What is a merchant account?

Personal and business bank accounts do not allow for the receiving of credit or debit card payments. If you are a business and you wish to receive these types of payments, you need a special commercial account, called a merchant account. You need one if you wish to accept card payments in a physical store, or if you sell goods and services online. Except in rare circumstances, you can use the same merchant account for both instore and online transactions.  It is the merchant account which communicates with the payment processor, which in turn communicates with card networks and the purchasers bank account. A merchant account does not replace your business bank account but is required in addition to it. The merchant account number is called a  MID, which stands for Merchant Identification Number, and it is unique, which is what allows the communication between all roleplayers in card transactions. 

So how do you get a merchant bank account? 

Well the first thing to do is to decide if you actually need one. If your business is run on a cash only basis in a physical store then you don’t need one. Also, merchant accounts usually have a minimum volume requirement, and if you are an online business doing low volumes and you don’t meet that minimum requirement, then you will be paying in to make up the difference. And that means you will lose money. In that case you might be better off with the services of a payment aggregator or a payment facilitator for your online transactions. 

Once you have decided that you want a merchant account, you should really shop around. Merchant services is a very competitive industry and there is a lot to consider over and above just the fees. The bank where your business bank account is held may offer merchant services, and they may even be favorable for existing business clients, but do not feel that you are restricted to that bank, there are many options available in the market, including providers who operate in niche or specific markets.

What should I consider when choosing a merchant account provider?

Of course you should look at the fee structure of your provider, but it should not be the only consideration when you are looking at different vendors. Here are a few things to keep in mind when you are considering a provider:


If you are in a physical store you will need hardware to accept card payments such as card terminals. Does the vendor provide what you need, and how is it funded – by lease or do you need to purchase the hardware? Are there third parties involved? How is it supported? What happens with upgrades? Can you supply your own hardware or are you locked in to what the vendor provides? 


For online sales you will need the services of a payment gateway, which is essentially point of sale software for your online store. Does your provider come bundled with a payment gateway or can you choose your own? Do they have a well documented API to integrate with your website, with great support? And what sort of reporting does your provider give you – do they have an online analytics tool so that you can easily reconcile your transactions?


Providers may have minimum and maximum limits on the amounts you can process. Maximum limits can include per transaction limits as well as monthly total limits. Likewise the provider may have a minimum limit per month of required transaction amounts, and if you do not transact to that limit they will deduct funds from your account. Make sure that the limits are in line with your product prices and your anticipated sales volume..


Merchant accounts are not cheap. It is vital that you fully understand what you will be paying and when. There will most likely be a set up fee, and in addition to that there may be monthly fees, transaction fees, statement fees, chargeback fees, annual fees, PCI compliance fees, monthly minimum fees, monthly maximum fees, batch fees, penalty fees, hardware fees and early termination fees. Make sure you understand exactly what you are paying and when. 


The processing rate is what you will have to pay per transaction. There are three common pricing models, namely interchange plus, tiered and flat rate. Make sure you understand what the rate is that you will be paying.


You will need solid, reliable and easily accessible customer service from your provider. Do they have a good FAQ? Do they have good telephone, email and chat support?

Contract times

Some providers will lock you into a contract for a specified time, typically three years. Other providers offer month to month services. Understand how long you are tied to the provider for and what the renewal process is. 

Funding times

How long will the funds be held before they are released to you?


What happens when your account contract is over, or if your account is terminated by the provider or if you just want out? How long will they keep your funds before releasing them and what is the process and cost?

What do you need in order to open a merchant account?

Specific requirements may vary from country to country, jurisdictions within that country and from provider to provider, but here are some of the basic things that you are most likely required to provide: 

  • Your business bank account details and statements
  • Your company registration or incorporation documents
  • Details of company owners
  • Your company license to operate if applicable
  • Business address
  • Tax documentation
  • Business financial statements
  • PCI compliance statements

Opening a merchant account can be very daunting, and once you have one it requires stringent business processes, as well as being expensive to run. You may not qualify for a merchant account, or the fees may be prohibitive for you. The good news is that there are alternatives to merchant accounts. At Baer’s Crest we help businesses accept payments with less fuss at reasonable rates. Talk to us  about the best payment solution for your business.