Why do you need a merchant account and what you need to know

Why do you need a merchant account and what you need to know

We at Maxpay voiced many tips on how to manage your merchant account, make it effective, and protect it from chargebacks in our articles. Still, some merchants start their business and may wonder: “what is this merchant account is all about?” Well, today we are exploring this topic for the beginners who consider opening an account.

What are a merchant account and an internet merchant account?

A merchant account is a type of account a company uses to accept payments for their products/services via bank cards or alternative payment methods. 

An internet/online merchant account is basically the same thing but aimed at businesses that sell things online. Some financial institutions don’t differentiate between a virtual merchant account and an offline one and offer merchant account services for both real-life and online commerce.

There are two main types of financial institutions that can provide businesses with a merchant account. The first one is a physical banking system for electronic payments, it is called a merchant acquiring bank. Here it is possible to get both an online merchant account and a POS terminal for physical payments, along with long-term contracts, obligations, and strict verification systems. 

The second way is to approach a payment service provider, which operates on behalf of merchant acquiring banks. It sets up services only for ecommerce merchant accounts, but usually with a list of strict rules and lower fees. 

Both systems have their pros and cons, especially regarding the agreements, commissions, and benefits for a merchant. In the following paragraphs we will focus on it more precisely, but first, let’s get some basics. 

Do you need a merchant account?

If your company only accepts payments in cash for the products/services, then you can do without the account. But nowadays, this scenario is pretty inconvenient: not only you will potentially lose a significant number of customers, but also you won’t be able to sell online altogether.

As of 2019, the number of retail payment systems within the euro area processed almost 45 billion transactions, which amounted to €34,0 trillion. It was also noted that non-cash payments in the same area grew to 98 billion (by 8,1%) compared to the previous year. Cards remained the most preferred payment method of choice among customers. 

Considering current uncertain times, more and more people go cashless, as well as try out online shopping instead of the regular one. This motivates a lot of retailers to invest in online display in order to reach out to the usual amount of clients and keep growing. Still, setting up an online store is only possible after launching an ecommerce merchant account. 

Thus, we highly recommend you to find a merchant account for online business or retail to process the credit card or, simply put, to accept electronic transactions.

What is the difference between a merchant account and a business account?

Even though the business account and the merchant account are in a similar field of operations, the purpose of these two accounts differs, as well as the application process.

It is possible to visit almost any regular bank and apply for a business account. And shortly after the business wallet will be ready to operate the company’s funds.  

A business account basically serves all the company’s needs: use it for commercial transactions, corporate expenses, loan services, paying bills, and saving money.

To open a merchant account it is required to have a business account first of all. Also, a merchant account can be issued only on behalf or directly with a merchant acquiring bank, which is a special institution that can process card payments on the side of the merchant.

As we’ve established before, a merchant account is something that is specifically needed to accept electronic payments for your goods/services. These accounts represent a contract between a seller and a credit card processing company. Before authorizing the purchase, both the issuer and acquiring banks are verifying transactions individually, which takes 1 to 2 days. Then the money is transferred electronically to a merchant account, and from there – to a business account. 

What is payment processing?

Credit card processing (or processing of any other payment method for that matter), is a set of tools used to complete the transaction between a customer and a merchant successfully or deny it if fraud is detected. The process, though taking seconds, is pretty sophisticated. During it, payment is authenticated and processed, checked for possible fraud, resulting in its approval/disapproval, and then the money is transferred. 

Maxpay has an entire article on how high-risk credit card processing works, and we encourage you to check it out for more detailed information. Knowing the basics, let’s figure out how the merchant account works.

How do merchant accounts work?

Now when you’ve read about the premise of payment processing, we can actually describe what a merchant account is needed for and how it actually works step by step.

Before applying for a merchant account, you need to choose a bank or a Third-Party Provider (TPP) the services of which seem the most beneficial for you. Some banks will have all the necessary software (and hardware for physical stores), others will refer you to TPPs, which have all the necessary hardware and an application programming interface that merchants require. 

