A merchant account is a type of bank account that lets a business accept payments by credit or debit card. Think of your merchant account as escrow for your online business while the payment is being verified.
If you want your business to start taking card payments for e-commerce, you need a merchant account.
Your business won’t be able to take credit card payments without a merchant account.
We look at some of the best reasons why your e-commerce business should have a merchant account.
Do you need a merchant account for e-commerce?
Giving your customers a choice of how to pay is likely to increase the number of online sales you make. This is a big benefit to think about if you want to set up a merchant account for your online business.
What is an e-commerce merchant account?
The merchant account is essentially a contract between the business (the seller) and the opening bank. A payment processor handles the actual payment transactions. Stability, security, and speed are further characteristics of a merchant account.
Merchant accounts automatically process your card transactions, deduct a small processing fee, and deposit the remainder of your e-commerce sales proceeds into your bank account.
When you make a sale, the funds are not immediately deposited into your business bank account; they must first be authorised (by your customer’s bank) and processed (by your merchant account).
The transaction does not appear in your merchant account until after your payment processor has performed fraud checks and verified that there are sufficient funds to pay you.
In most cases, the monies will arrive in your bank account within one to three business days; but, with PayPal, the process can be nearly instantaneous.
You can obtain a merchant account from a major bank or packaged with certain online payment processors (see below), and you are not required to use the same bank as your business checking account.
Merchant accounts for e-commerce enterprises differ from those for brick-and-mortar stores. There are three distinct classes:
Offshore: an international merchant account outside your home country
Local: a merchant account within your home country
Direct: when you approach a merchant bank directly to open an account
How much does an e-commerce account cost?
Costs vary from provider to provider. In general, though, you pay a transaction charge – often a percentage of each sale’s value. Read the terms and conditions before signing on the dotted line, as some e-commerce merchant accounts include a monthly fee as well as a startup fee. Typically, merchant accounts lock you in for a period of 18 months.
Who are the leading e-commerce merchant account providers?
What is a payment gateway?
A payment gateway is software that works with your e-commerce platform to process, validate, and secure online transactions.
It is typically included with an e-commerce merchant account.
How is a payment gateway different from a merchant account?
As we have seen, a merchant account is a bank account that temporarily retains funds from online payments until they are transferred to your business bank account.
A payment gateway functions as the interface between your customer’s bank and your merchant account, allowing payments to transfer and ultimately be deposited into your business’ bank account after payment authentication.
Some payment processing platforms include merchant accounts as part of a bundled package:
Others provide independent payment gateways
Tip: Some gateways will only work with certain platforms when you want to connect them to your website. Before building a new e-commerce site, you should think about what your card processor needs. For example, WordPress sites have more choices for merchant accounts and gateways than Shopify sites do.
Online payment gateway apps
PayPal Business
| Price | Free |
| Transaction fee | 1.9% plus 20p |
| Set-up fee | No |
| Terminal | PayPal Here and Zettle card readers |
With the PayPal Business app, you can make and accept payments, send invoices, give refunds, and see information about your customers all in one place. This makes running your business easier. Even if the client doesn’t have PayPal, they can still pay you.
Tip: If you do set up a free PayPal account, make sure you plan to use it, because if you don’t use it for a year, PayPal will charge you £9.
Stripe
| Price | Free |
| Transaction fee | 1.4% plus 20p |
| Set-up fee | No |
| Terminal | Stripe terminal |
The Stripe payment gateway lets you sell something or start a subscription service. You can ask for payment and use payment links. It uses a rolling two-day pay-out system, so you get paid every day for things you did two days ago.
Customers can pay directly to your business account with a debit card, and the transaction fee is only 1.4%, which is a little lower than PayPal’s 1.5%. There is also support available 24 hours a day.
One thing to keep in mind is the 20p transaction fee. There is no minimum amount, so if you make a lot of small sales online, this can add up.
Selling high-risk products
If your e-commerce business sells things like cigarettes, drugs, alcohol, etc., you will probably need a high-risk merchant account. These accounts offer protection against chargebacks (when money is sent back to a customer’s bank account) and tools to stop fraud.
PaymentCloud has a set of features made for businesses with high risks.
Access to customers worldwide
Adding a merchant account to your e-commerce business or any online business, no matter how big or small, can help you get a lot more customers. This may be the most important benefit.
Having a merchant account will make it possible to get more customers and improve customer satisfaction at the same time.
