Many people assume that as long as they have a card reader terminal and an internet connection, they can process card payments from customers and have them sent straight to their business bank account. But, unfortunately, things aren’t quite this simple. If you want to process card payments for your business, you will need a merchant account.
What is a merchant account?
Many people confuse merchant bank accounts with regular business bank accounts, but they are both very different. A business bank account is used for providing businesses with regular banking services. A merchant account is a special type of bank account that enables businesses to accept credit and debit card payments. When a customer pays by card, the payment is transferred to the business’s merchant account and held there until the customer’s bank account approves the payment, at which point it is sent on to the business’s bank account.
Why do I need one?
Any business that wants to accept credit or debit card payments will need a merchant account. In the 21st century, that means virtually every business needs one.
How do they work
When someone pays for a product or service with their card, the card and transaction details are sent to the seller’s merchant account from the card reader. The bank the merchant account is held with is known as the ‘acquiring bank.’
The acquiring bank forwards the transaction details to the relevant payment card organisation (Visa, Mastercard et al.), who then forward it to the customer’s bank, the ‘issuing bank.’
The issuing bank checks that the customer has enough money in their account to cover the transaction cost and sends a response to the acquiring bank confirming or denying that they have enough funds.
The acquiring bank sends the information along to the card reader, which then confirms the transaction. The actual funds will remain in the merchant account while the acquiring and issuing banks process everything on their end. The money usually reaches the business bank account within three days.
For online purchases, a payment gateway transmits data to the merchant bank securely.
What will providers need to know to open a merchant account?
Setting up a merchant account is usually a simple and straightforward process; you just need to give the account provider some basic information:
– Your business name
– Your contact information
– Your tax information
– The routing and account numbers for your business bank account
– What type of business you operate
– Your forecasted monthly income from card payments
– Your average transaction size
Opening a merchant account is an integral part of setting up a new business. Don’t worry; it’s a lot simpler than it sounds. There’s plenty of providers to choose from, so make sure you choose the best one for your business.