Are you OK for us to use cookies?

We use cookies, including those from our trusted partners, to enhance and personalise your browsing experience, as well as for analytics, security, and marketing purposes. <a class="inlineTxt" target="_blank" href="https://commercialexperts.com/uk/merchant-accounts/cookies">Read our Cookie Policy</a>.

Privacy Preference Center

When you visit any website, it may store or retrieve information on your browser, mostly in the form of cookies. This information might be about you, your preferences or your device and is mostly used to make the site work as you expect it to. The information does not usually directly identify you, but it can give you a more personalized web experience. Because we respect your right to privacy, you can choose not to allow some types of cookies. Click on the different category headings to find out more and change our default settings. However, blocking some types of cookies may impact your experience of the site and the services we are able to offer. More Information.

Manage Consent Preferences

Updating Preferences

Please wait whilst we update your preferences...

Qualify To Reduce Your Payment
Processing
Fees?

You could save your business £1000s

Do you currently accept card payments?
Complete our short form, it only takes a minute!
Unfortunately you didn't select your third party marketing preferences.
Please confirm if you would be happy to be contacted by our Trusted Third Parties by SMS, Email & Telephone regarding Third Party Services.
Trusted Third Party Service Providers
%#GeneratedText##ThirdPartyUl#%
Our Partners
  • Barclays Bank PLC
  • FirmEU BV
  • Fiserv (Europe) Limited
  • Handepay Limited
  • Independent Merchant Services Limited
  • Inspire Payment Services Limited
  • ResQ Limited
  • SumUp Payments Limited
  • Take Payments Limited
  • The Redwood Group and Associates Limited
  • Tide Platform Limited
  • WorldPay (UK) Limited
  • Yotta Digital Ltd
Our Products
  • Business Accountancy
  • Business Epos Systems
  • Business Telephone Systems
  • Commercial Waste Collection
  • Digital Marketing
  • Fleet Tracking
  • Invoice Finance
  • Merchant Accounts
  • Website Design

What is a Merchant Account?

Merchant Accounts provide payment processing solutions for small and large businesses; here's a closer look at what they offer. 

Everything You Need to Know About UK Merchant Accounts

Merchant accounts are essential to any modern business. Without them, you could find yourself failing to meet the demands of your customers and falling behind your competition.

 

But what are merchant accounts? What type of merchant account fees will you have to pay? How do merchant accounts work? 

 

To find out these answers and more, keep reading our one-stop guide to everything you need to know about merchant accounts and how to compare providers for free. 

What Are Merchant Accounts?

A merchant account is a type of bank account offered by an 'acquiring bank' exclusively for businesses where funds from electronic payments, such as those from credit & debit cards, are held while being processed. 

 

Think of them as a secure holding pen where the funds from a transaction wait whilst all relevant checks are carried out before the money is passed on to you. Without a merchant account, you cannot take electronic payments in any capacity. 

Qualify To Reduce Your Payment
Processing
Fees?

You could save your business £1000s

Do you currently accept card payments?
Complete our short form, it only takes a minute!
Unfortunately you didn't select your third party marketing preferences.
Please confirm if you would be happy to be contacted by our Trusted Third Parties by SMS, Email & Telephone regarding Third Party Services.
Trusted Third Party Service Providers
%#GeneratedText##ThirdPartyUl#%
Our Partners
  • Barclays Bank PLC
  • FirmEU BV
  • Fiserv (Europe) Limited
  • Handepay Limited
  • Independent Merchant Services Limited
  • Inspire Payment Services Limited
  • ResQ Limited
  • SumUp Payments Limited
  • Take Payments Limited
  • The Redwood Group and Associates Limited
  • Tide Platform Limited
  • WorldPay (UK) Limited
  • Yotta Digital Ltd
Our Products
  • Business Accountancy
  • Business Epos Systems
  • Business Telephone Systems
  • Commercial Waste Collection
  • Digital Marketing
  • Fleet Tracking
  • Invoice Finance
  • Merchant Accounts
  • Website Design
Electronic Payments are Taken in Three Main Ways.
  • 1

    In Person

    Usually taken with a card machine that may be supplied by your merchant account provider.

  • 2

    Over the phone 

    To do this, you will require a 'virtual terminal' which is a secure webpage that you access through a web browser where you enter your customer's payment information. 

  • 3

    Online 

    If you want to take online payments then you will have to have a 'payment gateway' such as PayPal Merchant Services. This is just a fancy way of describing those checkout pages you have to fill out when making an online purchase.

How Much do Merchant Accounts Cost?

Merchant account fees tend to be based on the volume of card transactions that your business processes. The more you process, the lower the rates that you could qualify for. 

 

Although some rates are capped by law, those that are not may differ from provider to provider so it pays to shop around and find the best merchant account provider for you. 

 

These fees will be charged either monthly or per transaction. See the table below for a breakdown of how the different fees are charged:

 

Fee

Charged

Debit Card

Per transaction

Credit Card

Per transaction

Authorisation Fee

Per transaction

Card Terminal Rental

Monthly

Payment Gateway

Monthly

Virtual Terminal 

Monthly

Minimum Monthly Service Charge*

Monthly

 

*This will only apply to you if you fail to reach a pre-agreed monthly transaction volume.

