Merchant accounts

Plan to accept debit and credit card payments? You’ll need one of these.

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Merchant accounts allow medium to large businesses to accept online and in-person debit and credit card payments. But high fees, early termination penalties and other important details are hidden in the fine print.

What is a merchant account?

Merchant accounts allow businesses to accept debit and credit card payments. When a customer makes a payment, the funds are directed through the business' merchant account. But you don't access funds there — money is transferred to your business checking account in one to two days.

Think of it as an intermediary between your customers' payment and when you get paid. Businesses pay for these services, with fees that depend on the provider and plan you choose.

Merchant accounts vs. payment service providers

Like merchant accounts, payment service providers (PSP) allow businesses to accept customer credit and debit card payments. But there are several differences that separate these services.

While traditional acquiring banks assign each business its own merchant account, PSPs like PayPal, Square and Stripe group all businesses in its service under a single umbrella account. And unlike traditional merchant accounts, PSPs seek to offer a one-stop-shop for processing services.

Merchant accountsPayment service providers
What size business is it best for?Medium to large businessesSmall businesses with a limited budget
Pricing structureTiered, interchange-plus or subscriptionFlat-rate per transaction
Setup timeUp to a weekSame day
ReliabilityThorough underwriting reduces risk of account freezesLarge transactions could initiate an account hold
Contract required?SometimesNo
Features and servicesPayment processing, dedicated account managerPayment processing, hardware, payment gateway, add-on reporting and invoicing tools

How to choose the right merchant account

Here's how to narrow down the competition to select a merchant account provider:

  • Pricing structure. The way you choose to pay fees for the merchant account depends on the size of your business and how many transactions you process. Consider a pricing structure that offers long-term savings.
  • Contract length. Some providers require contracts for up to three years. Be wary of multiple-year contracts and automatic renewal clauses.
  • Fees. Transaction fees are standard, but be on the lookout for early termination fees and liquidated damages that come when you switch providers.
  • Reputation. Before you apply, investigate your provider's online reputation with sites such as Trustpilot. Browse customer feedback and look for red flags that indicate potential issues down the road.
  • Support. Will your account manager be available to troubleshoot on weekends? Ask your provider what to expect in terms of ongoing support once you've signed up.

How much does a merchant account cost?

Merchant accounts come with transaction fees for each credit or debit card purchase. Expect other common fees including:

  • Setup fee. You could pay a one-time charge for your account to be set up.
  • Monthly fee. Monthly account service fees range from $10 to $99 monthly, while annual fees tend to top out at $300 annually.
  • Chargeback fees. This is a fee which is charged by a bank when a cardholder disputes a credit card transaction.
  • Cross-border fee. Accepting payments from customers outside Australia results in a cross-border fee typically ranging from 0.05% to 1.5% of the transaction.

How to sign up for a merchant account

Once you've selected a provider, it's time to get the application process rolling:

  1. Put together a business profile. Establishes credibility to a provider and should include transaction volume, average ticket price and how you plan to accept payments.
  2. Apply. While taking into account application fees, don't be afraid to apply to multiple providers. You'll have more wiggle opportunity to snag a competitive rate.
  3. Negotiate. The processing fees are often negotiable, so compare your options and be up front about what you're looking for.
  4. Set up. Once you've established a rate you're comfortable with, your provider schedules a date and time to set up your card processing terminals. If running an online business, ask your provider about any plug-ins you need to install to accept payments.

Is a merchant account different than a business checking account?

Don't let the name fool you — merchant accounts share little in common with the traditional business checking account. And businesses need both to accept card payments from customers.

The main job of a merchant account is to temporarily hold deposited funds until they can be passed on to your business checking account.

A business checking account, on the other hand, accumulates funds while helping you monitor cash flow, access ATMs, earn rewards points and track business expenses.

Do I need a separate payment processing provider?

While a merchant account won't process your payments for you, most are hosted by providers that bundle payment processing into their services. There's a good chance that by signing up for a merchant account, you'll be connected with a number of payment processing services to help facilitate customer transactions.

While some providers offer more than one processing service, businesses typically need more than one provider to handle customer transactions.

Frequently asked questions

Do I need a merchant account?

If you plan to process card or online sales — yes. Only businesses that deal exclusively in cash payments can operate without a merchant account.

Can I get a merchant account with bad credit?

Having low credit or an open bankruptcy may affect your application for a merchant account. That said, some providers are willing to offer you an account if you opt to use a cosigner with strong credit.

Which is cheaper: merchant accounts or PSPs?

PSPs offer fixed-rates, ultimately costing businesses less with a low volume of purchases. But medium to large businesses that process over $10,000 in sales monthly may find a traditional merchant account worth it in the long run.

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