Merchant account
A bank account type that lets a business accept and hold card payments.
A merchant account is a specialised bank account that holds funds from card sales before they're paid out to your regular business account. Traditional processors set one up per merchant after underwriting; aggregators like Stripe and PayPal place you under one shared account instead, which speeds up onboarding.
How it works
The thing nobody warns you about is that a merchant account keeps charging when you stop selling. Monthly account fees, statement fees, PCI fees and minimum fees attach to the account rather than to your sales, so a seasonal business, or one that has simply paused, can run up charges on zero volume. Closing it has to be done in writing with the provider. Cancelling the direct debit or letting the deposit account go dormant ends nothing, and it certainly does not end an equipment lease attached to it.
The account itself sits at an acquiring bank and carries a merchant ID, the number that tags every transaction you send. Settled funds land there first. Fees and any reserve come out, and what is left is swept to your ordinary business bank account on your payout schedule. You cannot spend from it directly. Larger businesses often run several merchant IDs, one per location or sales channel, which keeps risk and reporting separate.
Dedicated account or aggregator is a trade between speed and stability. A dedicated account costs you days of underwriting and paperwork, and buys you negotiable pricing plus a much lower chance that a volume spike or one unusually large sale trips a freeze. An aggregator has you live the same afternoon at a published rate. There the risk rules are applied automatically and the reviews arrive without warning, which is what instant onboarding actually costs.
Worked example
Take March: $40,000 across 900 sales on interchange-plus pricing, at interchange + 0.30% + $0.10. Interchange and assessments on a mixed card-present basket come to roughly $730. The markup adds $210 on top of that, and at month end a $25 monthly fee and a $20 PCI fee come out of the same balance. About $39,015 reaches the business bank account, which works out at an effective rate of about 2.5%.
Frequently asked questions
- Do I need a merchant account to accept credit cards?
- You need one, but you do not have to be the one who opens it. Aggregators such as Stripe, Square and PayPal put your business under their own master merchant account, which is why you can take payments the day you sign up. Your own dedicated account, in your own business name, becomes worth the paperwork once volume is steady or your industry is treated as high risk.
- How long does it take to get a merchant account?
- A few business days for a dedicated account, once your documents are in, and longer if the business is high risk or has no processing history. Underwriters usually want business registration, identification for the owners, a bank account for deposits and recent processing statements. An aggregator account is normally approved in minutes, with the checks continuing quietly in the background afterwards.
- Why would a merchant account be frozen or closed?
- Freezes happen when your activity stops matching what was underwritten. The usual triggers are a sudden jump in volume, an unusually large single sale, a rising chargeback ratio, selling products outside the category you were approved for, or a mismatch between your business details and the deposit account. Tell your provider before a big campaign or a new product line and most holds never happen.