What Is a Merchant Account?

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

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Welcome to 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 on reading our one-stop guide to everything you need to know about merchant accounts and stick around until the end to see how you can compare merchant account providers for free. 

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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 whilst being processed. 

Although they are a type of business bank account they are not one in the traditional sense where your money is kept long-term and can be withdrawn.

Think of it more as a secure holding pen where the funds from a transaction wait whilst all of the relevant checks are carried out before being passed on to you. 

Do I Need a Merchant Account?

Technically you don't. If you're happy to accept only cash payments then there is no need to have a merchant account. 

Although a recent Bank of England study showed that just 1 in 5 people prefer cash as their main method of payment so if you don't offer electronic payments then this could see you missing out on valuable sales. 

Without a merchant account, you cannot take electronic payments in any capacity. 

Electronic payments can be taken in three main ways.

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

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. 

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.

So in short, yes you absolutely need a merchant account. 

How Does a Merchant Account Work?

OK so now you know what a merchant account is, but how does it actually work? 

Step 1: The transaction takes place

Do you own a bar? Well if you don't, let's pretend you do for the sake of this explanation. 

It's Friday afternoon and Dave is popping in for a pint of that new 8% IPA you have in so he can start to enjoy his weekend before his football team inevitably loses in the early kick-off tomorrow. 

Dave orders his pint, taps his card on your card machine and the process begins. 

Step 2: The payment is processed 

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

Dave's card provider then routes this information to his bank account to confirm that Dave has enough money to be able to afford the delicious cold pint you've just poured him. 

Step 3: The payment is confirmed 

Luckily Dave has just been paid so the transaction goes through and you see 'payment approved' flash up on your card reader. 

Step 4: You get paid

Dave's money is no longer in his account, but it's not in yours either just yet. It now waits in the merchant account until everything is cleared. 

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

Then when this is up they pay you the amount for the transaction minus their fees. Well, they have to make their money somehow don't they? 

Speaking of fees...

What Are Merchant Account Fees?

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 there are some rates that 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 which we've put in this nifty little table to make things a bit easier for you. Aren't we nice?

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.

Additional 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 fee
  • Early leaving fee
  • Hardware purchase fee

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 £10,000s 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. 

To be honest, this isn't something that you should be worrying about too much. Unless of course, you're fleecing your customers then chargeback fees are something you very much should worry about. 

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. 

What Are the 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 Can I Get a Merchant Account?

Now you're an expert on merchant accounts there's one final question we can answer for you, "how can I get a merchant account?" 

Luckily it couldn't be easier. 

Just use our simple, free form to compare merchant accounts from some of the UK's leading providers for now! 

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FAQs: Your Merchant Account Questions Answered


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

This will allow 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. 
ventory. 


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