What Is a Merchant Account?

A merchant account is a bank account that makes it possible for businesses to accept credit and debit card payments from customers. The account holds funds from customers’ card payments and then deposits them into the business’s bank account, so that they can be withdrawn. Many point-of-sale (POS) systems and payment processing companies provide merchant accounts in addition to other merchant services.

After a customer pays with a credit or debit card, either in person or online, a payment processor clears card transactions with card networks and issuers. The funds then go into the business’s merchant account before moving to its bank account. Generally, funds are accessible one to two business days after the transactions are processed.

The largest ongoing expenses associated with a merchant account are generally the credit card processing fees charged by the payment processor. Sometimes the merchant account provider and the processor are the same company; sometimes they're different.

Other fees can include:

• Setup fee: A one-time fee paid upfront to set up a merchant account.

• Monthly minimum fee: A minimum dollar amount you’re required to pay each month in processing fees. For example, if the monthly minimum fee is $20, and you only owe $15 in processing fees for that month, you will be charged an additional $5 to meet the required minimum.

• Monthly or annual fee: An ongoing fee paid each month or year for the services provided by your merchant account provider.

• Early termination fee: A fee for breaking the terms of an agreement or ending a long-term contract early. This fee is often determined by the length of time remaining on your contract and/or your monthly processing volume amount.

• Statement fee: An administrative fee for mailing statements.

• Batch fee: A flat fee paid when all of your transactions for the day are batched together and sent to the merchant account or payment processor.

• Chargeback fee: A fee the merchant pays when a customer disputes a charge on their credit card, known as a chargeback.

The short answer is yes — your business needs some sort of merchant account to accept electronic payments, like credit cards, debit cards and digital wallets. Many payment processors allow you to set up a dedicated merchant account, meaning the account is specifically underwritten for your business. These dedicated merchant accounts involve a thorough approval process and typically can’t be set up immediately.

However, a dedicated merchant account isn’t your only option. You could also use a payment service provider, which allows you to accept card payments using an aggregated merchant account. Since this option pools multiple businesses’ funds into the same account, it’s usually easier to apply for and can be set up almost immediately. However, these types of accounts often experience more freezes than dedicated merchant accounts.

» MORE: How to accept credit card payments

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Why we like it: Stax is a subscription-based merchant account provider that includes a terminal, ACH processing and analytics. The all-in-one payment platform allows users to manage their transactions from a single dashboard and is especially ideal for high-volume businesses that rack up large processing bills. Read our full Stax review.

Why we like it: Payment Depot uses an interchange-plus pricing model, tailors markups to your specific business and doesn’t charge a monthly subscription fee. You can reprogram your existing terminal for free, or purchase terminals and POS systems for an additional cost. Read our full Payment Depot review.

Why we like it: Dharma Merchant Services uses an interchange-plus pricing model and charges a monthly fee to use its services. It offers discounted rates to nonprofit businesses and sells Clover POS hardware for brick-and-mortar businesses. Read our full Dharma Merchant Services review.