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What is a Merchant Account?
Whether you are starting a new business venture or you are simply upgrading the systems in your current business, having a merchant account is necessary. While you may be familiar with most business bank accounts used by individuals, a merchant account is a type of bank account made for businesses. It allows a business to process and accept electronic payments and card transactions. For example, if you are running a small store, and you now wish to also take your business online with a brand-new website, you would need to use a bank account that allows you to process electronic payment transactions, hence you would need a Merchant account.
Merchant accounts are a type of commercial bank accounts, and they can be essential for the running of your online business. While these accounts can often have some added costs, the benefits of having them in place, and thus making it easier for your business to process electronic card payments, far outweigh the negatives of having to pay a small fee to your bank.
When it comes to Merchant accounts it is important to remember that they are created by banks specifically for your business purposes, as such they can also offer you services that might be beneficial to the running of your business.
Do I need to have a Merchant account for my business?
Whether a Merchant account is mandatory for your business might depend on a few different factors. If you originally were running a small local store or restaurant, no law obliged you to accept credit or debit cards. Many small businesses might choose to run their business with ‘cash only’. This is a way for them to avoid having to pay the fees for a Merchant Account. Now, while this might work for small local businesses, with so many people being used to using tap-and-go and fewer people carrying cash during their day, avoiding getting a Merchant account and sticking to a cash-only policy might actually harm your business. Still, it is a choice that you can make.
If, however, you are running an online store you have no option but to create a Merchant account. Online businesses have no other way of processing transactions and as such, they are obliged to have a Merchant account to be able to process transactions.
Choosing whether you want to have a Merchant account will depend on whether you consider being able to process electronic transactions important. It will also depend on the size of your business as well as, on whether you wish to be able to process payments online. If you want to be able to engage in the online market, you will need to get a Merchant account so as to get access to online transactions.
How do Merchant Accounts work?
To establish a merchant account for yourself or your business you will need to arrange opening an account with a merchant acquiring bank. For merchants acquiring a merchant account is a key part of processing transactions. For your merchant account, you will need to agree to the terms outlined by the bank, these terms will establish key elements of your account such as the per-transaction fees, the fee structure for the bank’s processing network as well as any other fees charged by the bank for the services it provides.
Agreeing to these terms is what will allow your bank to help you establish a way for electronic transactions to be paid for through their network. If you would like to learn more about merchant agreements and why they are important you can click on the link here.
How can you get a Merchant Account?
If you have decided that getting a Merchant Account is a necessary step for the growth of your business you might now be wondering how it is possible to obtain such an account.
To establish and obtain a merchant account you will need to apply for the merchant account of your choice. This process can be a bit lengthy at times, as there are many factors that the merchant account provider will need to consider before they accept your merchant account. Some of the most common factors looked at during this process are the type of business you are running, this is used to determine if there is a high or low risk of credit card fraud, how long your business has been running for, your business’s financial and credit history and whether you previously held any merchant accounts. All of these checks on your business’ financials will allow the provider to consider whether they consider the option of providing you with a Merchant Account a good one. Do not be surprised if as part of this process the Merchant account provider or bank also seeks to find out more about your credit history as the business owner.
Determining whether your business is a high or low-risk business might not have a detrimental effect in the process of obtaining a Merchant account but it might be that your chosen bank will choose to charge you higher fees initially. This will be a level of protection for them. It is also important to note that your fees might be able to be renegotiated in due time.
If you are a brand-new business owner and you are looking to start a Merchant account it might be best to try to get a Merchant account through the same bank that holds all of your personal and business accounts. This is because, as established above, the bank will run background checks on both you and your business. Therefore, working with a bank you have a good credit history with might be led to a more favourable result for your application.
What are the different types of Merchant Accounts available?
Naturally, different types of businesses might require different types of merchant accounts, and this is something your bank should be able to assist you with. Depending on your type of business it is important to determine which type of merchant account is best for you. In the following list you will find some of the most common merchant account types, but if none of these are what you are looking for then worry not, because your bank should be able to assist you with finding exactly the type of merchant account that is best suited for your business needs.
The Merchant account types presented below are most commonly divided into types based on the perceived risk or the selling methods used by the merchant, this might mean that a purely online store will need to have a different type of merchant account than a small physical store that also runs an online platform. So, look through the list below to determine the type of account that is best suited for you based on how you choose to run your business.
If you are running a retail store, a grocery store, or any type of business where you own a physical store from where you sell actual physical products, this might be the sort of account that you will need to go for. This account utilises Point of Sale (PoS) equipment, this means that your bank will help you set up an account to which all credit or debit card transactions will go through after they have been processed by the PoS. Because these are the most common type of accounts, and the risk of running them is fairly low, especially because a transaction will normally only be successful if the card used has enough funds within it, these types of accounts tend to have the lowest cost of running. For most small businesses, this account will really do everything that you need without a problem.
