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.

credit cards



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 through to paying by phone. But, all these products are relatively new to the market and they will take a 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 whitelabel 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 is 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.