Merchant Accounts For Small Business: The Complete Guide

Setting up a merchant account is one of those things that you never really think about when you are making your business plans.

However, for most companies – especially in retail, it is nothing less than essential.

But what is a merchant account?

And how do you go about choosing the right service for your small business?

We’re going to find out in our simple guide – read on to learn more.


What are merchant accounts?

Merchant accounts allow businesses to take card payments – it’s as simple as that.

It’s an arrangement you have with a bank or merchant, that transfers money between you and your customer’s accounts.

But, how they work is far from simple. Let’s take a look at that now.


How do merchant accounts work?

When you pay for something by card – in a shop, for example – several events occur. You make the payment, for a start, either by swiping through a machine or typing out your card number.

Next, a verification process takes place. This is when automatic checks are made against the card to make sure it isn’t stolen and is still eligible for use.

The payment then moves to the processors, who arrange the transfer of money between the two accounts.


Why are they important?

The vast majority of payments in retail are by card these days. So, without a merchant account, you are cutting off a lot of money-making potential.

There are plenty of other options, of course, from contactless swiping to paying by phone. But, all these products are relatively new to the market and they will take time to ingrain into public consciousness.

To put it in simple terms, it’s so common now that not accepting card payments is like refusing cash payments 40-50 years ago.


How much are they?

Prices vary from merchant to merchant. But, there are a lot of people that get a little slice of every payment you take on a card system.

Firstly, there are the acquiring banks – such as the high street banking giants who offer merchant accounts.

You will need a payment gateway provider, too; who ‘host’ each transaction. You can also get white-label payment processing, which links up with merchants for an all-in-one solution.

You will pay a setup fee for most services, as well as a monthly service charge. Then, you can expect to pay transaction fees – which can range from 1-2% of each transaction.

You also have to process a minimum monthly amount through your machines – and you will have to pay the difference if you fail to do so. It’s also worth pointing out that you may not get advertised fees when you apply for a merchant account. You will be charged, in many cases, according to your company size and financial history.


How to choose the perfect merchant account

As you can see, there are a lot of choices when it comes to picking a card merchant account. And, there are a lot of potential fees to consider – which can vary due to several factors.

In short, it’s not an easy choice. You will need a calculator to work out which companies – and which gateway providers – are right for your business. But, especially if you are in retail, it’s a process you will have to go through.

So, here’s a quick checklist for choosing a merchant account:

  • – Compare the fees offered by different providers
  • – Read plenty of reviews from other business owners researching the best services
  • – Assess your own needs and capabilities to see which solutions are best for you
  • – Ask questions – there are plenty of people out there that can answer your questions
  • – Look for customer support and additional services, such as fraud prevention
  • – Ask for a breakdown of all the fees you will have to pay on top of the transaction costs


How to obtain a merchant account

The process of obtaining a merchant account is relatively straightforward.

All you have to do is fill out an application form, which can usually be done online. But, the approval process may take some time – depending on your business history and the provider you are dealing with.

You will need to provide details such as:

  • – Business name and address
  • – Details of your business’s primary activities
  • – Your company registration number
  • – Your banking details
  • – Proof of identity
  • – Taxation records (VAT, etc.)

Once you have submitted the application form, you may need to provide additional information or documents. But, assuming everything is in order, your application should be approved within a few days.

Finally, you will need to set up the necessary hardware and software needed for card payments – or partner with a payment gateway provider who will do this on your behalf.

That’s it! With that all done, you are ready to accept debit and credit card payments.


How payment processing works

Once you have a merchant account, you can start taking payments. The process is fairly simple: when the customer pays, the card details are sent to the gateway provider. They then pass on this information to your payment processor and the bank that issued the card.

The payment processor checks that there are sufficient funds available on the card, and then authorizes the payment. The money is then transferred to your merchant account, minus any fees you may have to pay.

Once the process is complete, you will receive a confirmation email or text message – depending on how it was set up. And voila! You’ve successfully processed a card payment.


Types of merchant accounts

Before you choose a payment processor, it’s important to consider what types of merchant accounts are available. Generally, there are two main types:

  • Retail Merchant Accounts – These are typically used by companies selling physical goods and services in-store or online.
  • Internet Merchant Accounts – These accounts are designed for businesses that sell products and services exclusively online.

Depending on the payment processor, you may be able to combine both types of accounts – allowing for both in-store and online payments. But, it’s important to check with your provider before signing up.


What fees are charged?

