What Is a Merchant Account and How to Get One

a payment terminal.

Having a merchant account for your business comes with a load of benefits. This account not only allows you to accept electronic card payments. It also increases sales for your business since you get to offer your customers multiple and more flexible payment options. They won’t have to pay via cash and checks only.

Everything You Need to Know About Merchant Accounts

But what is a merchant account? Why do you need it, and how does it work? Today’s post will bring you up to speed on everything you need to know about merchant accounts, from definition and requirements to ways to set one up.

What Is a Merchant Account?

A merchant account is a specialized bank account that connects a merchant to a service provider and an acquiring bank. This account exists for the purpose of accepting and processing electronic card payments. It acts as a holding account for credit and debit card payments.

When a client pays for goods or services via a credit or debit card, the funds first go to your merchant account. They are then wired to your business bank account daily or weekly.

Why Do You Need a Merchant Account?

Any business that accepts credit and debit card payments as a transaction option needs to set up a merchant account. If your company allows only cash and check, you don’t need a merchant account. You can work with a bank deposit.

Online and e-commerce businesses need to set up a merchant account for transaction purposes. Credit and debit cards are the most common forms of payments online. Your business can’t accept payments via credit card without a merchant account.

What are Merchant Account Fees?

The fees payable for establishing and using a merchant account depends on the provider and the card-acceptance environment. There are two types of card-acceptance environments: card-present and card-absent.

Some paying using a visa card.In a card-present environment, the customer hands out their credit card to the cashier or business operator to settle the payment. This transaction type works best for brick and mortar stores, and it requires the use of a credit card terminal or POS system.

For a transaction to be card-present, there needs to be a physical reading of card details through swiping or dipping. Cards that use the NFC contactless transaction method (like Apple Pay, for example) are also part of a card-present environment.

A card-absent environment occurs when customers insert their payment information via phone or computer rather than handing out the card. This transaction type works for online payments and e-commerce purchases, and no hardware is required at the time of sale.

The fees payable for card-present transactions are lower than those of card-absent. This difference in rates is because a card-present environment is less prone to fraud and chargebacks. There isn’t a large amount of risk coming with this transaction type. Service providers are thus, comfortable offering lower rates.

When choosing a merchant account, the fee models that you may encounter include:

Flat-Rate Model

The flat-rate model works by charging a fixed percentage on every processed transaction, for example, 3%. There are no surprise charges. This model is straightforward, and it gives you an idea of how much you need to pay each month. Flat-rate pricing is ideal for businesses with low sales volumes that may want to calculate how much they spend per transaction.

Interchange-Plus Pricing

Interchange-plus is a popular option offered by many merchant account providers. In this fee model, the service provider charges you the exact fee provided by the card issuer plus a separate markup. The card issuer’s fee is called the interchange rate, and it can vary depending on the credit card type.

Interchange-plus pricing is 100% transparent since it gives you a breakdown of each fee structure. For example, assume your interchange-plus fee structure is 2.45% + $0.10 per transaction. The 2.45% is the interchange rate, while the 10 cents is the markup. This model also offers the lowest fees per transaction.

Tiered Model

Some using tap on a payment terminal.Tiered pricing divides transactions into three general categories. They are qualified, mid-qualified, and non-qualified transactions. Each category has a different rate. Qualified, for instance, offer the best rates, while non-qualified is the most costly. Card present transactions fall under the qualified category in the tiered pricing model. Card-not present ones are, in most cases, non-qualified.

An example of mid-qualified transactions is when you key in your credit card details and use an AVS (address verification service) to verify your address. AVS verification adds an extra layer of security, thus reducing risk for the card issuer and acquiring bank.

Besides these pricing models, here are other additional fees you may encounter:

  • Monthly fee – Some processors may charge a monthly fee if you fail to achieve the minimum transaction number required by them.
  • AVS fee – Some processes might charge an AVS fee for businesses that use AVS to verify cardholders’ addresses.
  • Chargeback fee – occurs when a customer successfully gets a refund.
  • PCI non-compliance fee – You may be subject to this fee if you don’t comply with PCI standards.
  • PCI compliance fee – The payment processor might charge this fee to help you comply with PCI standards.
  • Cross-border fees – for international transactions.

