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

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Nearly all modern businesses accept credit cards, debit cards, and other forms of electronic payments. In a world that is going increasingly paperless, this capability is more or less expected from customers. In fact, even independent contractors and mobile businesses are finding it useful to accept electronic payments through mobile payment solutions. At the root of all of these transactions lies a merchant account. These bank accounts are essential for accepting funds via credit card and debit card payments.

Today, we will be exploring exactly what merchant accounts do for small businesses, why they are so important, and how credit card processors/merchant service providers provide much more than simple merchant accounts.

What is a Merchant Account?

What is a Merchant Account?

At its core, a merchant account is a bank account through which electronic payments are processed. Credit card payments and debit card funds are deposited into a business’ merchant account once they have been processed. Once funds are received in the merchant account, the transaction is considered to be “settled”. Without a merchant account, businesses cannot accept any form of credit card, debit card, or EBT payments. Any business operating without a merchant account would need to operate as a cash-only establishment.

While the literal definition of a merchant account is simply a bank account, the reality of the benefits run far deeper. Merchant accounts are generally part of a merchant service agreement. These agreements can also be thought of as credit card processing agreements. The credit card processor will then help the merchant establish a payment gateway, credit card processor, process the payments themselves, and help with payment settlement.

In other words, merchant accounts are just a bank account that is set up as part of a larger payment processing agreement. The nature and details of a payment processing agreement are heavily dependent on the unique needs of the business and the features offered by the merchant service provider.

Merchant Services Agreements for Small Businesses

Merchant Services Agreements for Small Businesses

So how exactly do merchant service agreements work? Small businesses will generally shop around to find a merchant service provider or payment service provider (PSP) with rates and services that meet their demands. Many merchant service providers will offer a suite of additional services such as payment security and POS hardware (more on this below). All merchant service providers will provide electronic payment processing for a specified rate.

While there may be exceptions, the majority of merchant account agreements will charge businesses per transaction. Merchants are responsible for paying both the payment processor and the credit card companies a small amount for every payment received. These credit card processing rates and fees can be negotiated before signing your merchant service agreement.

There are several options when it comes to fee structures, including interchange-plus, membership, flat-rate, and tiered pricing models. Each of these options has its own advantages and drawbacks which should be considered before making a decision.

Benefits of Working with Merchant Service Providers

Benefits of Working with Merchant Service Providers

Electronic Payment Security Services

One of the biggest risks facing businesses today is credit card fraud and payment security. Services such as CardSecure may be bundled with your merchant account to provide protection for in-person and/or e-commerce transactions. These services use patented technology such as encrypted tokenization and malware detection to prevent malicious attacks against your business and your customers. Without security protection, small businesses run the risk of chargebacks, account suspensions, and even account closures.

Point of Sale (POS) System integration

The “point of sale” refers to the physical place, time, and or means through which a purchase occurs. POS systems accept electronic payments at the point of purchase, but they do much more than just accept chip cards. Cutting edge POS systems use cloud-based tech to store customer data and sales figures in real-time, are compatible with a host of native and third-party apps, and can even be used to create detailed reports.

Electronic Resource Planning (ERP)

ERP software is used by businesses of all sizes as a central hub for the systems which make your business tick. ERP can be utilized for inventory management, product planning, managing deliveries, tracking customer information, storing financial data, and much more. ERP can be bundled with your merchant service agreement, seamlessly integrating your payment processing with the rest of your business’ essential functions. It is important to note that while ERP and POS systems do offer some of the same benefits, they are wholly separate systems which can be used separately or as part of a unified package.

True Merchant Offers Merchant Account and Payment Processing Services

True Merchant is a Better Business Bureau accredited merchant services company which focuses on helping small businesses. We understand that the details of processing debit card and credit card payments are often the last thing on business owners’ minds. That is why we offer transparent, fair pricing models for our top-notch services including CardSecure, NFC payments, online payment solutions, and much more!

To learn more about how True Merchant can help your small business, please contact us today by calling or filling out an online form. One of our qualified merchant services professionals will be happy to get you started.