A merchant account is a type of business bank account that allows for the acceptance and processing of credit and debit card transactions. Various businesses often require a merchant account, especially online businesses. This account is specifically used to identify the seller as the owner of the purchase. Information about the owner and transactions is sent directly to the bank.
This bank account is issued by acquiring a bank for a specific provider under an agreement to process payment card transactions. Sometimes an independent sales organization, member service provider or other payment processor acts as a third party in the merchant agreement. By signing a merchant contract, the provider is contractually obliged to comply with the regulations of card associations such as MasterCard or Visa.
Merchant Account Features
There are two main categories of merchant accounts that are typically chosen by different companies depending on the nature of their business. "Swiped" refers to transactions in which a customer pays for their purchases in person by swiping or inserting a credit or debit card. This type of merchant account is mainly used in retail. "Encrypted" refers to transactions where credit or debit card information is entered through a virtual terminal, typically over the Internet. This type of merchant account is mainly used by e-commerce merchants, however, some merchants choose to use this method for face-to-face transactions as well because it is more cost-effective.
Use of Merchant Account
Just as you can deposit someone else's check into a checking account, you can use a merchant account to accept a card payment from a customer. Meanwhile, no money is stored in the merchant account like in checking accounts or other deposit accounts. Instead, the card payment is made via the merchant account via the payment gateway and after the amount has been cleared, it is deposited into a checking account. It usually takes up to 48 hours from the time of the transaction for the money to be deposited into the seller's checking account. Also, instead of receiving numerous deposits for each transaction, all payments in a business day are combined into a single deposit, known as a "batch."
The merchant account can also be referred to as a line of credit account because the seller is paid before the actual money is taken from the customer. This means the seller may be subject to a personal credit check or the obligation to sign a personal guarantee.
