What is a Merchant Account and How Do They Work?

Payments and fees are a complicated area of business to work with, especially when you’re in the beginning stages of starting up your company. After setting up a business account, it’s a good idea to set up a merchant account as well. Merchant accounts help to receive payments by credit or debit cards. Without them, you may find receiving payments challenging.

What is a Merchant Account?

A merchant account is an account which funds from debit and credit cards are transferred after been processed. It’s an important part of payment processing, alongside payment gateways and payment processors. You won’t have direct access to the funds within a merchant account. Instead, funds get automatically transferred to your business account over 1-2 working days. Without a merchant account, you won’t be able to receive payments from your customers via any form of card payment. As card payments are becoming increasingly dominant, having a merchant account is more of a necessity then ever before.

Why do I need to set up an account for my business?

As small businesses owner, accepting as many forms of payment as possible is critical to your success. If you only accept cash, it could turn away customers who prefer to use contactless. A merchant account will be able to accept both online credit and debit transactions, as well as in-store payments. Furthermore, merchant accounts offer additional features that can benefit your business. For instance, checking processing services or online reporting features.

How to set up a merchant account for small businesses

Your first steps will likely begin with research. There are a number of providers out there, each with their own unique features, pricing schedules and contract terms. It’s important that you pick the right provider for your business requirements, whether that be cost-based or feature-based.

How do merchant accounts work?

The payment process always starts with the customer. In this instance, let’s assume a customer has purchased some groceries in your store using contactless card payment. This customer’s card details are then sent from the card reader to the merchant account, along with additional details of the transaction. The acquiring bank will then transfer this information onto the relevant card association – think Visa, Mastercard or Discover.

The card association will then forward the transaction details to the customer’s bank – known as the ‘issuing bank’ – to see if there are funds available for this purchase. If the customer has suitable funds, the issuing bank will fire a response to the acquiring bank, via the card association, approving the transaction.

The issuing bank will deposit the amount into the merchant account. This tends to have a settlement period of 1-7 days before it can be sent to your business account. Merchant accounts act almost like a holding-stage, a secure place for funds to sit whilst the necessary safety checks can be made.

Opening an international merchant account

For businesses looking to expand their reach internationally, it’s worth considering opening an international merchant account. This allows cards to be accepted internationally. International merchant accounts go through the same setup process but can expand your business and be opened in any region you want to break into.

Start Accepting Cards With Reposs

Increase customer satisfaction and save time and money by adopting Reposs' smart EPOS system that offers built-in stock management capabilities, Reposs fraud technology, integrated payments, and advanced reporting.

For any retailer that manages a complex inventory and wishes to take control and benefit from a birds-eye view of their store's individual product performance, Reposs' EPOS system is the answer.

Find out how to accept card payments in store via our EPoS systems for fast, efficient and easy transactions. Call 01732 762200 or email info@reposs.com. Alternatively, fill out our contact form.