extremely useful if you handle a lot of transactions on a daily basis.
E-commerce includes the sale of goods or services online or by telephone, with payment either by check or credit card. It includes computer-mediated transactions, such as online auctions or e-commerce platforms.
However, not all businesses that accept credit cards are classified as merchants. Some companies are in the business of managing other businesses’ credit card activities. These companies are called third parties. However, they are typically known as payment gateway providers.
Types of Merchant Accounts
What are Mobile merchant accounts?
Mobile merchant accounts are a type of bank account that is usually reserved for businesses and startups that primarily operate from a mobile device, such as a smartphone or tablet. Think of a small-scale cafe, for instance.
Merchants who have a mobile merchant account are able to accept mobile payments, track sales and inventory, and run credit checks on customers who are signing up for a subscription.
Depending on the mobile merchant account provider you choose, the mobile device you’re using can be the same one that your customers interact with.
A merchant account that is designed around a mobile strategy makes sense for many businesses. As more consumers turn to their smartphones as their primary devices, a merchant account that is accessible through this medium is likely to grow in popularity.
Having a mobile account also makes sense when it comes to inventory management and analytics since these services are often more advanced on mobile platforms than they are on desktop computers.
What are eCommerce merchant accounts?
This is a catch-all term for the ability to sell online, so it technically also covers mobile merchant accounts, also to a degree even brick-and-mortar merchant accounts. But we’ll use it to mean offering products and every level of interaction online before delivery. With an eCommerce merchant account, you can accept customers’ online payments. ECommerce merchant accounts are similar to brick-and-mortar accounts, but with a few key differences.
First, eCommerce services allow merchants to sell items from their own brands. This can be useful for businesses that have many different unique services and products to choose from.
Another key difference between eCommerce and brick-and-mortar merchant accounts is that eCommerce services allow merchants to ship products directly to customers’ addresses. This can be extremely useful for selling physical products or services that have variable delivery costs, such as professional services.
What are B2B merchant accounts?
With a B2B merchant account, you’re able to accept credit card payments from customers and even process online bill pay, payroll, and other recurring payments.
A B2B merchant account is designed for businesses that sell items to other businesses, such as technology, chemicals, and medical supplies companies. B2B merchant accounts usually offer lower transaction fees than B2C merchant accounts because they are focused on larger transactions between businesses.
Unlike B2C merchant accounts, B2B accounts provide merchants with a wide range of banking services, including a range of payment options and reporting functions. This makes this type of merchant account a popular choice among many online businesses due to their focus on larger transactions.
It can be particularly useful for businesses that deal with other enterprises, such as engineering consulting companies or construction businesses.
What are B2C merchant accounts?
By comparison, B2C merchant accounts are designed for businesses that sell products to end consumers like books, food, toys, furniture, and other everyday items. With a B2C merchant account, you can accept credit card payments from customers who want to buy products or services like rent or airline tickets.
These types of merchant accounts have fees that tend to be higher than those for B2B and B2S merchant accounts because their fees are assessed per transaction, not per year.
B2C merchant accounts allow merchants to accept credit card payments. This can be extremely helpful for businesses that sell items that require payment in full at once, such as gyms or restaurants. In addition, they are often more flexible than B2B accounts, since they are designed to operate as a hybrid model. This allows merchants to offer different types of products and choose which payment options they prefer to accept.
How do virtual terminals work?
With a virtual terminal merchant account, you can accept credit card payments at automated teller machines (ATMs). A virtual terminal is software that enables a business to process payments with a bank account. Virtual terminals usually connect to the merchant account provider’s network, so they are not within the merchant’s physical reach.
This means that merchants who use virtual terminals are generally unable to access their financial information. The benefit of using virtual terminals is that they enable merchants to seamlessly accept payments without having to maintain any extra hardware or software.
Another benefit is that virtual terminals provide fraud protection for merchants since they are linked to the merchant’s bank account. Virtual terminals are a popular way for merchants to accept payments, and most large credit card companies have their own virtual terminal provider.
This means that it’s important to choose a merchant account provider that offers virtual terminal services.
What is a payroll service provider?
With a payroll service provider merchant account, you can accept direct deposits from credit card payments. An eCommerce merchant account is a type of account that is designed for online businesses that sell a variety of products, including both physical and digital items.