Merchant Account Fees
  • One-off Fees

    Depending on which provider you choose to go with, these fees may not even apply to you, but a few examples of one-off payment you could be faced with include joining fees, early leaving fees, and hardware purchase fees.

  • PCI Compliance Fees 

    PCI compliance is a legal requirement for everybody taking electronic payments and it's there to make sure that the sensitive data you're taking from your customers is handled responsibly. Your provider should offer this for a small monthly fee and we suggest you pay it. 

     

    If you take payments without PCI compliance then you could be subject to fines of £10,000 or more and your provider may remove your ability to take card payments altogether.

  • Chargeback Fees 

    These are in place to protect the customer against any fraudulent payments that are made. 

     

    If they think something is wrong they can challenge the payment with their bank. For every challenge that is upheld then you will typically be charged £15. 

  • Interchange Fees

    Another mandatory fee, an interchange fee is paid by your bank to your customer's bank. 

     

    These will always be capped at 0.2% per debit transaction and 0.3% per credit transaction so if your provider is trying to charge you more, find someone else. 

Different Types of Merchant Accounts

Not all merchant accounts are created equal and what works for one business may not work for yours. Here's a brief rundown of the types of merchant accounts available. 

 

Aggregated Merchant Account 

 

These will be arranged by something called a payment facilitator who essentially acts as a recruiter for acquiring banks and are perfect if you're a smaller business. 

 

You are pooled with a group of other businesses and because of this, the acquiring bank will receive a larger number of transactions meaning that you could benefit from better rates usually only available to larger businesses 

 

Dedicated Merchant Account 

 

There is no middleman here like with an aggregated merchant account. 

 

You are set up directly with the acquiring bank giving you more flexibility when it comes to negotiating specific terms and fees for your business. 

 

High-Risk Merchant Account 

 

If you have a poor credit history then this may be your only option. 

 

Likewise, if any of these apply to you then it's likely that you will have no choice other than a high-risk merchant account. 

 

  • Travel 
  • Online healthcare 
  • Gambling 
  • Subscription-based
  • If you want to take payments internationally 

 

Internet Merchant Account 

 

If you want to be able to accept online payments then you will need an internet merchant account.

 

Even if you already have an in-store merchant account for example an aggregated merchant account you will still need an internet merchant account to take online payments. 

 

To learn more, be sure to check out our post dedicated to the different types of merchant accounts. 

How do Merchant Accounts Work?
  • 1

    The transaction takes place

    Your customer is served as your establishment or completes a purchase on a virtual checkout. 

  • 2

    The payment is processed

    Your card reader sends a signal to the merchant account and then forwards the details of the transaction to your customer's card provider. 

     

    The card provider then sends this information to the customer's bank account to confirm there are sufficient funds available.  

  • 3

    The payment is confirmed

    The transaction goes through and you see 'payment approved' flash up on your card reader. 

  • 4

    You get paid

    The customer's money leaves their account but, before it enters yours, it waits in the merchant account until everything is cleared.  

     

    This can be anywhere between 1-7 days and is known as a settlement period. 

     

    When the settlement period is over, your merchant account provider pays you the transaction amount, minus their fees. 

FAQs

There are three main types of merchant accounts that you could qualify for. 

  • Aggregated merchant accounts 
  • Dedicated merchant account 
  • High-risk merchant account 

You will also need to get an internet merchant account if you wish to take online payments. 

In some cases such as if you have bad credit and looking for a merchant account or if you operate within a certain industry then you will have no other choice than a high-risk merchant account. 

These include:

  • Travel 
  • Online healthcare 
  • Gambling 
  • Subscription-based

An offshore merchant account allows you to take payments globally as well as from your country of registration. 

So if you're UK-based but want to take payments from someone in literally any other country, you will require an offshore merchant account. 

Qualify To Reduce Your Payment
Processing
Fees?

You could save your business £1000s

Do you currently accept card payments?
Complete our short form, it only takes a minute!
Unfortunately you didn't select your third party marketing preferences.
Please confirm if you would be happy to be contacted by our Trusted Third Parties by SMS, Email & Telephone regarding Third Party Services.
Trusted Third Party Service Providers
%#GeneratedText##ThirdPartyUl#%
Our Partners
  • Barclays Bank PLC
  • FirmEU BV
  • Fiserv (Europe) Limited
  • Handepay Limited
  • Independent Merchant Services Limited
  • Inspire Payment Services Limited
  • ResQ Limited
  • SumUp Payments Limited
  • Take Payments Limited
  • The Redwood Group and Associates Limited
  • Tide Platform Limited
  • WorldPay (UK) Limited
  • Yotta Digital Ltd
Our Products
  • Business Accountancy
  • Business Epos Systems
  • Business Telephone Systems
  • Commercial Waste Collection
  • Digital Marketing
  • Fleet Tracking
  • Invoice Finance
  • Merchant Accounts
  • Website Design
Related Articles
Read more related articles
Payment Gateways Explained; What They Are and How They Work

