What is a Merchant Account?

Are you a retail merchant selling your products in a physical store or on-line? Do you run a food service operation? Do you offer a repair service? Whatever your business, you’ll need to be prepared when your customer asks you that all-important question: “Do you take credit cards?” A merchant account is one part of the process that allows you to accept credit cards as payment for your products or service.

Picture credit card processing as a kind of pipeline that carries your customers’ funds from their credit cards to your bank account. That pipeline is built around three basic steps.

The first step begins with collecting your customer’s credit card information. How you do that depends on your business. If you’re a retail merchant with a physical store, you’ll probably opt to install terminals so your customers can swipe their credit cards for payment. If you’re an on-line merchant, you direct your customers to a payment page to capture their information in what is essentially a virtual terminal. Service people working “in the field” can simply write down the credit card information and bring it back to the office for processing, although there are many options available today to capture credit card information on the go (Transparent can even provide you with mobile payment solutions!). However you collect your customer’s credit card information, this information is transmitted to a service for processing.

The second step in the processing pipeline occurs when your payment processor checks to see if the customer’s account is active and has the funds to cover the amount of the payment. Once the funds are verified, you get to the best step… step three: the processor charges the card and the “money” moves down the pipeline toward its goal of reaching your pocket!

And that’s where a merchant account comes in. Essentially, a merchant account is the place where the funds from your sale are deposited so you have access to them. Usually, that would be your company checking account. This link between the credit card company and your bank account is established by your credit card processing company.

But even before this flow of capital from your sale reaches your account, some of it is being siphoned off as fees for the service of moving these funds. Each time you process a credit card, there is a fee to the bank that issued your customer’s credit card; a fee to Visa, MasterCard or one of the other card “brands” available today; and a fee to your credit card processing company. Not that these fees are unwarranted…you can understand that there are costs incurred in this process of electronically transferring money from your customer’s account to your account. What’s not so easy to understand is why some credit card processing companies charge different fees for the same service. Because credit card processing companies are performing the same service, why do some merchant processors charge significantly more than others? So before you choose a credit card processing company, carefully review the extra “service fees” you’re getting charged and make sure you’re only paying for the services you need at the best cost.