Accepting credit and debit card payments is a convenient way to get paid for your goods and services. To be able to do this, you may need to set up a merchant account to handle your payments efficiently and securely.

However, understanding the complex jargon and multi-step processes involved with a merchant account can be confusing, overwhelming and frustrating. 

In this article, I will explain what you need to know about merchant accounts and how they will work for your business. I’ll also compare the different types of merchant accounts available and when you might need one. 


What Is a Merchant Account?

What is a Merchant Account?

A merchant account is a type of business bank account that helps your business take card payments. 

When customers make purchases with their card, the money goes through a merchant account before going to their normal business account. 

Think of it as a go-between for card transactions, ensuring everything happens smoothly and securely before the money reaches your usual business bank account.

How Do Merchant Accounts Work?

  1. A customer purchases using a credit or debit card.
  2. The merchant (business) initiates a transaction request by sending the customer’s card details and the purchase amount to the payment processor.
  3. The payment processor sends the transaction details to the card issuer (the bank). The card issuer checks to see if the customer has sufficient funds and sends an authorisation response.
  4. If approved, the payment processor sends the authorisation to the merchant, and the transaction goes through. If declined, the merchant informs the customer. 
  5. Upon approval, funds are held in the customer’s account, earmarked for the transaction.
  6. The merchant batch processes transactions to the payment processor. 
  7. The payment processor transfers the approved funds from the card issuer to the merchant’s bank account minus fees. It may take 1-5 working days to clear. 

Do I need a Merchant Account?

You might need a Merchant Account if…

  • You want to accept credit or debit card payments.
  • You sell goods or services online.
  • You want to offer convenient payment options for your customers
  • You want your business to be perceived by customers as professional, trustworthy and established.
  • You want to streamline your transactions, especially if you have high volumes.

You might not need a Merchant Account if…

  • Your business primarily deals with cash transactions.
  • You have a low volume of transactions.
  • You prefer invoicing or direct bank transfers, especially if you’re a service-based business.
  • Your business is seasonal or temporary.
  • You want to keep your payment process simple
  • You want to use an online payment processor such as PayPal or Stripe.

Pros & Cons of Having a Merchant Account


  • Convenient Payment Options: Accepting credit and debit card payments could increase sales
  • Fast Payments: Card transactions are efficiently processed and are usually faster than traditional methods.
  • Streamlined Processes: Transactions are efficiently and securely transferred from the customer’s card to your business bank account.
  • International Business: Many merchant accounts allow you to accept payment in various currencies. 
  • Enhanced Security: Merchant accounts protect sensitive customer information during transactions, reducing the risk of fraud.
  • Simple Bookkeeping: Merchant accounts facilitate better transaction record-keeping, making it easier to manage your business finances. 
  • Professionalism: Customers associate card payment options with established and trustworthy businesses. 


  • Fees: Merchant accounts have various fees, including setup fees, monthly account fees, transaction fees, currency conversion fees and chargeback fees, which may be an issue for businesses with low transaction volumes. 
  • Contracts: Some merchant account providers require long-term contracts, limiting flexibility. 
  • Hold on Funds: Merchant account providers may place holds on funds for a certain period for new or high-risk businesses, impacting cash flow. 
  • Strict Approval Process: Getting a merchant account application approved can be challenging, especially for small or new businesses. 
  • Slower Refunds: Funds take longer to reach the customer than other alternative payment methods due to processing times
  • Chargeback Limits: Receiving a high volume of chargebacks could lead to your merchant account being closed. 
  • Technical Integration: Connecting your merchant account to existing systems may require specialist knowledge. 

Types of Merchant Account

Type of Merchant AccountFeatures
StandardBest for: A wide range of businesses with moderate transaction volumes.
RetailBest for: Businesses with a physical storefront, such as retail stores or restaurantsUsually involves point-of-sale (POS) systems
InternetBest for: Businesses operating online or e-commerce storesFacilitates secure online transactions through payment gateways
MobileBest for: Businesses that operate on-the-go, such as food trucks or mobile servicesAllows payment using portable card readers, smartphones and tablets
Mail Order/Telephone Order (MOTO)Best for: For businesses that primarily accept payments through mail or phone ordersTransactions manually keyed in by the merchant
Aggregated/ Third-PartyBest for: Smaller businesses or individuals processing a lower volume of transactions. Multiple merchants share a single merchant account.
EnterpriseBest for: Larger businesses with high transaction volumes- Customised packages
High-RiskBest for: Businesses considered high-risk due to industry type, chargeback history, or likelihood of fraudOften have stricter terms and higher fees
Low-VolumeBest for: Businesses with low transaction volumesSimplified fee structures
Non-ProfitBest for: Non-profit organisationsSpecial pricing structures and support for donation processing
InternationalBest for: Businesses that operate internationallyMay include multi-currency processing

How Do You Get A Merchant Account?

  1. Research and Choose a Provider: Consider factors such as fees, contract terms, customer support, and compatibility with your business type.
  2. Gather Business Documents: This may include your business registration documents, tax identification number (TIN), bank statements, and information about your products or services.
  3. Check Your Credit Score: Some providers may consider your personal and business credit history when approving a merchant account.
  4. Complete the Application: It will typically ask for details about your business, processing volume, and the products or services you offer.
  5. Undergo Underwriting: The provider will review your application and assess factors such as your credit history, business type, and risk level.
  6. Approval or Decline: If approved, you’ll receive details about your merchant account, including fees and terms.
  7. Set Up Your System: For online businesses, this may include a payment gateway, a secure online portal that facilitates the transmission of transaction data between your website and the payment processor. This may include installing POS equipment for businesses with physical locations, such as card readers.

How To Find the Right Merchant Account Provider for Your Business

Choosing the right merchant account provider is essential for the smooth operation of your business. Before deciding, here are some key things you should check:

  • Compare Providers: Look for a reliable provider with an established reputation. Ask for references from businesses in your industry. 
  • Understand Your Business Needs: Identify your transaction volume, business model, and payment types.
  • Compare Fees: Including transaction fees, monthly charges, and set-up costs.
  • Check Contract Terms: Including contract length and potential early termination fees.
  • Consider Security and Indury Compliance: Ensure PCI DSS certification and industry-specific regulations. 
  • Check Compatibility: Consider your existing tools, such as your POS and card reader.


What is the difference between a merchant account and a regular bank account? 

What is the difference between a merchant account and a payment gateway?

How is a merchant account different from a payment processor?

Are Square and Stripe merchant accounts?