What is a Payment Gateway?A payment gateway is a technology that authorises and transmits payment information between a customer, the business they're buying from, and the bank systems involved. Suppose your business is an online shop, for example. In that case, a payment gateway receives the card information from your customer's card and then encrypts the data, and sends it to the customer's bank for approval. Once the bank approves the transaction a confirmation of the sale is then sent to your business.  In short, a payment gateway ensures a smooth and secure flow of information during online payments. They also come with features to prevent fraud and keep your financial information safe.Who Needs a Payment Gateway?As you've read, a payment gateway facilitates communication between the various systems involved in the online payment process, and so they form an essential part of any digital transaction your business makes.  Whether you have a small online business or a large one with multiple physical shops, every digital payment you accept with go through a payment gateway. Payment Gateways vs Payment ProcessorsThe difference between payment gateways and payment processors is slight but important. A gateway works as a checkpoint; one that makes sure a transaction can happen between your business and the customer concerned. A processor, meanwhile, is responsible for the actual transfer of funds from your customer to your business.  The next part involved is your merchant account, which is where the funds end up once a sale has gone through the previous two stages. After this, the money can then be transferred from your merchant account into your business bank account.  Who Provides Payment Gateways?There are various payment gateway providers that will enable your business to accept digital payments, with many of them offering different methods of doing so. The best payment gateway for your business will likely be one of the three main types of payment gateways, which are:HostedSelf-hostedAPI-hosted

Merchant Accounts vs Business Accounts

Though the two are often confused with one another, there are several differences between merchant accounts and business accounts. If you're struggling with understanding what sets them apart, this article will help you get a firmer understanding. When you want your business to start accepting card payments, you'll likely need both a merchant account and a business bank account. The two are linked, which leads many to think they're synonymous, but they're not.What is a Merchant Account?When you accept a card payment the bank that issued the customer's card sends the funds from their bank account to your merchant account. The bank that provides you with your merchant account then sends the money from your merchant account to your business bank account.  In simple terms, a merchant account acts as a middleman between your business bank account and the bank account that belongs to the customer making the purchase. Where a business bank account holds your funds, a merchant account's role is to just process them.  What is a Business Bank Account?As you've just read, a business bank account is the final destination of your business's money. The money arrives after first leaving your customer's bank account, being processed by your merchant account, and then being sent from your merchant account to your business bank account. Once the money from a sale ends up in your business bank account, you can then spend it where it's needed. What's the Point of a Merchant Account?While it seems logical to accept payments directly into your business bank account, cutting out the middleman and saving time, it would actually cost time in the long run. Merchant accounts work because the bank that provides them is able to advance you the money you get from sales before the payment is fully completed.  The payment a customer makes to your business has to go through checks at their end before their bank releases the funds, which can take days. So while merchant accounts add an extra step, they mean your business has much quicker access to its funds than it otherwise would.

How to Open a Merchant Account

Getting Started with a Merchant AccountOpening a merchant account allows your business to accept credit and debit card payments from customers. They are, by their nature, helpful for many businesses as they allow them to modernise the way they take payments and interact with their customers.  But how do you get a merchant account? It's a process many businesses do every year but, if you're unfamiliar with the process, it can be confusing and even daunting. That's why we've created a breakdown of the process. Before you Apply for a Merchant AccountIf you want a merchant account, there are a couple of things you need to already have in place before you can apply for one.  First, you need to ensure your business is legally registered. If you're already trading you don't need to worry about this stage but if you're starting from scratch you need to ensure you're registered. There's a lot of information on how to do this on the Government's website but, usually, you'll register as a sole trader, limited company or partnership. When you apply to set up your merchant account, you could be asked to provide a variety of documents to prove your validity, so it's best to have these things ready. Documents you could be asked to provide include: Proof of identity for your business's ownerProof of address for your business's ownerFinancial documentsYour business planStep One: Choose Your Merchant Account TypeThough merchant accounts all work in similar ways, different types of merchant accounts will suit one business more than they will suit another. Retail merchant accounts, for example, are more suited for physical shops where you and your staff will conduct sales face-to-face. These sales will happen with a physical card machine, or perhaps a full EPOS system, which is directly linked to your merchant account.  Internet merchant accounts, meanwhile, do what they say on the tin. They're designed for and suited to businesses that operate online. The payments you make here won't be done face-to-face but via a website. With this type of merchant account, there is no need for a card machine or EPOS system.  Mobile merchant accounts land somewhere in between the two types above. They're ideal for businesses that operate on the go, like pop-up stalls, fitness training providers, or food vans. This type of merchant account allows you to process transactions from anywhere via a mobile device. 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. Step Two: Research ProvidersThis 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 and work in broadly the same way, it's still important to not go for the first one you see.  There are plenty of things to consider, not least the transaction fees and admin costs that a merchant account may come with, and the risk level of your industry. To make this step as easy for you as possible, we've created the following list of considerations.