What Is A Merchant Account?

A merchant account is a type of bank account that allows card payment processing. It is different from a traditional currency account. It is used only by businesses established for business purposes where companies can make and accept payments.

For example, whenever you visit a website or an e-store and you wish to buy clothes, electronics or anything online, you will most likely be going to use a credit or a debit card. Whenever you order food on Wolt, order Cargo and similar, you will pay by card. These payments go to a merchant account.

But merchant accounts are not used only for online payments. Stores and POS terminals also use merchant accounts.

With that being said, merchant accounts are divided into “card present” and “card not being present”.

There are many different merchant accounts and it is important to set one properly and in accordance with business needs.

Who needs a merchant account?

Obviously whoever wants to process payments with credit cards needs a merchant account.

How does a merchant account work?

Basically, a merchant account works similarly to a loan. Due to the nature of how the money is processed and collected from the buyer or consumer, banks are essentially paying in advance the money that is due to be collected. There comes another conclusion – in order to set up a merchant account, one needs to have a proper bank account open first.

It usually takes about 24-48 hours to set up a merchant account.

The documents needed to open a merchant bank account are similar KYC questions to regular bank account opening, although there will be more information about the relevant acquiring bank that will be settling the transactions.

Merchant accounts of course have different fee schedules as the process requires more steps than direct payment from a bank account or in cash.

How does a flow of one transaction with a merchant account look like?

In an electronic payment transaction, a business sends card communications through an electronic terminal to the merchant acquiring bank. The merchant acquiring bank then contacts the branded card processor who contacts the card issuer. The card issuer authenticates the transaction through various approvals that include fund availability checks and security checks. Once authenticated the approval is sent to the merchant acquiring bank through the network processor. If approved, the merchant acquiring bank authorizes the transaction and begins the settlement of the funds in the merchant’s account.