What is a Merchant Account?

With a majority of consumers owning and using credit cards, it’s more important than ever that your business accepts credit card payments. Businesses that accept credit card payments are more likely to produce higher sales and have extra opportunities to up-sell to customers. If you’re a business owner, you probably already know why accepting credit cards is essential to growing your business, but to do that, the first thing you need to do is open a merchant account via a credit card processing provider.

What is a merchant account?

Nearly every payment made online and in-person involves the transfer of funds to a merchant account, which is an account that you hold directly with a bank. A merchant account allows your business to accept credit cards, debit cards, gift cards and other forms of electronic payment. Your merchant account is basically an online bank account that will temporarily hold your money until it is moved into your business bank account after a successful sale. Think of your merchant account as a temporary holding tank for your money while payments are being processed, and your regular business checking account is the place where you withdraw funds and deposit checks.

What does a credit card processor do?

When you process a credit card transaction through a merchant service provider, the processor acts as a middleman between you and your customer’s credit card company. When you swipe your customer’s credit card through the point-of-sale system, the processor sends the transaction to the customer’s issuing bank for it to be approved or declined. Most of the time, the transaction gets approved, and the money from the transaction is deposited into your merchant account.

In general, you won’t be able to access the money in your merchant account immediately. Instead, the money will be held for a short amount of time until your credit card processor decides to release it to you via direct deposit into your business account. A majority of credit card processing providers will send you a merchant account statement every month explaining the totals of your transactions, the types of cards used by customers and the total cost in fees that you paid for the credit card processing service.

Why should I use a merchant account? Are there other options?

Having a merchant account is one of the most cost-effective and safest ways of accepting credit card payments. With most merchant accounts, you can expect the money to be deposited into your bank account within one to two days. Third-party processors can take up to seven days to deposit the funds in your account, and this delay in receiving payment can be problematic for many businesses.

If you sell online, having a merchant account means that your customers won’t have to leave your website and go to a third-party site to make a purchase. Additionally, when they complete the purchase, your business name will show up on their bill. When you use a third-party provider, customers will be sent off your site to another site to complete their transaction. This can make customers uncomfortable because they no longer feel as if their transaction is secure. Third-party processors are a good option for people who are just starting out, but if your goal is to expand and run a successful business, you’re better off opening a merchant account.

By offering credit card processing, you’ll no longer have to turn customers away because they don’t have cash on them, and you’ll never have to worry about losing a sale.