What is a Merchant Account?

What is a Merchant Account?
By alphacardprocess December 3, 2021

Merchant accounts are essential to the operations of online and brick-and-mortar businesses that process credit card transactions. While most small business owners understand what a merchant account is, they may not be aware of all the ways this crucial financial tool can help them grow their company’s revenue stream.

A merchant account essentially allows you as a business owner to process credit card transactions from anyone who wants to pay you via plastic. There are two main types of merchant accounts: online and offline.

An offline merchant account is a type of bank account that gets its name because it allows for credit card processing at locations not connected to the internet, such as physical retail stores or even trade shows. Any time you swipe a credit card at these locations, this is considered an offline transaction.

An online merchant account, on the other hand, facilitates transactions that take place over the internet. These types of accounts allow for credit and debit card processing through e-commerce websites or mobile apps that facilitate in-person sales.

Merchant Accounts for Online Businesses

If you already own an e-commerce store or plan to start one, then you will need a merchant account that is specific to online businesses. There are many benefits of processing online transactions, including:

No over-the-phone authorizations

Faster transactions and superior customer service experiences with the ability to charge a customer’s card as soon as the order is placed.

Certain tax benefits and more payment options

Credit card companies such as Visa and MasterCard provide merchant accounts to businesses that want to process online transactions. These types of accounts usually have a setup fee and can include monthly fees depending on the company’s credit limit, transaction volume and other factors. Some merchants will also need to get a dedicated IP address in order to process their transactions, which also has a fee associated with it.

Merchant accounts with a higher credit limit will have a setup fee and monthly fees that are higher than merchant accounts with lower limits. While the average cost per year is around $1,000 per account, this can vary from business to business depending on unique circumstances.

Merchant Accounts for Offline Businesses

For brick-and-mortar locations, the main requirements are a PC or Mac with an internet connection and a dedicated phone line that allows you to process credit cards. Once you have these items, you can apply online through Visa or MasterCard directly for merchant account approval. You will need to have a business checking account in order for the credit card company to link your merchant account with it. Depending on your location, you may also need a separate merchant account from your bank or financial institution.

The average annual cost of a merchant account is around $500. This number can fluctuate depending on factors such as average monthly transactions, which type of transactions are the most common, annual sales volume and company credit history.

The more credit card transactions your business processes every month, the lower your merchant account fees will be since these types of accounts have a base rate plus a percentage fee based on monthly transaction volume. The base rate is typically around 2% plus 30 cents per transaction.

Processing Fees and Handling Retrieval Requests

Once you have a merchant account, your responsibilities as the business owner include: responding to all credit card storage and retrieval requests, paying any fees that result from declined or invalid transaction attempts and keeping records of all transactions in case you need to provide them for tax purposes later on.

You will also need to make your customers aware of the fees they may be charged when using a credit card for payment. If you fail to correctly charge your customers, then you risk incurring penalties for mishandled funds and not being reimbursed by your financial institution.

Maintaining a merchant account is a great way to accept credit and debit card payments from customers that purchase your products or services. If you have a brick-and-mortar location, then you can also process transactions using a mobile card reader through a phone line with connectivity to the internet as long as the merchant account is specific to offline businesses.

It is important to know what makes up the cost of a merchant account and how it can benefit your business. Fees will depend on the average monthly transactions, type of transactions and company credit history as well as where you run your business.

For offline businesses, all you need is an internet connection to process credit card payments using a PC or Mac along with a dedicated phone line that gets connected to the internet. You can also use a mobile card reader to take payments through your phone line with connectivity to the internet as long as the merchant account is specific to offline businesses.

The average cost of a merchant account is around $500 annually, but this number can fluctuate depending on factors such as average monthly transactions and company credit history. The more credit card transactions your business processes, the lower your merchant account fees will be since these types of accounts have a base rate plus a percentage fee based on monthly transaction volume.

You will also need to make your customers aware of the fees they may be charged when using a credit card for payment and keep track of all transactions in case you need to provide them for tax purposes later on.

Maintaining a merchant account is great way to accept credit and debit card payments from customers that purchase your products or services. If you have a brick-and-mortar location, you can process transactions using a mobile card reader through a phone line with connectivity to the internet as long as the merchant account is specific to offline businesses.

You may also need a separate merchant account from your bank or financial institution, depending on the type of industry you are in and where you run your business. The average costs can vary depending on factors such as average monthly transactions, company credit history and the type of transactions that are most common for your business.