This is how a merchant account works:

  • Customers come to the store/visit an e-commerce website and choose an item they want to purchase. To do that, they either need to use a point of purchase terminal if they are in a retail shop, or to enter their card details, if they buy online.
  • After getting the transaction details, a payment processor communicates with acquiring and issuing banks. At this moment a payment processor checks the bank card validity, the authorization correctness, funds availability, are there transaction limits, etc;
  • If a transaction is approved, the issuer then blocks the necessary sum of money on the cardholder’s account to pay for a product. The sum then will be charged within 1-2 days;
  • The money later will be transferred to the merchant;
  • If a transaction is declined, the issuing bank will send a notification to a merchant and a client, with a brief explanation of the reason. In this case, money would not be transferred to the merchant account. 

But even if a payment had happened successfully, a merchant would not receive a full sum paid by the customer on the account. It is so because of the various fees that occur on the different steps of the transaction process.

Fees and services of merchant accounts

As it might be predictable, none of the bank services come for free. But when it comes to merchant account solutions the question is not exactly about the fee itself. It is more about the suitability for the business combination of fees, along with all the services that come in the package of the acquiring bank or the payment service provider.

Each agreement would include different charges with various numbers, but there are some common fees each merchant would pay. There are fees for every transaction that processors, networks, and issuers charge. Also, depending on the contract, there could be a fee for setting up a merchant account, and possible fees for extra services like supplementary tools, hardware, software, and essential setup and sustaining.

In the case of turning to a physical department of an acquiring bank, the rules to issue and maintain a merchant account can be more complex, with the following long-term contract and a must to submit highly detailed documentation. Plus more fees can occur, such as annual and monthly changes, terminal fees, processing commitment fees, a fee for closing the contract, and so on. Still, this option can be advantageous for quite big businesses and physical stores that operate with a large number of transactions on a daily basis.

Relying on payment service providers would be easier for those who are more focused on opening an online merchant account. There are usually fewer fees, way more flexible agreements, acceptance of high-risk businesses and simple documentation to be submitted.

In Maxpay we have a beneficial policy regarding fees and services. To find a good match for your business just contact our sales department. Our full package service includes fraud prevention solutions, chargeback disputing, payment alerts, legal consultations, easy CRM integration, multi-currency approach for any merchant account, and more. We take time to select better options for our clients.

Open a merchant account online

Now when it’s clear that having a merchant account is crucial for businesses, and the way the account operates is convenient and seamless, we advise you to read our guide on how to accept payments online

In the article, you will find a set of rules a company should follow to be eligible for an internet merchant account. When that’s done, research some reliable financial institutions that can offer you a merchant account. 

High-risk merchant accounts

Naturally, the definition of a high-risk business would associate only with adult-oriented companies, or gambling and betting. Well, they definitely are, but in fact, there is so much more. 

A high-risk business is a business that potentially would have a higher level of chargebacks compared to a low-risk business. A chargeback is a return of money to a customer after a transaction. For example, a return of a sum for the broken or lost goods, or for the low-quality service. 

Consequently, in this category, there are loads of verticals: real-estate, social networks companies, life coaching, dating websites, online games, travel services, any subscription-based billing services, and much more.

When the acquiring bank defines a business as a high-risk one it starts to be complicated and costly to get an online merchant account. This is where a payment service provider comes in handy. With less amount of documentation, lower fees, and an understanding of a high-risk business, PSPs usually offer better conditions for merchant accounts.


If you need a merchant account for your business – look no further and try Maxpay. We offer a wide variety of tools to protect your money from fraudulent transactions and chargebacks: from Covery anti-fraud platform and VMPI to Verifi and Ethoca Alerts solutions. The account is easily manageable online with customizable fit reports, chargeback tracking, and churn control. 

Maxpay is PCI DSS level 1 v 3.2 compliant and has a portfolio of over 30 banks. We also have an in-house compliance department, unlike other payment processing gateways.

You can reach out to our team via email or in a live-chat on our website if you have any questions.