In today’s fast-growing digital era, a business owner may need both a merchant account and a general bank account. However, knowing the difference between the two can help you serve your customers in a hassle-free way. In the case of online businesses, having a merchant account has become very necessary since electronic payments are the only option for customers. The more available choices to make payments can help grow your business. We’ll learn about high-risk merchant accounts in this article!
What is a Merchant Account?
A Merchant Bank account is a type of business account that permits a business to accept and process electronic card transactions. Merchant accounts need to comprise a business to ascertain a partnership with a merchant acquiring bank that facilitates communications in an electronic payment transaction.
Merchant bank accounts are solely established for businesses where companies make and accept payments. Merchant accounts allow a business to accept credit cards and other electronic payments. Its services come with an added fee along with a multitude of services.
How does a Merchant account work?
Merchant accounts are provided by merchant acquiring banks that tie-up with merchants to facilitate electronic transactions.
A merchant account is established through a detailed merchant account agreement that comprises the necessary terms involved in that relationship. Some of the significant aspects comprise the per-transaction charge that shall be charged by the bank, established fee packages with card processing networks, annual fees of the bank for different services, and the bank’s card processing network.
An electronic transaction involves a few crucial steps. A business sends card communications via an electronic terminal to the merchant acquiring bank—the merchant acquiring bank contacts the brand card processor, who then contacts the card issuer. The card issuer authenticates the entire transaction through approval. After the authentication process, the merchant acquiring bank authorizes the transaction and disposes of the fund to the Merchant account.
Merchant acquiring banks charge monthly fees and special situation fees for various electronic card risks that tend to arise from a transaction or sometimes on a service that is used for settling transaction funds.
How is a Merchant account different from a general bank account?
A General Bank account can be defined as any customer relationship with a financial institution used predominantly to carry out transactions. However, a Merchant account is a type of business banking product. Merchant accounts let your business accept credit and debit card payments into your checking account. Merchant accounts, unlike general bank accounts, can only receive money electronically.
Merchant Bank accounts are not similar to deposit accounts that accumulate balance like savings accounts or act as evidence of a debt in case of the loan balance. Merchant accounts can be understood as a pass-through way since the money is en route to the final destination.
A Merchant Bank setup is very different from a traditional general account. A general account verifies every single transaction when money goes or comes in. However, a merchant account is more of a relationship with a Visa or a MasterCard member bank. It would be best to find a reputed merchant account provider like the National Merchant Association.
You cannot accept credit card transactions directly to your general or business account due to security reasons. The acquiring bank needs to verify every transaction for approval which may take up to days. But Merchant accounts are meant for a special relationship with the major credit card providers and quickly advance funds even when online transactions remain pending.
How to apply for a Merchant Account?
A Merchant account is very significant for all business owners since it establishes credibility in the eyes of issuing banks making electronic payments to your business. Hence, there are strict application and approval procedures for businesses wanting to open a merchant account.
The merchant provider first reviews specific business information to assess the level of risk. Some of the vital information may include your credit history, debt payment history, outstanding debt, estimated transaction, type of business you are doing, your overall time in business, and more.
If you choose not to opt for a merchant account provider, the only other option will be to apply for a payment facilitator service. It is easier to set up but carries its risks. They may charge higher transaction facilitator fees, and it may take up to longer hours, like a day or two, to receive your payment. It also carries a constant risk of having your account frozen without any prior warning.
You will need to open a business bank account before applying for a merchant account, as both accounts are essential to keep your business running.
Once a merchant provider approves you, you can link your business bank account details to your merchant account for a smooth flow of funds. The money transacted by your customers to your business account can later be transferred to your business account by your merchant account provider.
Hence, while a general bank account and business account serve different processes, a merchant bank account is essential for accepting payments from customers.