What is a Merchant Account?

A Merchant Account is a type of bank account that allows businesses to accept payments made by credit cards, debit cards, gift cards and other types of electronic payment, something which has become a necessity in today’s market. The account is established under an agreement between an acceptor and a merchant acquiring bank to settle debit or credit card transactions. In certain instances, a payment processor, independent sales organization (ISO), or member service provider (MSP) is also a party to the merchant agreement. Whether a merchant enters into a merchant agreement directly with an acquiring bank or through an aggregator, the agreement contractually binds the merchant to obey the operating regulations established by the card associations. Every single payment made with a credit card involves the transfer of funds to a merchant account. The merchant has full responsibility for the transactions that occur with their account, and each bank has its own terms of service to which account holders must adhere.

Today a majority of credit card transactions are sent electronically to merchant processing banks for authorization, capture and deposit. Various methods exist for presenting a credit card sale to “the system.” In all situations, either the entire magnetic strip is read by a swipe through a credit card terminal/reader, a computer chip is read, or else the credit card information is manually entered into a credit card terminal, a computer or a website. Every Merchant Account has a variety of fees, some periodic, others charged on a per-item or percentage basis. These majority of these fees are set according to a schedule of rates called interchange fees, which Visa, Discover and MasterCard set, not the merchant account provider. Interchange fees vary depending on card type and the circumstances of the transaction. For example, a transaction made by swiping a card through a credit card terminal is in a different category than a manual key stroke entry.