Best Merchant Accounts Compared: Our Verdict
Payment processors can unlock growth for your business, but which one is best for you? Payment
How Do Merchant Accounts Work?
Merchant accounts provide payment processing solutions for small and large businesses; here's a closer look at what they offer.
On This Page
On This Page
Find a card machine for your business today
Get a quote in seconds with our simple form
How Do Merchant Accounts Work?
Merchant accounts provide payment processing solutions for small and large businesses; here's a closer look at what they offer.
Last updated 28/08/2025
What is a Merchant Account?
A merchant account acts as a middleman between your customers’ bank accounts and yours. It’s where funds are held while transactions are processed. They form an essential part of the whole payment process.Â
While they both hold money, a merchant account is not a business bank account. Instead, you’re better off thinking of merchant accounts as a halfway house. A place where money is held while checks are processed to ensure a transaction can take place.Â
Given their pivotal role in taking electronic payments, every modern business should have one, whether you operate online or in a shop.
Do I Need a Merchant Account?
While it seems quicker to accept payments directly into your business bank account, it could cost time in the long run.
Customers’ payments have to go through checks at their end before their bank releases the funds, which can take days. Your merchant account will ensure you’re able to access these funds quickly. So while merchant accounts add an extra step, they mean your business ultimately has greater access to the money it makes.Â
You thought a merchant account was the same as a business bank account? If only it were that simple. A business bank account, while usually directly linked to your merchant account, has a different job entirely…
Merchant Accounts vs Business Accounts
Merchant accounts work wholly differently from business bank accounts, and they’re not the same thing. Both offer different uses, but are equally valuable when it comes to taking card payments.Â
A business bank account allows you to save or spend your money however you choose. They are primarily used to run the general day-to-day finances of your business. This includes paying bills, paying for business services, withdrawing funds, and paying your staff. This is not a function of merchant accounts, which perform a different role.Â
Where a business bank account is used for the general financial functions of your business, your merchant account is used to process the payments you receive from your customers via credit or debit card. They are essentially holding pens for the money you receive from your customers; a place where checks are carried out to ensure the transaction can go ahead.Â
Ultimately, the two types of accounts are designed to work together. That’s why many businesses across the UK use them in conjunction with each other, and it’s also why your business should do the same.Â
How Do Merchant Accounts Work?
Having read the above, it’s probably occurred to you that you’re not realistically going to grow your business without a merchant account, but how do they work? Well, while there are other steps involved (like payment gateways and payment processors), it can be boiled down to a simple agreement. One between your business and what’s called an acquiring bank.Â
The acquiring bank provides you with your merchant account. The deal you make with them will encompass things like your length of the contract, the type of merchant account you have, and how much you pay in fees.Â
Once all of this has been agreed upon, your acquiring bank will set you up with your merchant account, and you can start accepting card payments. When you’re set up, you can opt to take digital payments in three different ways:
In Person
Usually taken with a card machine that may be supplied by your merchant account provider.Â
Over the phone
To do this, you will require a ‘virtual terminal’, which is a secure webpage where you enter your customer’s payment information.Â
Online
If you want to take online payments then you need a ‘payment gateway’. These are those checkout pages you fill out when making an online purchase.Â
Processing Transactions
When somebody buys something with a credit or debit card, it sets off a chain of processes that ensure the transaction can happen. This process involves multiple moving parts, but happens very quickly.Â
First, the customer’s card details are sent from the card machine to your acquiring bank (the bank that operates your merchant account). Then, your acquiring bank will send the payment information to your customer’s card provider (usually Visa or Mastercard) to check that the funds are available.
If there is enough money in the customer’s bank account, the card provider lets your acquiring bank know that the transaction can go ahead. Once the acquiring bank has had approval from the card issuer, your card machine will flash up with a ‘transaction approved’ message.Â
If the purchase happens online, the process is exactly the same, except the card machine is replaced by something called a payment gateway. Â
After this whole process has happened, the money from the purchase is transferred from your merchant account into your bank account, usually within a few hours.
If your business happens to depend more on cash flow, you’ll need a merchant account that releases funds quickly. Our breakdown of the best merchant accounts for small businesses features several accounts that provide exactly that.Â
Merchant Account Fees
There are, naturally, several fees you need to pay each time you make a transaction with a card machine or other digital payment method. As you’ve just read, there are multiple moving parts and, with each part, there comes a fee. The payment gateway you use will charge you a percentage-based fee, as will the acquiring bank you choose. As well as this, your acquiring bank will usually also charge a monthly fee for using their services. Â
The fees themselves range from less than 1% to 5% or more, depending on the type of merchant account you have, your credit history and other factors. Although some rates are capped by law, others may differ between providers, so it pays to shop around to find the best merchant account provider for you.Â
Want to know more about merchant account fees?
While we’ve touched on it here, we’ve got a whole page dedicated to the different fees associated with merchant accounts. Check out our full guide on merchant account fees to find out all you need to know.
You’ll be an expert in no time…Â
Types of Merchant Accounts
Not all merchant accounts are the same. What works for one business may not work for yours, so the type of merchant account you need depends on your circumstances. Whichever type of merchant account you choose, it will fall into one of the three following categories:Â
- Aggregated
- Dedicated
- High-RiskÂ
Â
Aggregated Merchant Account
An aggregated merchant account is arranged by what’s called a payment facilitator. This is essentially a company that does a lot of the work for you. If you use one, you won’t need to set up an account yourself. Instead, you’ll use a merchant account owned and controlled by the payment facilitator.Â
This is obviously ideal for smaller businesses as it takes away a lot of the hassle and streamlines the process of taking digital payments. What’s more, an aggregated merchant account can often work out cheaper for small businesses. Since your payment facilitator pools in your takings with other businesses’ takings, there’s a higher volume of payments being made, which usually means a lower per-transaction rate.Â
Dedicated Merchant Account
With a dedicated merchant account, you are set up directly with the acquiring bank. This gives you more flexibility when it comes to negotiating specific terms and fees for your business. Dedicated merchant accounts are essentially built from the ground up by you and your acquiring bank, so it’s highly nuanced for your specific needs.Â
You don’t get this privilege with an aggregated account, but you are more likely to pay higher rates if you’re a small business as you’ll have less credit history and a smaller number of transactions.Â
High-Risk Merchant Account
If you have a poor credit history or operate in a volatile industry, this could be your only option for a merchant account for your business. As you can tell from their name, high-risk merchant accounts are offered to businesses that the acquiring bank considers riskier.
