If you want to accept credit card payments from customers, you’re going to need both a merchant account and a business bank account. These are two separate accounts that serve very different functions, but each one is essential.
What Is a Merchant Account?
A merchant account is a type of business bank account that’s specifically concerned with accepting credit cards, debit cards, and other forms of payment from customers. When a customer submits a payment through your website or one of your card terminals, the payment is transmitted from the customer’s bank account through a secured payment gateway and into your merchant account.
A merchant account is important for all business owners to establish because it lends credibility in the eyes of issuing banks submitting electronic payments to your business. There is a sometimes-stringent application and approval process for businesses seeking a merchant account. The merchant provider may review specific business information to assess your level of risk, such as:
- Your credit history
- Your type of business
- Your outstanding debt and debt payment history
- Your estimated transaction volume
- Your time in business
If you’re accepted, the merchant provider assumes much of the risk for extending services to you. From an industry standpoint, this is perceived as much more secure than simply allowing customers to send payments to your main business bank account. The merchant account has specific safeguards, oversight, and accountability.
If you choose not to establish a merchant account, your only option is to apply with a payment facilitator service, sometimes known as a payment aggregator. Examples of popular payment facilitators include PayPal, Stripe, and Square.
But while a payment facilitator may come with easier setup (and with almost 100% approval rates), there are numerous downsides to this approach, especially for serious businesses.
With a company like this, you can expect higher credit card transaction fees, less reliable customer service fees, longer times to receive your funds (often more than a week, as opposed to the 24 to 48 hours common with merchant providers), and the constant risk of having your account frozen without warning. For a growing business, a dedicated merchant account is imperative to offset these potentially devastating disadvantages and establish trust and credibility with customers.
What to Look For in a Merchant Account Provider
Certain qualities are essential in any merchant account. These include:
- The ability to accept card-not-present (CNP) transactions. This is especially critical for ecommerce businesses. Look for a payment processor that offers its own secure payment gateway to facilitate electronic transactions.
- If you need to accept phone or mail order payments, you’ll also need to ensure that your merchant provider supports Mail Order / Telephone Order (MOTO) transactions.
- Transparent, straightforward pricing. Different pricing models exist for merchant accounts (including tiered pricing, flat rate pricing, and interchange plus pricing), but your costs should be limited to your basic transaction fee and monthly subscription fee (if applicable). Watch out for hidden fees, including large cancellation fees that can hurt you if you need to cancel before your contract term is up.
- A reputable merchant provider. The provider should have an excellent reputation in the industry and should have established relationships with all of the major credit card companies. The provider should also provide excellent customer service when you need it.
- The ability to accept international transactions. If a large portion of your customer base is international or accustomed to using alternative payment methods (aside from the standard Visa, Mastercard, and American Express), your merchant provider should be able to accommodate these transactions.
- An array of features to help you grow and scale your business. A good merchant provider will let you accept credit cards, but a great merchant provider will equip you with additional financial tools including analytics software, fraud prevention tools, mobile accessibility, and other features to help you get the most from your merchant account.
Unicorn Group is one of Europe’s leading merchant providers because we embody all of these qualities and more. Our fraud and chargeback mitigation tools offer an unparalleled level of security, and we make it easy to accept online payments in nearly 200 types of currency.
We offer competitive, transparent rates, and world-class customer service. Best of all, our products are easy to integrate into any major shopping cart, and we even have our own payment gateway so that you’re ready to accept payments with a single integration.
What Is a Business Bank Account?
The main difference between a merchant account and a business bank account is that a merchant account allows you to manage credit card transactions while a business bank account allows you to manage all of your funds. Think of this type of bank account as a repository for your cash, your credit card sales, and all of your inbound and outbound currency.
As your customers submit credit and debit card payments, the funds from each transaction are saved in your merchant account. You can then take the total funds and transfer them to your main business bank account at your leisure (or on a regular schedule). Funding times are generally 1 to 2 days as long as you work with a reputable dedicated merchant. Be sure to ask about bank transfer times when comparing providers.
As the funds are collected in your main business bank account, you can use this account to pay bills, process payroll, and handle all expenses related to your business. Your bank might also extend additional services like savings accounts (which can help you to maintain the minimum balance requirements to avoid maintenance fees on your business bank account), investment accounts and business loans. And just as a general rule, it’s a good idea to separate your personal accounts from your business finances as a way of curbing your personal liability in the event of a legal dispute.
What to Look For in a Business Bank Account
When comparing business checking accounts and other types of business bank accounts, the following factors are especially important:
- A trusted banking institution. You don’t necessarily need to go with big-name traditional banks. Boutique banks can be extremely beneficial as well. The important thing is to ensure that your bank has an excellent reputation and that your funds are secured.
- Low fees. While you don’t necessarily want to hold out for the lowest merchant account fees (especially if the bank falls short in other ways), you also don’t want to get taken advantage of. Watch out for banks that charge transaction fees and early termination fees. Compare numerous options to find the best overall value. Note that some banks will waive their maintenance fee for businesses that meet certain criteria.
- The availability of additional services. Many banks will offer services like business credit cards, business lines of credit, investment accounts, and convenient mobile accessibility. Consider the perks that your business requires, and look for a business bank account that can help you to meet these goals.
If you have a bank that you already trust with your personal income, see if they offer a business banking option. Sometimes you can save money by establishing a business account with the same institution that manages your personal finances. In some cases, your maintenance fee may even be waived.
Why Can’t You Accept Credit Card Payments Directly to Your Business Bank Account?
If you’re wondering why you can accept credit card transactions directly to your business bank account, it all comes down to security. The acquiring bank would need to independently verify each transaction prior to approval, a process that can take days.
This isn’t a problem with merchant accounts, as these types of institutions have special relationships with the major credit card providers and are able to advance the funds even as online transactions remain pending. The merchant provider is able to bear the risk because they have carefully vetted the merchant and are equipped to absorb a certain degree of loss in the event that a fraudulent transaction occurs or the merchant fails to live up to their end of the bargain.
A standard bank, on the other hand, isn’t interested in advancing funds because it’s not set up for that sort of risk. It’s much easier to get approved for a business bank account than for a merchant account, because the business bank account provider operates under a different business model. It’s simply concerned with providing financial services to businesses—not managing financial risk on their behalf.
Using Your Merchant Services and Business Bank Account Together
You’ll generally need to establish a business bank account before you apply for merchant account services.
Then, once you’re approved by the merchant provider, you’ll link your business bank account details to your merchant account for seamless funds transfers. Your customers will transfer funds to your merchant account, and your merchant provider will then deposit those funds into your business bank account (usually upon request).
So while your business bank account and payment processing solutions serve vastly different purposes, they’re both 100% essential if you want to accept payments from customers.