With the rise of online orders and E-commerce, many small businesses have sought to establish an online store as well. There are also those businesses that sell goods or services entirely online, without providing access to a physical store that the buyers can visit. If you wish to be able to process transactions and card payments online, the Merchant Account that you will need differs from the one mentioned above. These accounts are considered more high risk, than the traditional accounts, and they have a lot of variants that play into the total amount of the fees that you will agree to. If this is the type of account that you need, you will need to contact your bank to ask them what the fees would be for a merchant account that fits your specific business needs.
It might be that your business needs to also be able to process phone or mail orders from customers purchasing your goods. With traditional merchant accounts, the face-to-face interactions meant that there are lower risks to those transactions. With mail or telephone, that face-to-face interaction is no longer there, but you are still processing a payment by a cardholder, therefore the risk of these sorts of payments is much higher. Another difference is that since the cardholder won’t be present there is no need for traditional equipment for the processing of this order or payment.
It might be that your business requires more than one type of business account. Multi-channel merchants, as they are called, are merchants who make sales of their products through multiple different channels. This could mean having both a physical and online store or utilising phone, mail, physical, and internet order systems for the same of your goods. This tends to be the case for retail stores or stores that sell their goods using multiple platforms, and it is very common to need such an account in today’s business environment. Having multiple channels through which you can contact your clients means that you will be able to maintain constant contact with them, and as such you are likely to have higher sales. If this is something you wish to establish in your company, you will need a Multiple Merchant Account, as that type of account will allow you to process payments through different channels. However, for your merchant account, having multiple channels could make your application be considered more high risk, and as such for Multiple Merchant Accounts you might have monthly fees that are different from those of the accounts mentioned above.
This sort of merchant account is specifically created for small businesses or professionals who need to travel or be mobile to provide their service. This could include plumbers, electricians, landscapers, contractors or door-to-door salesmen. If you need to be able to process a payment on the spot regardless of where you find yourself, you will need this sort of merchant account. Depending on the risk level associated with the services you provide as well as with having an account of this nature, your fees might differ depending on your previous credit history and the volume of service you are selling.
If the industry you are a part of is considered high risk, then you might find that getting a Merchant Account might be slightly tougher. Even when you do manage to get an account, the fees can often times be higher because of all the risks associated with your business. High-risk merchants could include anything from travel agencies to multi-level marketing companies to casinos, to online pharmaceutical companies, and many others.
If you would like to learn more about the differences between high-risk and low-risk companies you can read the article found in the link here.
This will give you an idea of how a high and low-risk merchant is defined and as such you will be able to discern what category your business falls under.
How much does a Merchant Account cost and what are the fees associated with obtaining and maintaining one?
Merchant accounts tend to have a number of different fees and costs that are associated with the maintenance of your account. Often times these include fees for the application and setting up of the account. Depending on the type of account that you are opening you might also have monthly fees, discount rates, per-transaction fees and cross border fees. If you need equipment for your transactions there might also be a rental fee for a credit card terminal. The amount of all of these fees can add up to quite a sum, this is why it is important that you choose the best bank for your needs when opening a Merchant Account.
If you are looking to open a Merchant account while starting a new business, we recommend that you read the following article as it will provide you with a clearer image of all the expenses that you will need to cover when starting out. Click on the link here to find out about the cost of starting a new business.
What are the different options for Merchant Account providers?
From Barclays to Stripe to Paypal the different available options for your Merchant Account are vast. This is why it is important that you go into this knowing exactly what your business needs are. Terms and fees can often be renegotiated but you would not want to choose a Merchant Account provider just based on costs. It is important that whichever company you choose to go with can provide you with both the types of Merchant accounts you require as well as with the right amounts of security needed to carry out your transactions with safety.
Each different payment processing company might be able to provide different types of accounts at different rates so if you have no previous loyalties to one specific bank that could assist you with this we recommend checking out the list in the link here.
This list will provide you a full outline of the many different available card payment providers as well as an indication of what their rates would be. Using it you would be able to have more knowledge on what is currently available on the market and you will also be in a position to negotiate the terms of your Merchant Account better, as you will now have an understanding of the overall market and what competing services can provide for you.
Choosing to get a Merchant Account can be a big step in the right direction for your business as it can provide you with the option to have your products sold online, by phone or it can simply give you access to a wider clientele that tends to use tap and go. This is why it is important that you make the right decision for your company and that you choose the right type of Merchant Account for your needs.