The presumption of risk can be due to several reasons, including a typically higher number of chargebacks, historical financial instability in your industry, a high incidence of fraud, or a bad credit rating. These accounts typically charge higher fees due to the increased likelihood of financial volatility within your business. If you operate in any of the industries below, you could be classed as high-risk:
- Travel
- Online healthcare
- Gambling
- Subscription-based
While high-risk merchant accounts typically come with higher fees, they can also be beneficial to the businesses that use them.Â
How to Set Up Your Merchant Account
With more and more consumers preferring card payments and fewer people carrying cash than at any point in history, card payments are where your business’s future is. That’s why now is as good a time as any to get a merchant account for your business.Â
The process of opening one is something many businesses do every year, but if you’re unfamiliar with the process, it can be confusing. No need to worry, though, just read on to find out how to open a merchant account.Â
Step 1
Choose Your Merchant Account Type
Merchant accounts all work in similar ways but the one you have needs to suit you and your business. Remember, different merchant accounts suit different kinds of business needs.Â
Retail merchant accounts, for example, are more suited to physical shops where sales are done face-to-face. These sales will happen with a physical card machine, which is directly linked to your merchant account. Internet merchant accounts, meanwhile operate solely online and only deal with online payments.Â
Only you know the best type of merchant account for your business, so you’ll have to take the time to decide which type of account best suits you. Once you’ve done this, you can move on to the next step.Â
Step 2
Research Providers
This is probably the most time-consuming part of the process, but also the most important. You need to research and compare merchant account providers. While all merchant accounts do the same thing, it’s still important to not go for the first one you see. Â
There are plenty of things to consider, not least the transaction fees and admin costs that your merchant account may come with. While researching is usually the most time-consuming part of securing your merchant account, we can make the process quicker, easier, and cheaper – more on that further down.Â
Step 3
Choose Your Provider and Apply
After the most time-consuming and important part comes the quickest and simplest part: applying for your merchant account. Â
Assuming you have already gathered all the necessary documents you need to open your account and you’ve followed the steps above, this part is easy. If you do your research properly, the best merchant account provider for you will be an obvious choice.Â
The application process itself is usually simple. It involves filling in an online form with your own basic information (proof of identity, address, etc) and any relevant information about your business (your industry, average transaction size, monthly turnover, etc). After that, you can start using your new merchant account and making the most of your ability to take card payments.
What industry are you in?
Please select the industry that you trade within. This information allows us to tailor your quote.
How to Choose a Merchant Account
Although the process of how a merchant account works is fairly straightforward, there are a few things that you will want to consider when choosing your provider and if they’re the best choice for your business.
Fees
This will be how much you will pay your merchant account provider to use their service. There are several types of fees you will have to pay, all of which need to be considered.
Contract Length
Some people like having longer contracts so they don’t have to worry about constantly renewing them, while others prefer shorter-term deals so they can switch providers on a semi-regular basis.
Customer Service
If there are technical issues, how quickly will they be resolved, and will you be compensated for any downtime? You may have thought you had found your ideal provider, but if their customer service is terrible, it may be worth finding someone else.
Hidden Fees
Common hidden fees include things such as set-up & exit fees or terminal rental costs that may not be stated in the initial chats with providers.
Ease Of Use
You want things to be as easy as possible and don’t want to waste your time trying to figure out an overly complicated card reader. Sometimes you just need an app on your phone and a card reader, and you’re ready to start taking payments.
Ready to Get Merchant Account?
Commercial Experts is here to help. We’ve got partners within the financial industry, and they’re ready to offer you the merchant account you’re looking for. Â
All you have to do is answer a few questions about your business, and you’ll receive a selection of quotes from some of the country’s leading merchant account providers.Â
So, if you want to compare merchant accounts now and get started with card payments, click the button below to get started. You could already be only a few minutes away from taking the next step in modernising your business and boosting your profits.Â
FAQs
How much does a merchant account cost?
The amount you pay for your merchant account will depend on several factors, such as your industry, the length of time you’ve been trading for, the type of merchant account you have, and the acquiring bank you choose. Â
While it’s frustrating to not know right from the get-go how much a merchant account is likely to cost, you can get fully informed about the kinds of costs you can expect to pay by reading our guide on merchant account fees.
Do I need a merchant account?
Probably, yes. Unless you have a brick-and-mortar business and are happy to only accept cash payments for the foreseeable future, you need a merchant account. While there are ways to accept card payments without one, the alternatives can often end up costing you more. Â
What are the types of merchant accounts?
Whichever type of merchant account you choose, it will fall into one of the three following categories:
- Aggregated
- Dedicated
- High-Risk
The categories are suited to different kinds of businesses. The one your business suits best depends on your specific circumstances.
What's Trending?
Find out how you could save your business money
Card Processing Fees: What They Are and How They Work
While having a merchant account boosts profits, understanding their cost is important. While having a merchant
Barclaycard Review: The Best Payment Processor for Your Business
Barclaycard provides merchant accounts to small and large businesses. Barclaycard provides merchant accounts to small and