Merchant Account Versus Payment Gateway

One common misconception is that a merchant account and payment gateway perform the same function. They believe that you either need one or the other. In reality, your merchant account and payment gateway work collaboratively. Their functions complement each other. If you have an e-commerce business and need to process a credit card payment, you need to work with both services.

Okay, but what’s the difference between a merchant account and a payment gateway? A payment gateway is a service that links your customer’s bank to your merchant account. A merchant account, by contrast, is the holding account where the customer’s funds go and await transfer to your business bank account.

Here’s a simple illustration. When your e-commerce website wants to process a credit card transaction, it will talk to the payment gateway. The payment gateway will link to your merchant account and allow the transfer of the customer’s funds from the customer’s bank. Your merchant account will hold the money and wait for the transfer to your bank account.

What Is a Merchant Identifier Number?

A merchant identifier number, also known as a MID, is a unique numerical code that comes with your merchant account. The acquiring bank assigns you this number when opening your merchant account. It helps them identify your merchant account and distinguish it from others.

Without a MID, you can’t accept credit card payments. If you could, the acquiring bank would have a challenging time figuring out where to route the transactions payments.

Merchant Account Requirements

The process of applying for a merchant account requires you to submit certain documents and meet specific conditions. Each merchant account provider has its requirements. Here’s a general view of the ones your provider may ask for:

  • Financial statements

When applying for a merchant account, the service provider may request you to submit financial statements such as tax returns and bank statements. They might ask you to provide two years’ worth of financial statements, although it depends on your business’s size. The service provider requires these documents to check if you are financially credible and dependable. They also want to know if you’re a fraud risk or a chargeback risk.

  • Voided check

The merchant account provider may ask you to submit a voided check to verify your business account information. Your business name or personal name (if you are a sole proprietor), routing number, and account number should be visible on the check. Alternatively, the provider can also ask for a bank letter in place of a voided check.

  • Business license

Another document that the merchant account provider may ask for is a business license. They need this document to check if your business is legitimate. Depending on your state’s business license requirements, you can provide a local business license, DBA, or state business license.

  • Physical address

Before granting you a merchant account, the service provider will need confirmation that you have a physical address. They need this information for mailing purposes. In the case of a brick-and-mortar business, you can use your store’s location. If you have an online business with no physical office, you can use your home address.

  • Employer identification number (EIN)

An employer identification number is a distinctive identifier number issued by the IRS for reporting taxes. Your service provider may request you to provide this nine-digit number. If you run a sole proprietorship and have no employees, you can submit your Social Security number.

  • PCI compliance

PCI compliance is necessary when applying for a merchant account. Every business that processes and stores cardholder’s payment information should be PCI compliant. That includes you, the merchant, and the merchant account provider. PCI compliance helps protect customers’ credit card information and ensures proper data handling.

  • Business bank account

The last requirement that the merchant account provider may ask you to submit is a document showing proof of a business bank account. Whether you run a company or a sole proprietorship, make a point of opening a business bank account before applying for a merchant account. Having one is necessary since it will be the final destination of every transaction.

Tips for Choosing a Merchant Account Provider

The approach many businesses make when selecting a merchant account provider is choosing one based solely on the pricing plan. Price is an essential factor, but it shouldn’t be the only one to consider. Here are other factors to consider when picking a merchant account provider:

Payment Security

Go for a merchant account provider who takes measures to prevent fraud and ensures the security of card payments. The provider should not only be PCI compliant. They should also have an additional security layer in their system, for example, encryption and tokenization. You want to work with someone who takes payment security as seriously as you do.

Customer Support

Another factor to consider when selecting a merchant account provider is customer support. You want to choose a service provider that’s available 24/7. They should also be easy to reach and offer multiple customer support channels.