You will need to consider the fees associated with accepting card payments. There are several types of fees that you may be liable for, including:

  • Transaction Fees – These are typically a fixed amount charged per transaction. The rate can vary depending on the payment processor and type of transaction.
  • Monthly Fees – Some gateways or processors may charge a fee for maintaining the merchant account.
  • Gateway Fees – If you are using a payment gateway, there may be additional fees to pay.
  • Additional Fees – Many providers offer add-on services such as fraud protection and PCI compliance at an extra cost.

It’s important to read and understand the terms of your merchant account agreement before signing up. That way, you’ll be clear on any fees or additional costs associated with taking card payments.


What is a merchant account example?

An example of a merchant account is Shopify Payments. It’s an all-in-one service that you can add to your store and use to process payments. Setup is easy – and it includes fraud prevention features, too.

You pay the same transaction fees as with any other major credit card processor – but the setup fee is waived. It’s a great way to get started with card transactions if you are just starting out and don’t want to shell out for a merchant account yet.


Is PayPal a merchant account?

No, PayPal is not a merchant account. It’s an online payment processor that allows people to send and receive money online.

To accept credit/debit card payments you will need a merchant account, as PayPal does not offer this service. So, if you want to take card payments online you will need another provider for that.


Merchant account VS bank account

A merchant account is a special kind of bank account specifically designed for businesses that accept card payments. It’s different from a standard bank account in the sense that it allows you to process payments directly from your customers.

With a normal bank account, you are only able to transfer money between accounts – and cannot take direct payments from customers. A merchant account, on the other hand, allows you to process payments in real-time – and accept payments from customers almost instantly.

The main difference between a merchant account and a bank account is that a merchant account offers more features for processing payments – such as fraud prevention tools, multiple currencies, and integration with multiple payment gateways. It’s also tailored for businesses and is more expensive than a regular bank account.

A merchant account is essential for any business that wants to offer its customers the convenience of online payments. Without one, it can be difficult to process card payments in a secure and efficient manner.


Alternatives to merchant accounts

If you’re looking for an alternative to setting up a merchant account, there are several options available.

  • Payment Gateways – These services allow you to accept online payments without having a merchant account. They act as a middleman between your website and the payment processor, allowing you to securely process card payments without needing to store any confidential information.
  • Third-Party Processors – These services allow you to accept payments through a third party, such as PayPal or Stripe. This is a great option if you don’t want to commit to setting up a merchant account yet.
  • Cash On Delivery – If you offer products that can be delivered locally, you can offer customers the option to pay in cash on delivery. This is a great way to get started without having to worry about setting up a merchant account.


Merchant account providers

When it comes to choosing a merchant account provider, there are several options available. Some of the most popular include:

  • – PayPal – This is one of the most popular payment gateways and offers a range of features for businesses looking to process payments online.
  • – Stripe – Another popular payment gateway, with an easy setup process and a range of features.
  • – Square – This payment processor is great for small businesses, with easy setup and low transaction fees.
  • – – This is one of the most established merchant account providers, offering reliable service and advanced fraud protection tools.

No matter which provider you choose, make sure to do your research and read up on the fees and features each offer. This way, you can make sure that you’re getting the best deal for your business.


How much does it cost to get a merchant account?

The cost of setting up a merchant account varies depending on the provider and type of business you have. Generally, most providers charge a setup fee, monthly fee, and transaction fees for each payment processed.

Some providers offer discounts or waived fees for certain types of businesses or if you meet certain criteria – so it’s worth doing your research to find the best deal for you.


Is a Google Merchant account free?

No, Google does not offer a free merchant account. However, if you use their payment service – Google Pay – the transaction fees are waived for eligible merchants.

Google Pay is a great option for businesses that want to accept card payments without having to set up a full merchant account. It’s easy to set up and use, and there are no setup or monthly fees.


Final Thoughts

A merchant account is essential for any business that wants to accept payments online. It allows you to securely process payments in real-time – and is vital for businesses that want to offer their customers the convenience of online payment options.

If you’re looking for an alternative to setting up a merchant account, there are several options available – such as payment gateways, third-party processors, and cash on delivery. It’s important to do your research and find the best option for you.

Setting up a merchant account can be an expensive process, so it’s important to shop around for the best deals and discounts. Google Pay is a great option for businesses that want to accept payments without having to set up a full merchant account – as there are no setup or monthly fees.

Overall, setting up a merchant account is a great way to securely accept payments online – and give your customers the convenience of online payment options.


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