A merchant account is a bank account that enables businesses to be paid through debit and credit cards. The account is usually domiciled in an acquiring bank. The merchant account is used to accept payments from customers as they are being approved through the customer’s bank before they are sent over to the merchant.
The merchant bank account is entirely different from your usual bank account. They are both different.
If your business does not have a merchant account, processing card payments with a payment gateway will not be possible.
How do you use a merchant account?
Let us assume a scenario with a customer – let us name her jane – pays up by using her credit/debit card at a high-street shop:
Jane proceeds to order a cup of coffee. Jane then pays for the coffee by swiping her card through the shop’s card reader.
The payment information from Jane is then sent using the card reader directly to the shop’s merchant account that is domiciled in the acquiring bank, with the transaction details. The acquiring bank then sends the details to the relevant card company – either through Discovery, Mastercard, or Visa. Jane then brings out her Visa card.
Visa then sends off the transaction information to Jane’s private bank, which is referred to as an “issuing bank” – to check whether there is enough money in Jane’s account to help her pay for her coffee.
Jane has just been paid, which means that she has enough money in her account. Then the issuing bank sends a message to the acquiring bank, through the card association, that sends the card details to the card reader: “Approved Transaction.” Jane then goes to have her coffee.
Therefore, the merchant account is a sort of holding pen – this is a safe place to hold the money as the bank ensures that there is sufficient money in the customer’s account for them to pay.
But, when do I get my money?
Now, Jane enjoys the coffee, while you, the coffee merchant, do not yet have the money from Jane. Well, no need to worry; this is completely the norm.
The real fund transfer can be done between one day and seven days as both the issuing bank and the acquiring bank move from one point to another to get authorization codes. This is the time called the “settlement period,” and each provider has their settlement period.
Many leading providers of the merchant account will have the money sent to your company business account about three business days or thereabouts.
Various ways that card payments can be accepted
Certainly, it is not enough just to have a mere merchant account – this is simply a bank account. However, to process payments by card, you shall need a way to collect information related to payment. You can do this in three simple ways:
1. Through card machine
As a part of your bank merchant account contract, providers of the merchant service usually rent out card machines. You can choose between the 3G/4G, wireless, and countertop mobile care readers as a merchant. You may want to use gateway credit card processing to maximise the security.
2. Through the phone
For you to accept over-the-phone card payments, you shall need the “virtual terminal.” The virtual terminal is a safe webpage that can be accessed through the usual web browser. This is where the merchant gets to input the card details of their customers. Using a mobile merchant account for security is also a very good idea.
To receive payments through an online portal, you will need to familiarize yourself with a “payment gateway.” This is connected to your website’s checkout feature. The payment gateway saves and sends the payment details of the customer to the merchant’s bank account in a secured manner.
The merchant account
We have three various types of bank merchant accounts
1. The aggregated merchant accounts
The aggregated merchant account is offered as a service by a PF – Payment Facilitator. This is the best option for small businesses that offer merchant services. First, the PF helps the acquiring bank to recruit merchants. Then, they are simply re-sellers – similar to the travel agent that helps you get a hotel and collects fees from the room charges as his payment.
Whenever you register, you get a code for your business, which depends on the industry’s nature and indicated industry. Businesses with similar properties are collectively grouped within shared pools.
When you pool out transactions from various merchants together while channeling them towards the bank, it will be processed into a single jumbo and group merchant account.
The PFS can facilitate similar low rates on behalf of medium-scale and small-scaled businesses just like they would for bigger businesses.
One of the demerits of the aggregated merchant account is that the merchants have reduced control over receiving payment for their services. Moreover, for certain businesses, it could be that they could facilitate better rates when they use their merchant account.
Some good examples of providers of the aggregated merchant account in the UK include SumUp, PayPal, Stripe, Square, and Zettle.
2. The dedicated merchant accounts
The dedicated merchant account is directly set up with an acquiring bank. With this type of merchant account, you get excellent control to decide when you receive your money, and you will be able to negotiate the rates that pertain to your nature of business.
3. The High-risk merchant accounts
Certain businesses might find it difficult to get approval for their merchant account through mainstream providers since they might be considered high-risk businesses. Don’t take it personally; if it happens to you, it is just business.
There are various criteria that the banks use for risk assessment. These are:
Durability and stability: How old is your company? What is its financial track record? Does it have a consistent turnover, or bad years, then good years?
Industry sector: Does your business operate in a high-risk sector due to higher than average rates of cancellation and chargeback? Travel, monthly subscription/membership, and gambling service providers are all categorized under this group.
Credit history of company owners/directors: Whether you or any member of your company’s management have ever been bankrupt?
What can be done if your company was not approved for the merchant account? First, do not lose any hope. There are many high rates, but there are many providers that specialize in delivering merchant account services for businesses categorized as high-risks.