What is a Merchant Account and Why do I Need One?

Thu 15th Mar 2018
What is a Merchant Account and Why do I Need One?

A merchant account is a special bank account that allows your business to accept card payments in different ways, typically credit or debit cards. This is different from your normal business bank account. Your merchant account acts as a holding pen for money before it’s moved into your business actual bank account. Merchant accounts are usually provided by ‘Acquiring Banks’, however, they can also be obtained as part of a package from a Payment Service Provider (PSP).

You may have heard the term ‘Internet Merchant Account’ (IMA). This is a merchant account that can receive online payments.

Merchant accounts can provide added security for your customers and your business. They help safeguard debit and credit card transactions while checking sufficient funds are available in the customer’s account before authorising payment.

When a transaction has been processed, the balance will be paid into your merchant account. The funds are then transferred automatically in to your business account.

What is a MID?
An MID is your merchant accounts unique identifier also known as your Merchant Identification Number.

How does a Merchant Account Work?
Your merchant account processes the card transactions from your cardholders and transfers the funds to your business bank account. These accounts charge a percentage or flat-rate fee for each transaction.

What is a High-Risk Merchant Account?
Banks consider some businesses to be ‘riskier’ than others.

Businesses that sell tickets provided by a different company are often considered high-risk because they may sell a high quantity of tickets, then shut down before the event organisers have been paid or before the event goes ahead. Acquiring banks can also consider some business sectors or industries to be high-risk for similar reasons.

These accounts charge a higher rate due to the risk factor associated. We can establish your risk category by reviewing your MCC code (merchant categorisation code) sometimes, merchants can be on the wrong code and get charged ineffectively costing further fees when unnecessary.