5 Types of Merchant Accounts

Suppose a business wants to accept credit and debit cards. In order to process this payment, they will need a merchant account. This account acts as an intermediary between a customer’s bank account and the business’s bank account.

What is a merchant account?

A merchant account is a type of bank account that allows businesses to accept payments in multiple ways, typically debit or credit cards. It is an agreement between an acceptor and a merchant acquiring bank that allows for the settlement of payment card transactions. It is important to note that a merchant account is not the same as a standard business bank account. When deciding on a credit card merchant account, make sure to look at all the options to find the right fit.

Retail Merchant Accounts

If you own a retail store in at least one or more stationary locations, then a retail merchant account is the right choice for you. These merchant accounts typically have low application and setup fees. This type of merchant account is best for grocery stores and department stores.

Though retail merchant accounts typically come with lower fees, there are certain requirements that must be met in order to qualify. For instance, most processors require at least 70% of store sales to be swiped through the terminal. Because these types of merchant accounts require physical access to the card, the store needs to have at least one, if not more, credit card terminals installed. Depending on the terms of the account, these terminals may be free from the provider. Some retail accounts can also be programmed to accept electronic checks and store gift cards. Gift cards are a low-maintenance and affordable strategy to compete against larger stores.

Internet/eCommerce Merchant Accounts

If you sell products or services online, without a physical store location, then an Internet merchant account is the right choice for you. These are special eCommerce merchant accounts are designed specifically for taking payments online. The customer is able to enter his or her own credit card information into the system via an encrypted page rather than releasing the information over the phone or via mail order. Because service providers don’t make money on terminal equipment, transaction fees are typically higher.

An online merchant account can take your business to the next level by allowing customers to shop from anywhere. The eCommerce market revenue in the United States is forecast to increase by 475.2 billion dollars between 2024 and 2028, an increase of over 50%. Making sure your website is secure, up-to-date, and has an excellent design is now more critical than ever.

Mobile Merchant Accounts

If your business is on the go because you’re going to industry shows or driving a food truck, then a wireless mobile merchant account is the right choice for you. This allows you to accept credit card payments using your mobile device. Mobile merchant accounts are similar to Internet accounts in terms of ease of setup. The card reader is typically very low-cost because it does not have to remain in one place and integrates with a smartphone. The transaction fees and processing rates are a bit higher than traditional accounts because sales volume is typically much lower on a mobile merchant account than on a retail account.

Telephone Merchant Accounts

If your business is online, retail, or mobile, and you want to be able to accept payments over the phone, then a telephone account is the right choice for you. Some of the other merchant accounts may offer this as an additional feature built-in to your account, or may offer it for a small additional fee. This is the best option for companies who advertise or do business through infomercials or through the shop-at-home networks. The customer’s payment information is entered into a keypad on a terminal, or into software on the company computer system.

Mail Order Merchant Accounts

This allows you to accept credit cards on mail orders. This is the best choice for companies who do most of their sales through catalogs. As with the telephone account, the order is generally taken by entering the customer’s credit card information into a keypad on a processing terminal or by entering the information into software on the company’s computer system. In addition to less expensive equipment compared to a retail account, the processing fees are typically discounted, though individual transaction rates are higher.

Telephone and mail order accounts may be combined, depending on the provider. They may be available independently of a traditional retail account or as additional features available for an additional fee in conjunction with a retail account for establishments with physical brick-and-mortar locations, mail-in catalogs, and a telephone order line.

Understanding fees and costs

Though accounts may have varying terms, there will be a per transaction fee and a processing fee, which is a percentage of overall sales for the month or each individual sale. Typically, the higher your sales volume, the lower the processing fee is. Many smaller businesses have implemented a fee for using a debit or credit card, usually as low as $.50, or implemented a fee for transactions under a certain dollar amount to help offset their merchant services costs. This is a good way to offer the convenience of accepting credit and debit cards without having to absorb all the expenses. Typically, the larger the business or transaction amount, the less likely you are to incur a fee for using a card to complete your transaction.

Finding a merchant account for your business

All businesses that accept payments will need a credit card merchant account. The account acts as a bank account, allowing you to accept different payment methods. There are multiple types of merchant accounts, each optimized for a different kind of business. By understanding what you are looking for in an account, you will be able to make the best decision for your business.