Merchant Account Definition

Merchant Accounts Explained:

What is a Merchant Account? Put simply, a merchant account is a line of credit account that allows a business to accept card payments from its customers. Similar to how a checking account allows you to deposit another person’s check into your checking account, a merchant account allows you to accept a card payment from a customer. Unlike a checking account, a merchant account doesn’t hold money. Instead, a card payment passes through the merchant account and is deposited into a checking account after the funds have been cleared through the merchant account. From the time of the sale, a card transaction is deposited into a merchant’s checking account usually within 48 hours. Instead of getting several deposits for each transaction, all the card payments from a single business day are grouped together into one deposit called a “batch.”

An interesting fact about the credit card processing industry is that VISA, MasterCard and Discover do not directly provide merchant accounts to businesses. Instead, they rely on banks, Independent Sales Organizations (ISOs), financial service providers and independent agents to supply the accounts. American Express is different from the other three because it provides its own merchant accounts directly and does not use any third-party sales organizations. If you wish to accept American Express Cards, you must set up a separate American Express merchant account. Discover Card acceptance can be set up with a VISA and MasterCard provider. Despite all this, the different card types can be transacted through the same payment equipment and payment gateways.

In order for a third-party sales organization to legally supply VISA and Discover credit card processing services to businesses, it must be registered as an “Independent Sales Organization” (ISO) and backed by an FDIC-insured bank (AKA: Acquiring Bank), or be a sub-ISO of a registered ISO. The same holds true with MasterCard except the certification is called a “MasterCard Service Provider” (MSP). American Express does not use third party resellers, so it has no such certification.

Banks consider merchant accounts to be lines of credit account because the business gets paid before any actual money is collected from the customer. This means that you may be required to undergo a personal credit check, sign a personal guaranty, and supply financial data to get approved with some providers. If you have a well-established business, you can often bypass the personal credit check and guaranty by supplying additional documentation about the business. Most providers also require a copy of the business license, incorporation papers, and/or other financial documents during the underwriting process. Once approved, a business will have restrictions on the maximum dollar amount allowed in a single transaction and for a single day. However, business owners can request increases to their transaction limits on a case-by-case basis, and permanently once a history has been established.

Merchant Account Video Explanation

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Phillip Parker is a former merchant services sales agent who believes the industry has been overrun by people who engage in fraud and deception in order to steal from hard working business owners. He created this website to help you avoid the bad players, save money on fees, and to get peace of mind with your merchant account. If you would like to help support his work, learn more about our cost reduction service. We can evaluate your statement, tell you exactly how much you're overpaying, and then help you dramatically reduce your fees with your current credit card processor. Looking to switch instead? See our list of the best merchant account providers.

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  1. Sandy Hale says:

    Phillip, imho you should find someone who can take time to answer the above question. Many of us would benefit from learning the info this person wants. Someone should also take the time to make it easy to learn the Etsy ropes. The current handbook is disorganized and not helpful; I find myself using Google to find webpages pertaining to the financial end of being an Etsy seller. I may not continue setting up my shop here, because I am dubious about all the fees and the lack of a coherent picture of what’s involved in toto.

  2. Hi Phillip,
    I’m so confused on all of this. I have a Wells Fargo merchant services account with as my card processor. Who is First Data? I can’t even find where to log in. Well then I have client line or business track? My Wells Fargo account doesn’t show me my merchant services information only my bank account info? Then there is QB that is supposed to keep track of everything. I don’t know, I’m lost. I just want to accept cred it cards on my website. The other thing I’m confused about is an easy way to pay my suppliers or sub contractors? Everyone gives you misleading info and doesn’t know anything about the other services or how they are connected. Ive made less then 10 transaction since I opened and I’m paying all these fees that I don’t know anything about. I would really appreciate any advice or suggestions on how to simplify all this. They have taken the fun out of running a business and are ripping people off. How is a small business suppose to survive this? It’s almost like they want you to fail.

    1. Hi Ryan,

      Unfortunately, I do not have time to directly consult on a one-on-one basis but, based on your questions, here are some resources that may be helpful:

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