What is a merchant account? Why do I need one?

Product Information 1 December 2017

You need a merchant account if you want your business to accept debit and credit cards. And now, more than ever, retailers need to be able to accommodate card payments. A recent report by the British Retail Consortium revealed that more than half of retail purchases were made by card in 2016, with debit cards overtaking cash for the first time.

Beyond learning exactly how a merchant account works and what it can do for your business, it’ll be helpful for you to know the ins and outs of choosing and setting up an account. It’ll ensure you find a payment processing solution that suits your needs and will help you to move your business forward.

What is a merchant account?

A merchant account is an online bank account set up with an independent payment processor, so it’s separate from your business bank account.

All money you take from card purchases will go into a merchant account before being transferred directly to your business bank account.

How does a merchant account work?

Your merchant account processes the card transactions you take, deducts a percentage or a flat-rate fee for each transaction, and then deposits the remainder in your bank account. It’s all automatic, so you don’t have to do anything.

Depending on your payment processing company, you can usually gain access to a transactions log online that will enable you to track payments as they are taken. All merchant accounts, whether they have this feature or not, are usually very user-friendly.

Ways to take payments once you get a merchant account

Having a merchant account means you can take card payments in a variety of ways:

  • Card machine: a terminal that takes payment at your place of business, our card machines accept payments from all major card providers, as well as Contactless, Apple Pay, and Android Pay. There are several machines to choose from:
  • Online payments: a payment gateway allows you to accept online card payments, connecting your website with your merchant account so customers can make purchases quickly and efficiently.
  • Phone payments: you can take payments over the phone by entering your customers’ details into a virtual terminal, which acts like an online version of a card machine and connects to your merchant account.

The best payment method for you will depend on your business. Countertop card machines are great for shops and salons, while portable card machines are commonly used in cafes and restaurants. Online payments are great for any business with an eCommerce offering, while a virtual terminal can help you process sales quickly and efficiently over the phone.

Merchant account costs and fees – How much does it cost to open a UK merchant account?

Depending on which payment processor you sign up with, a merchant account shouldn’t cost much. There are usually two main fees you’ll need to pay:

  • Merchant or transaction fees, which is what you pay on each transaction. It will either be a percentage or a flat rate, depending on which is most appropriate for your business and the products or services you sell.
  • A fee for leasing your card terminals, which is often payable monthly.

Good merchant accounts are usually free to open. The account provider will take a fee from each transaction to cover their costs, so they shouldn’t need to charge you much more.

How to get a UK merchant account

The process will vary depending on the provider, but to get a merchant account you’ll generally need to:

  1. Find a merchant service provider that can meet your business needs.
  2. Contact them for a quote, based on what sort of payment solution you decide to use (such as a countertop machine or an online payment gateway).
  3. Speak to the provider to determine whether they can offer you a quote that you want to accept – during this process, they’ll probably ask you about:
    • What sort of business you run.
    • What products or services you sell.
    • Overview of your business accounts.
    • Your turnover (current and expected).
    • Typical business transactions (average value and frequency).
    • The percentage of transactions you take by credit and debit card.
  4. Once you’ve accepted their quote and your merchant account has been approved by the bank who will be handling the money, you’ll be assigned a merchant ID which will connect to your merchant account, and you’ll be able to get up and running.

When choosing a merchant service provider, it’s important to find one that understands your business needs. We work with over 50,000 small businesses and provide merchant accounts for people in a range of industries.

We can get you set up with a card machine in as little as 3 days, or help you open an online or phone payment solution in just 24 hours. Fill in your details for a free quote today, or get in touch with one of our experts to find out more.

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