A payroll Service Provider (SP) is a company that handles the complicated parts of payroll for a business, including setting up and managing the accounts that track employee pay.
The challenge of managing payroll can be overwhelming for many business owners, so it’s important to find a provider that can help reduce the burden on your shoulders.
Payroll SPs come in different forms, including those that specialise in handling just payroll, medical benefits, and other benefits programs. It’s a good idea to get a full picture of what your business needs before choosing an SP.
It’s also important to remember that each payroll provider can vary in price, so it’s important to find one that fits within your budget.
Other Types - Other merchant account types include money transmission, gaming and telecommunications.
How Does A Merchant Account Work?
A merchant account works in much the same way as a regular bank account does but with one major difference: it has been set up specifically for accepting payments via credit cards and other types of electronic payment methods such as debit cards, prepaid cards and online banking transfers (ACH).
When your business receives a payment through a merchant account, you receive a notice via email or text message that includes information about the transaction such as the amount paid and what it was used for (e.g., paying for an order).
A merchant account is a financial services contract between you and a credit card processing company. This processing company actually offers you merchant account services. As the merchant, however, you’re responsible for everything related to accepting credit card payments.
When a customer makes a purchase through your website or mobile app, the customer’s credit card information gets processed through the merchant account. The merchant account company then sends the information to the credit card company.
The credit card company verifies that the customer has authorised the transaction and forwards the transaction details to their linked bank. The customer’s bank sends the money to the merchant’s bank, or the merchant’s bank sends the information directly to the merchant.
Why Should You Get a Merchant Account?
Merchant accounts are an invaluable tool for growing your business and generating revenue. With one, you can accept credit card payments for goods and services, receive payments from customers for taxes and other bills, and receive cash from bank deposits.
The first two are necessities for success, but the last one is largely dependent on where you live. Many small businesses live in small towns or rural areas where it may be difficult to get a bank account. With a merchant account, you can open a bank account and deposit checks from customers in your name.
You can also withdraw money from your bank account and use it to pay bills like utilities and credit card payments.
Things To Consider Before Getting One
- ☑️ Merchant Account Type - It’s important to decide which merchant account type is right for you before applying for a merchant account. There are many different merchant account types to choose from, each with benefits and drawbacks. You’ll want to make sure the one you go with is right for your business.
- ☑️ Merchant Account Cost - Even with the best merchant account, the costs of processing credit card payments can quickly add up. You may want to consider whether the cost of a particular merchant account is worth the revenue it generates for your business.
- ☑️ Credit Bureau Report - When applying for a merchant account, you’ll need to provide a detailed credit bureau report. Make sure the merchant account you’re applying for is a good fit for your business.
- ☑️ Credit Check - Before you can get a merchant account, you’ll likely need to get a credit check. If you don’t have a good history of making payments on time, you’ll likely get rejected.
- ☑️ DDoS Risk - Many merchant account providers will require you to sign a consent letter acknowledging that you’ve taken steps to protect your business against a Distributed Denial of Service (DDoS) attack.
What is a Merchant Account? - The Pros & Cons
✅ Advantages of Having A Merchant Account
A merchant account can be extremely useful for any business. The best part about a merchant account is that it allows you to accept credit card payments. This means you can generate more revenue and expand your customer base.
Additionally, merchant account providers offer merchant services such as merchant account setup, merchant audits, ecommerce services, online banking services, and more. With a merchant account, you can receive money from credit card transactions, process checks, and accept online bill payments.
Moreover, some merchant account providers offer additional benefits, such as free credit monitoring, cash back offers, and discounts on account setup fees.
❎ Disadvantages of Having A Merchant Account
A merchant account can be an extremely lucrative way to make money. However, it also comes with certain risks and disadvantages.
One of the main disadvantages of a merchant account is that it restricts you from using cash in person. In order to process cash transactions, you’ll have to use an ATM.
Another disadvantage of having a merchant account is that you’ll be required to accept all payment types. However, you’re not allowed to only accept cards and only accept cash. Some merchant account providers allow you to choose between accepting all payment types.
- Where? -
SumUp Merchant Review
⭐ Read here to compare the full choice of business card machines.
