Presenting a two-part series explaining the basics of Merchant Accounts

​​What Is a Merchant Account?

A merchant account is a specialized type of commercial bank account that allows businesses to accept payments via credit or debit cards as well as other electronic payment methods. It acts as an intermediary between businesses, their customers, and the various payment processing networks and card brands. As such, it facilitates the authorization and settlement of electric payment card transactions. In essence, the merchant account is the financial gateway that makes card and electronic payments possible. Any business wanting to conduct commerce online is required to have a merchant account since electronic payments are the only way their customers can make purchases. Merchant accounts come with fees that are deducted directly from the merchants bank account.

How do you get a Merchant Account?

Merchant accounts are obtained through a merchant account provider. There are basically three types of merchant account providers:

Acquirer Banks: Sometimes referred to simply as acquirers, these are financial institutions that directly establish relationships with merchants to enable them to accept electronic payments.

Payment Processors: Also known as payment service providers (PSPs) or third-party processors, these are companies that specialize in processing electronic payments for their merchant clients.

Independent Sales Organizations: So-called ISOs are also referred to as payment facilitators. They act as intermediaries between merchants and acquiring banks or payment processors and provide all the necessary components that make up a merchant account.

Requirements for obtaining a merchant account.

There are certain requirements a business must meet to qualify for a merchant account. These requirements may vary slightly depending on the merchant account provider as well as the particular industry in which a merchant operates.

The following are common requirements to obtain a merchant account:

Business Type: Most merchant account providers require that you operate a legitimate, licensed business such as a sole proprietorship, partnership, corporation or LLC. Some high-risk industries may face additional requirements.

Operational History: Many merchant account providers prefer businesses with a history of operation, typically at least three to six months. Startups may face more stringent requirements or higher fees.

Business Location: You may be asked for proof of a physical location, which can be a brick-and-mortar store or an online business with a verifiable physical address.

Business Bank Account: You must have a business bank account where the funds from card transactions can be deposited. This account should be in the name of the business, not a personal account.

Tax ID or EIN: A Tax Identification Number (TIN) or Employer Identification Number (EIN) is usually required for tax reporting purposes. Sole proprietors may use their Social Security Number (SSN).  

Financial Stability: Merchant account providers may evaluate your financial stability and creditworthiness. This may include checking your credit history and financial statements to assess risk.