Any business that accepts credit cards, debit cards, or contactless mobile wallet payments needs a merchant account. The card processing industry is highly competitive, and there are many providers that want to help your business succeed. Before signing up with one, it’s important to understand the process of how merchant accounts work, the costs involved, and the factors that determine which providers are best for your specific business.
Who uses merchant account?
Merchants establish merchant accounts through an agreement with a merchant bank, which partners with a payment processor to facilitate electronic transactions payment processing fees. The merchant bank agrees to charge your company a set of per-transaction fees, typically in exchange for providing your business with access to the card processing network. This arrangement includes a detailed merchant account agreement that outlines all the terms of your relationship with the bank and card processing network.
To process credit and debit card payments, a business needs a merchant account and a point of sale (POS) system or other hardware or software that connects to the merchant account. The POS system transmits the card data to the merchant account, which sends it to the appropriate credit card processor. In turn, the credit card processor verifies the customer’s identity and checks to see if they have enough money in their account to cover the purchase.
The transaction amount is then deducted from the customer’s account or is billed to their bank. The card processing company then transfers the balance to your merchant account, which then reflects the sales transaction in your business’s bank account. Merchant accounts may also collect additional fees from customers on a per-item or percentage basis, depending on the type of card and circumstances surrounding the purchase. These rates are known as interchange fees and are established by the card networks, such as Visa, MasterCard, Discover, and American Express.