A merchant account allows a business to accept credit cards debit cards, gift cards and other forms of payment cards. This is also widely known as payment processing or credit card processing.

Merchants, or business owners who receive credit card payment for their goods or services, must apply for a merchant account typically through a merchant acc. The merchant account will typically be established based on several factors. Merchants who own businesses with poor or no credit may find it difficult to establish a merchant account through traditional routes.

Rates and fees

Merchant accounts are not free - a variety of charges are involved. Some fees are charged on a monthly basis but most are charged on a per-item or percentage basis. All of the monthly fees are at the discretion of the merchant account provider but the majority of the per-item and percentage fees are passed through the merchant account provider to the issuing bank according to a schedule of rates called Interchange fees, which are set by Visa and Mastercard.

Each transaction is categorized into an interchange category depending on the kind of card that was used for the transaction and the circumstances of the transaction. For example, if a transaction is made by swiping a card through a credit card terminal it will be in a different category than if it were keyed in manually. If a transaction is made using a rewards card it will fall into a different category than a standard card. The permutations add up - in total there are about 130 categories, each with a different rate.

Merchant account providers usually group the 130 categories into 3 or 6 categories and apply a single rate to that entire bucket. This includes Retail, Mail Order / Telephone Order and eCommerce or Card Not Present. They base that rate on the average interchange rate that they expect for that category plus a markup for themselves.

These tiers describe costs for different kinds of credit cards when processed under different kinds of circumstances. For example, a check card costs less than a consumer credit card which costs less than a business card. The method of how a credit card is processed changes which tier of Interchange is applied. For example, a swiped credit card costs less to process than one keyed into a credit card terminal.