A merchant bank account is a type of bank account just like any savings or checking account but with one very significant difference.
In order to accept payments by debit and credit card, as well as mobile digital payments, you need a merchant bank account. Think of it as a license that permits your business to process sales transactions through major credit cards and have those payments deposited into the bank account of your choosing.
What makes a merchant bank account different from a regular checking account?
A merchant account is a special type of bank account that will be set up by a card payment processing company. It legally empowers you to accept card payments.
A merchant bank account will always remain separate from a regular business bank account.
Payments from customers processed through a payment processor will be deposited into your merchant account. They are never paid directly to your business bank account.
Those funds are then transferred, automatically to your regular business bank account.
A merchant bank account is essentially an agreement between the three parties:
- The business owner as the merchant
- A bank that holds your merchant account
- The payment processor that handles your credit card transactions through a payment gateway, credit card terminal or mobile application.
Why do you need a merchant bank account?
It’s a must-have if you want to accept card payments. You simply cannot charge a sale to a customer’s card without one. You have no choice in the matter.
- A merchant bank account enables you to legally accept credit card payments.
- It provides safe and secure payment options for your customers
- It protects their confidential card and personal data
- It safeguards your business against fraudulent transactions and chargebacks
- Merchant account holders must abide by the rules laid down by Visa and MasterCard
Acceptance involves the payment service provider assessing your business and carrying out a risk analysis for their card payment processing service.
Why can’t I use PayPal, Stripe or Square instead of having a merchant account?
In the payments industry, services like these are called payment aggregators. They more or less bundle or aggregate all their customers into a single merchant account that the service owns and manages. That spreads the risk and costs of “bad apples” across a large number of users.
They bypass the initial checks that banking laws, MasterCard and Visa are legally obliged to carry out for merchant bank account applicants also known as KYC (Know your Customer). They assume that the vast majority of applicant will process only tiny amounts compared to a regular business does through its merchant bank account.
That enables them to open and activate new customer accounts almost instantly.
Many small businesses start out using only PayPal, Stripe or their like and it works fine for a time. As the business grows, the benefits of a merchant account will become apparent for these reasons:
Customer service – Merchant accounts usually charge a service fee to cover professional merchant support when issues arise as they invariably do from time to time.
Account freezes – Because these services do not assess merchants before signing them up, they may freeze an account at any time. They cannot permit illegal sales transactions, just as no merchant account can either. Any high risk business runs the risk of losing their PayPal or Stripe capability once it comes to light.
Higher costs – Once a business grows, the volume of transactions rises too. That’s when the higher transaction fees of these services may begin to hurt. A merchant account saves money for a small business owner
Management information – These services cannot provide the level of sales and customer analysis data that comes standard with many merchant accounts. This is extremely valuable business intelligence for any manager.
Why your business may be deemed High Risk for a merchant bank account
Banks and financial institutions go to great lengths to minimize or avoid the risk of making a loss. They employ experienced underwriters to check every application for a merchant bank account.
Underwriters will first look at the industry or sector that your business operates in. You may be surprised to learn that they rate over 60 industries as being high risk.
You would expect firearms sales and the adult industry to be classed as high risk. But apparently mundane businesses such as ticket sales, home furniture and computer tech support are also frowned on. The important thing is not to panic. There are solutions for you.
What to do if your application for a merchant bank account is declined
Most US banks will not accept applications from high risk businesses. That means you need to engage experts to find you a high risk merchant bank account. Talk to us about this. We find solutions for any legal business.
What is a merchant bank account offshore? How can it help my business?
Many businesses fail to get a merchant bank account here in the US for several reasons. Chief amongst those is the industry they operate in. Other factors can include a sub-optimal credit history or just being a brand new startup.
The best course of action by far is to ask the experts for help. Here at SecureGlobalPay we have invested a lot of time in building up a network of friendly acquiring banks in Europe and elsewhere.
Visa and MasterCard operate different rules in other parts of the world. It means that your business may well be accepted by a foreign bank after a US bank has declined it.
This is where an offshore merchant bank account comes into its own. It is totally legal and operates in the same way as a US account for credit and debit card payments.
What is a merchant bank account suitable for my business?
You may be fortunate enough to operate a business that US banks consider to be in the low risk category. These merchant bank accounts attract lower charges and fees than for businesses operating in high risk industries.
In any case, study any contract very carefully. Occasionally, you should engage a commercial contract attorney to safeguard your interests before signing a deal. He or she may also provide valuable insights and advice based on real life experience.
Things to watch for in merchant account fees:
Early termination fee – ensure this is not excessive (if it even applies)
Monthly fee – Almost all merchants serviced by card payment processors pay flat rate monthly fee
Retention period – The balance of your funds, or a portion of them, will be retained. That is to protect the card processing service and bank against fraud and chargebacks. Ensure this does not impact too much on your cashflow requirements.
How do I get a merchant bank account?
Open a merchant account today! Click here to apply now. We will process your information and get back to you with a status update within 4-5 days.
You can also speak with one our merchant bank account experts if you wish. Just call on 1-800-419-1772 and our friendly team of professionals will be delighted to answer all your queries.