SumUp is a great merchant account for businesses of every size due to its cheap fees and transparency (no hidden recurring charges).
As any business should want, you won't encounter any unexpected costs whether you're just starting off or wish to move to SumUp thanks to the reasonable and open pricing structure.
You’ll be shielded against fraud and data theft by using SumUp. A compliant payment processor safeguards not just your company but also your clients' personal information. The reputation of your company will also be safeguarded by a secure payment channel.
SumUp conducts credit checks on prospective businesses and does not allow high-risk customers. If you do not really now have excellent credit, this could be an issue for subsequent verifications.
Pros and Cons
Square, Stripe, and Tyl are among the providers that don't verify new clients' credit. These may be a superior choice if your company is viewed as having a significant level of risk.
Among all of the digital payment processors we examined, SumUp is the only one to lack a live chat feature. Online chat is an option from more suppliers including Zettle, Square, and Stripe.
But SumUp provides a variety of practical advantages for companies in addition to comparatively inexpensive rates. SumUp is excellent for start-ups, small businesses, and mobile firms, but it isn't a "one-size-fits" product.
Small and Emerging Companies
SumUp is an excellent option for startups since it has no subscription fees and only charges a tiny proportion (1.69%) of the money you actually make from card transactions.
A card swiper is required, but with prices beginning at £40, it isn't the least expensive one on the market. The cost of a card machine from Square is £15, that from Zettle is £30, and Tyl has an unbelievable bargain of £6.99.
SumUp's 3G machine is a fantastic option regardless of if your company is entirely mobile or includes a mobile component. The equipment itself is stylish and portable, with a battery capacity of up to 500 operations.
The SumUp app will let you send purchase links to your clients' mobile devices if your line of work does not really need you to conduct business face-to-face. You can also share these URLs by SMS or messenger service. Sending the link only a few clicks, and all your consumer needs to do to complete a transaction via a secure website is click on it.
SumUp is most effective for mobile enterprises. It is a fantastic option for contractors, market vendors, and entrepreneurs because of its low transaction rates, absence of monthly charges, and 3G connection.
SumUp has a good compliance rating so you can securely accept cash and give clients a safe service without incurring any additional expenditures for fraudulent security mechanisms.
It's important to note that SumUp does run credit reports on prospective merchants, which might be restrictive if you have credit problems or none at all. Its lack of a live chat feature would be another drawback. Despite this, its card machines are dependable and easy to use, and it offers more API abilities than rivals like Stripe and Tyl with over 11 integrations.
What Should I Look For While Choosing A Merchant Account Provider?
- ✔ Competitive Pricing – Merchant account pricing is based on a variety of factors. Some of these factors include your business type, merchant volume, and geographical location. It’s important to choose a merchant account provider with low pricing.
- ✔ Free Trial Offers – A merchant account provider with a free trial offer is a plus. This will help you determine whether the provider is right for your business.
- ✔ Support System – A merchant account provider with a good customer support system is essential. This includes robust phone support and FAQ pages like this one with answers to common questions.
- ✔ Security – Remember, a merchant account is a gateway to your customers’ money. It’s essential that the provider you choose is secure.
What Businesses Should Use a Merchant Account?
Merchant accounts are designed to make a business' life much easier when it comes to accepting payments. A merchant account is a line of credit that allows you to accept credit card payments from your customers for the products or services you provide.
The customer pays for the purchase by swiping their credit or debit card through a scanner connected to their computer (or mobile device). This is known as an automated payment processing system.
Most businesses have a merchant account these days, but there are some businesses that do not qualify for one. For example, if you are:
- ❎ A non-profit organisation such as an anti-censorship group
- ❎ A government entity
- ❎ A religious organisation
You can still accept credit and debit cards, but you will need to contact your bank directly and ask them about their options for payment processing.
If your business falls into any of these categories, it is important that you understand how many other options are available before deciding whether or not having a merchant account is right for you.
Overall, they’re an essential part of every business’s financial infrastructure. You can accept credit card payments with a merchant account, which lets you sell products and services to customers without handling any cash, and with minimal fees compared to a non-business account.
You can also use a merchant account to receive deposits from customers and make electronic payments from their banks. Different types of merchant account providers offer different benefits. So make sure to shop around for the best merchant account deal before signing up.