Glossary
What is a merchant account?
A merchant account is a business bank account that lets you accept card payments and receive settlements. Learn how it works and how it differs from a PSP.
Updated · By PayToMe Editorial
A merchant account is a special account, set up through an acquiring bank or payment provider, that lets a business accept card payments and receive the money. Card sales are settled into it first and then paid out to your regular business bank account.
How it works
When a client pays an invoice by card, the money does not go straight into your bank account. The path looks like this:
- The client pays. Their card details go through a payment gateway that checks and encrypts them.
- The processor routes it. Your payment processor asks the client’s bank to approve the charge.
- Funds settle. Approved money lands in your merchant account, minus fees such as the interchange fee.
- You are paid out. The balance is transferred to your business bank account on a regular schedule.
There are two common setups. A dedicated merchant account is opened in your business name, with its own underwriting, merchant ID and pricing. An aggregated account is one where a provider lets many businesses share its master account, which means faster sign-up but more provider control over holds and limits.
Applying for a dedicated account typically involves reviewing your business type, volume, refund history and sometimes your finances. Expect questions about your expected monthly sales and your average invoice size.
Example
Say you take $5,000 of card payments in a month, and the all-in rate is 2.9% plus $0.30 per payment across 10 invoices.
| Item | Amount |
|---|---|
| Card sales | $5,000.00 |
| Percentage fees (2.9%) | $145.00 |
| Fixed fees (10 x $0.30) | $3.00 |
| Net paid out | $4,852.00 |
Those rates are illustrative. A dedicated account may offer lower per-payment rates but add a monthly fee, so compare your total cost at your own volume. Before you decide, write down your typical invoice amounts with the invoice generator, then run the numbers.
Related terms
- Payment processor: moves the transaction between banks.
- Payment gateway: captures card details securely online.
- Interchange fee: the largest part of the cost of accepting cards.