What is a merchant account and how does it help your business?

Every business – no matter its size – relies on payments to keep it running. But the landscape of payments is rapidly changing with the rise in the use of debit and cards across the UK.

Here are a couple of numbers to put things in perspective. In October 2021, there were around two billion debit and credit card transactions in the UK with a total spend of £71.5 billion. With a population of 67.22 million, that’s already quite a number of transactions per person.

But what else might catch your attention is that this figure jumped 20.3% on figures in October 2020 and 16% more than October 2019, indicating just how much card payments are actually rising.

So, what does this all have to do with merchant accounts?

Well, because of the relationship between cards and card machines, a merchant account plays an important role in a merchant’s payment acceptance process. To help you understand this even better, we discuss all the important elements of a merchant account in more detail below.

What is a merchant account and why do you need one?

A merchant account acts as a “holding pen” for funds paid by a cardholder to a merchant using a debit, credit, or prepaid card when the customer makes a payment at the merchant’s business either in-person via a card machine when making a payment online or by phone/email.

Once a payment has been processed and the funds are transferred to this account, a merchant is able to access their received funds and use these to inject back into their business or use in whichever way they deem is the most appropriate. 

In most cases on the market today, many providers give access to merchant accounts and enable the settlement of funds into these accounts for periods that can range anything from 24 hours up to seven days. However, other providers offer an instant settlement of funds.

So, why do you need a merchant account for small business?

It’s essential if you want to cater to customers who are paying you with a debit, credit, or prepaid card as by not providing them with this option, you’re basically excluding an-ever growing client base that relies on card payments, and you’re missing out on important sales.

How a merchant account works

The mechanics behind a merchant account are quite similar, if not the same, whether you’re accepting payments in-person, online or over the phone.

In brief, the process of receiving a payment to actually securing the funds in your account is as follows:

Step 1: Your customer pays for their goods/services using their credit or debit card.

Step 2: The customer’s card details are sent from the card reader to the merchant account, which is held with an acquiring bank/payment services provider, together with the details of the transaction, such as the date of the purchase and the amount. The acquiring bank routes this information to the specific card association.

Step 3: The card association will forward the transaction to the customer’s bank (or the issuing bank) to check whether there are sufficient funds in the account for the purchase. 

Step 4: If the customer has the funds available in their account, the issuing bank will send a response to the acquiring bank, through the card association, which will transmit the information to the card reader and approve the transaction. The funds will then be settled in the merchant’s account.

This process, while seemingly complicated, takes only a few seconds to complete, although in most cases while the transaction may be instantaneously approved, the funds will not be immediately deposited in the merchant’s account.

This is what is commonly referred to as a “settlement period” because, as mentioned above, settlement of funds can take a couple of days. 

Types of merchant accounts

Wondering what type of merchant account is ideal for your business case? We take a look at a few examples of different merchant accounts below. 

Aggregated

This is probably the ideal choice for small business owners because it involves a payment facilitator, which will essentially “aggregate” several merchant accounts, which are recruited on behalf of an acquiring bank.

These payment facilitators often act as an intermediary or “middleman” between the merchant and the acquiring bank and the ability to “pool” together these accounts and merchants enables them to negotiate better terms for their merchant clients in terms of transaction rates paid.

Dedicated

These types of merchant accounts are set up directly with an acquiring bank. They give the merchant more control over how they are charged transaction rates.

High-risk

Finally, there are high-risk merchant accounts. To be considered high-risk, an acquiring bank will look at the personal credit history of the company’s directors and whether they’ve gone bankrupt in the past, they’ll look at the specific industry in question to determine how risky operating within it actually is and they will also consider the longevity and stability of your business before granting you a merchant account into which you can receive funds and payments. 

Are there any costs involved?

In most cases, a merchant account will come with several associated costs, which include monthly and annual fees, besides the transaction rate, which is typically a fixed percentage together with a fixed sum.

Having a myPOS merchant account, on the other hand, is free of charge.

What about security?

You might ask, are merchant accounts safe?

This will depend on whether your merchant account provider is PCI DSS compliant. Most times, they are and if not, they should be.

However, you also have the option to go for PCI compliance yourself, but this is generally quite a lengthy and cumbersome process, and is best if you check with your provider that they offer this. Otherwise, you may not be able to process card payments. 

What do you need to get started?

Every business operates differently and on different premises. Some merchants only offer in-person payments through a card machine, others offer card machines and payment gateways for their online stores. Then there are those which only offer online payments, while some offer a virtual terminal to accept payments via telephone or email.

Therefore, your method of accepting payments will also play an important role when selecting your merchant account provider. You may also be required to provide information that includes some of the following:

• Your personal credit history
• If you’ve had a previous merchant account before
• Your business history, particularly taking defaults, bankruptcies, or liquidations into account
• The time you’ve been doing business for
• The type of business you own, as well as its associated risk levels

Benefits of a merchant account

Accepting debit, credit and prepaid cards is not the only perk to having your own merchant account. You can also enjoy:

• Increased sales as you cater to more customers
• Better management of your money
• Avoid and reduce instances of bad cheques
• Increase customer convenience

What you get with the myPOS merchant account

Selecting your merchant account provider doesn’t have to be a hassle. Especially if you choose myPOS as your partner in payment acceptance.

This is because myPOS offers a range of competitive perks, advantages, and value-added benefits which come together with your account. Here’s a glimpse of what you get with us: 

• A free multi-currency account with a specific IBAN: you can use 14 currencies in your account.
• Instant access to your funds: myPOS believes in empowering merchants with an instant settlement of funds. No more waiting for funds to come.
• Cost-effective bank transfers internationally: outgoing bank transfers are super affordable and help you with your business expansion across Europe. 
• No contracts or rentals: once you purchase your payment device, it’s yours to keep. No rental contract, no sign-up, monthly or annual fees.
• A free Visa business card: wondering how you’ll access your funds? It’s easy! Do so with your very own and free Visa business card which you can swipe, tap, dip, insert or use to withdraw funds at ATMs.

Final thoughts

If you’re looking to accept card payments, a merchant account will be crucial for your business, be it for in-person, online, or email/phone payments.

This service will help keep all received funds together and you’ll be able to manage them to help your business grow. Keep in mind the settlement period that is offered to you and also take note of the fact that you do not need to wait for days or even hours for your funds to be settled in your account.

With myPOS, this is all instant. And there are more perks you can enjoy, too.