You might be running a physical store today. But what if you plan to move online or to new markets in the future? Choose a merchant account provider that doesn’t limit your expansion capabilities.

Your service provider should support multiple payment technologies to allow you to scale gracefully. Go for one who offers many payment types such as credit cards, Apple Pay, and Google Pay and multiple payment channels like virtual terminals, card-present, and card-absent.

Contract Type

Your service provider will, most likely, issue you a contract before granting you a merchant account. Before signing it, take some time to check:

  • The contract length
  • Termination policy
  • Processing and cancellation fees
  • Minimum or maximum number of transactions
  • Any limitations that come with the contract

What to Ask the Merchant Account Provider

Here are some questions you may want to ask before settling for the merchant account provider:

  • How long have they been in business?
  • How long do they take to transfer funds to your business bank account?
  • Can they provide any references?
  • Which payment services do they offer?

How to Get a Merchant Account

Getting a merchant account requires you to enter into an agreement with either an acquiring bank or an authorized agent like a member service provider (MSP) or an independent sales organization (ISO).

Here are three steps to follow when applying for a merchant account:

1. Determine Your Payment Needs

Before getting a merchant account, take some time to think about your credit card payment needs. Which payment method do you want to offer? Which credit card brands do you wish to accept? MasterCard and Visa are the most common ones, but you can also accept Discover and American Express. Assessing your payment needs will help you select the merchant account provider that meets them.

2. Choose a Merchant Account Provider

Compare different merchant account providers to find the one best suited to work with you. As we highlighted above, the factors to consider when choosing a provider include pricing, security, expandability, and contract type.

3. Gather All the Required Documents

Once you select a merchant account provider, ask them which requirements and documents they require for the application. Gather all the necessary paperwork and submit your application. The underwriting process may take a couple of hours to a few days.


Someone swiping a credit card.Today, many customers expect your business to accept credit cards as a transaction option. Having a merchant account will not only allow you to meet your customer’s expectations. It will also enable you to accept electronic card payments, for example, credit and debit cards.

A merchant account essentially acts as a holding account for a customer’s funds. When a customer pays with a credit card, the money will go to your merchant account and await transfer to your business bank account.

There are many factors to consider when selecting a merchant account provider. You need to assess their payment security measures, customer support, expandability, and contract type. The provider may ask you to submit a business bank account, financial statements, and employer identification number, among other documents, during the application.


Merchant Account Provider Reviews

Spending some time on reviews is a great way to understand the services offered by merchant providers. Reviews also reveal insights into what you should be looking for. 

Take some time to check out the latest Google search results related to merchant account provider reviews.

Top Merchant Account Providers

Looking at the top merchant account providers lets, you discover the best services offered and what you can expect in service fees and pricing.

By comparing top providers, you’ll also be able to identify the most important issues to look for when choosing a merchant account provider.

Take some time to review the latest list of top merchant account providers in Google search results.

Top Internet Merchant Account Providers

If your business is online, you want to look at those merchant providers that provide merchant accounts specializing in online business services.

Again by reviewing the top providers, you’ll pick up tips, insights, and the most important functions you will need. 

Take some time to view the latest search results for top internet merchant account providers.

Merchant Account With Bad Credit

When applying for a merchant account, you have to have good credit or view your business as high-risk. This is because people make returns with credit and debit cards, and if you’re high-risk, the service provider is on the hook for those returns if you fail to process the returns. 

Therefore if you don’t have good credit, you may still get a merchant account, but your processing fees would be higher.

You can look at the merchant account service providers that offer services for people with bad credit from the link below. 

Check out the latest Google search results for high-risk merchant account providers.


YouTube is another great source of information where you can type in your keyword and get a list of videos related to that keyword. In addition, you’ll see a list of videos that are related to your keyword, and many of these you may not have considered. 

So for me, I always keep an eye on the related videos because it broadens the topic, and I can view topics I did not consider. 

Have a look at the latest videos on YouTube related to merchant accounts. 

Someone punching in their pin in a payment terminal.