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What Is A Merchant Account? Everything You Need To Know

March 24, 2021

What Is A Merchant Account? Everything You Need To Know | AIA Book in a free 30 minute strategy session

If you’re new to the world of eCommerce and you’re setting up your store to accept debit or credit cards, you may have heard of “merchant accounts.” You may be wondering what this type of bank account is, what it does, and if you need one if you run a small business online.

A merchant account is an essential part of any payment processing solution, but can be a bit hard to understand, so in this blog from Australian Internet Advertising, we’ll explain the basics about this type of account, and why it’s required for businesses accepting online credit or debit card payments.


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A Merchant Account Is A Business Bank Account For Accepting Credit & Debit Purchases

A merchant account is a type of bank account that a business owner will need to set up to accept credit card transactions. Essentially, it’s a bank account into which you transfer funds from your customer’s debit and credit card transactions, whether these transactions are made at a physical point-of-sale with a card reader or are authorized online at your eCommerce store.

When your customer places an order through a payment gateway, the payment processor authorises the charge if the payment details are accepted and the customer has the funds to complete the transaction.

Once this happens, the funds are transferred into a merchant account – not directly into a business bank account. Depending on the agreement the business owner has with the bank, these funds may be held for anywhere from 24 hours to 3 days.

This “holding period” is required because it allows the various card processors and payment services involved with the transaction to “settle” the transaction. It takes some time for the various banks and credit card companies

Once this holding period is over, the merchant serviced by the merchant account will automatically have the funds deposited into their business bank account, where they can be accessed by the merchant.

It’s important to note that you will never have direct access to your merchant account. You can’t make transactions using the account itself – it exists only to hold money sent by credit and debit payments or any other payment method, and then to send this money to your business bank account within a few business days.

Does A Merchant Account Cost Money? The Fees & Costs To Expect

Yes. Merchant accounts usually have a lot of fees associated with them, such as a monthly fee for issuing sales statements, a transaction fee for each processed payment, authorization fees, and other monthly costs.

You may also be charged fees for chargebacks, annual fees for maintaining the account, and other such fees. Most banks make you sign up for a certain term like 2-3 years, and will charge early termination fees if you close your account. This can add up to a lot of money over time.

Do I Need To Set Up My Own Merchant Account For My eCommerce Store? No!

If you’re worried about high fees and costs for setting up a merchant account for your eCommerce business, don’t be. In most cases, you only need to set up your own merchant account if you have a very high volume of sales.

Why? Basically, most eCommerce payment providers – such as Shopify, Stripe, PayPal, and Square, among others – allow merchants to avoid setting up their own merchant accounts completely.

To do this, the payment solution provider – such as Shopify – sets up something that’s sort of like one giant merchant account. Then, all of the payments are automatically processed and sent into this account, and then are distributed to the individual merchants where the purchases were made.

This considerably reduces the monthly and annual fees that you’ll have to pay, and while you will still have to pay transaction fees, these are often much lower and are charged at a flat rate.

So if you’re a small business owner, it’s probably not necessary to set up your own merchant account. Your payment gateway can handle that for you – which makes it simpler to set up your eCommerce website.

You also won’t have to worry about signing up for a long-term contract or paying other fees like early termination fees, so it’s definitely a better option for new eCommerce entrepreneurs who need more flexibility and lower startup costs.

Need Help With Your eCommerce Website? AIAD Is Here For You!

At Australian Internet Advertising, we specialise in Shopify website design and setup. If you’re interested in launching a new eCommerce store, we can assist you throughout every step of the process – from technical details to marketing, SEO, PPC (pay-per-click) advertising and more.

So set yourself up for success, and don’t go through your eCommerce journey alone. Contact us online or give us a call at 1300 304 640 to speak to one of our team members today and get started with AIAD right away.

Book in a free 30 minute strategy session
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