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What is a merchant account?

A merchant account is a type of bank account that enables a business to accept payments principally by debit and credit cards. Electronic payments are a must today. In fact, only 17% of transactions in the UK are made with cash and 19% in the US. Without a merchant account, a business would only be able to accept cash payments which would limit the way the business could operate—especially as the use of cash continues to decline.

Merchant accounts act like a holding pen while a transaction is completed. Funds will be held in the merchant account until the transaction is approved between the customer’s bank, which is the card issuer, and the merchant’s business bank, known as the merchant acquirer. 

How do merchant accounts work?

Let’s take the example of someone buying an item from an online shop. When the customer pays by entering their card details into the checkout, the card processor will send the purchase details to the merchant account, held by the acquiring bank. The acquiring bank then sends the purchase details to the relevant card association (e.g, Visa or Mastercard), which in turn forwards the details to the issuing bank. The bank will confirm if there are sufficient funds for the transaction. If so, funds can be released from the merchant account because the transaction has been authorized.

Do I need a merchant account?

If you want to take card payments in person or online, a merchant account is the standard way to do it. If your business only accepts cash, you would not need a merchant account, but card payments are vital for nearly every business today and merchant accounts make it easy. 

However, that doesn’t mean you have to set up a merchant account with a bank. Payment processors such as provide this facility as part of their core payment platforms, which will also include a payment gateway to accept payment details and connect with the payment network.

Learn more: merchant account vs payment gateway

Alternatives to merchant accounts

While merchant accounts are often described as essential for card payments, there are alternatives that enable you to accept payments online without a merchant account. For example, PayPal will process credit cards, debit cards and bank transfers for online businesses. If you create a PayPal business account, you can process payments on a fee-per-transaction basis.

PayPal has been around for a long time and has been joined by a growing number of other providers that offer alternatives to merchant accounts with banks. The trend is known as payfac, which is short for payment facilitator. A payfac is a payment services provider (PSP) that arranges communication between merchants and acquiring banks via a sub-merchant account.

Today, It’s vital for PSPs to offer a wide range of payment methods, and card acceptance is essential. This is borne out by research from, which reveals that 60% of ecommerce consumers would abandon their cart if they were unable to pay with their preferred payment method. If you want to run an online business, the bottom line is you must have a merchant account or an alternative to accept debit and credit cards.

How to get a merchant account

There is a well-defined process that every business must go through before it can get a merchant account. Here’s a summary of the main steps and considerations.

Get a business licence

If you don’t already have one, the first step is to get a business licence. Most businesses will already have one, as a licence is needed for legal reasons, but it may be on your list of things to do if you are a start-up. Every business will need to prove it is legitimate to gain a merchant account.

Open a business bank account

You will need a business account at your bank – the acquirer bank. This is where card payments will be deposited by the merchant account provider and from which any transaction fees will be deducted. It’s straightforward and quick to open an account with your local branch once you have a business licence and can show your employer identification number (EIN). 

Select the right provider for your business needs

Merchant account providers offer different services and every business will have different needs. For example, the types of cards that the business will need to accept and whether online and mobile payments are a requirement. It’s important to choose a provider that is PCI compliant, as security is essential for all transactions.

There are also three different types of accounts:

  • Aggregated – this is when merchant accounts are pooled to create a single payment hub, which means the costs are lower because they are shared between many businesses. It is often a good solution for small businesses.
  • Dedicated – a dedicated account is for one business only, and the rates will be tailored to individual needs. It is suitable for larger, higher-volume businesses with complex needs 
  • High-risk – a high-risk account is best for businesses in riskier industries such as gambling or travel. The risk means fees are higher.

With as your payments provider, you have an all-in-one solution with a merchant account tailored to your needs.

Application and underwriting

As well as showing a business licence, you will need to provide a range of other qualifying information, such as the nature of your business and forecasted turnover, and undergo an underwriting process.

Does provide a merchant account?

Because is a full end-to-end payments solution, it includes the functionality of a merchant account, acquirer and payment gateway all in one. This is backed by a wide range of other benefits to optimize payments.