Definition
A merchant account is a type of business bank account that lets a business accept card payments. Card funds are deposited into the merchant account after each sale and then transferred to the business's regular bank account. The provider holds funds briefly to cover refunds, chargebacks, and fees.
Also called: Merchant services account
Merchant account in practice
Traditional merchant accounts are opened through a bank or merchant services provider after an underwriting review. They can offer lower rates for high-volume businesses but often come with monthly fees and contracts.
Payment facilitators such as many popular online payment providers let small businesses accept cards without their own dedicated merchant account. They group many businesses under one master account, which makes signup fast but can lead to holds or account reviews if activity looks unusual.
Whichever option you use, read the terms on reserves, payout timing, and termination, since these decide how quickly card payments on your invoices become cash you can spend.
Example
A landscaping company with steady card volume opens a dedicated merchant account with its bank at a lower per-transaction rate than its old all-in-one payment app.
Frequently Asked Questions
Do small businesses need a merchant account?
Not necessarily. Many small businesses accept cards through a payment facilitator without opening their own merchant account. A dedicated account can make sense as volume grows.
What is a rolling reserve?
A percentage of each payment that the provider holds for a set period to cover possible chargebacks and refunds. It is common for new or higher-risk businesses.
Related terms
- Payment gateway A payment gateway is the service that securely captures a customer's card or bank details online and passes them to the payment networks for authorization.
- Payment processing fee A payment processing fee is the charge a business pays to accept a card or online payment, usually a percentage of the amount plus a small fixed fee per transaction.
- Chargeback A chargeback is the reversal of a card payment initiated by the cardholder's bank after the customer disputes the charge.
- Refund A refund is money a business returns to a customer for a payment already made, in full or in part, because goods were returned, a service was cancelled, the customer was overcharged, or as a goodwill gesture.
This page is for general information only and is not legal, tax, or financial advice. Rules change and vary by location, so consult a qualified lawyer or accountant about your situation.