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Mar 7, 2022
by David Goodale

What is a merchant account?

(Slightly edited from video transcript for greater readability)

Hello, David here at Today I'm going to tackle a simple question. I really better be able to answer this one: what is a merchant account? Stay tuned, I'm going to answer this in one second. has been in business for 20 years, and we are a merchant account provider. Well, what is a merchant account? There's a lot of confusion about that. Really, it's because there's a couple of different components to e-commerce, we'll talk a little bit about that. But I want to be really direct. When I use my personal credit card, every time I go to dinner, I get billed $50, or whatever it is. At my bank, the money has to come off of my credit account at my bank, the bank that issued my credit card, and it has to go to the merchant, the business. And so what is a merchant account? It's like a bank account, it's an account that receives the money that comes off of the customers credit card. So the money comes off, the customer's credit card gets deposited into the merchants account.

And then to round the explanation out so it's proper, the money then goes transferred from the merchant account into the business owners bank account, this is just the middle hop, it's a middle hop between the cardholder and your bank account. Now getting a merchant account is not really that hard. And you really do need one, unless you use a service something like a PayPal or another aggregator that's where there's some service providers where there's no application process. And the reason why there is no application process is because you're not getting your own merchant account, you are using their merchant account.

So the money comes off the customer's card, we'll use PayPal as an example, it goes into PayPal's merchant account. And then PayPal funds you the money from their merchant account. There are advantages and disadvantages to that. The advantage, the obvious advantage is they don't have to issue anything, there's no merchant ID, there's no merchant account to open. So it's instant. Also, the onboarding process is super easy, because there's really no application. The downside to that is you're far more likely to have an issue in terms of funds being held. After you start processing transactions. In fact, that's one of the most common complaints against aggregators is that a merchant will do like a couple transactions and everything's going good. And then they'll do a big transaction, and then the funds are held. And it's an interruption to the business's cycle. And then maybe you need that income to fulfill the order. But you can't do that because the money's being held.

So that's the downside to an aggregator, and at The way that we do it is when we have a client that applies, we ask all of these questions that are kind of a pain in the butt to deal with upfront, like: "How much money are you going to process per month? What's the biggest ticket that you're ever going to do?" But the flip side of that is, it means you're far less likely to run into an issue later on. And then the second benefit to having your own merchant account is the rates are lower. If you use an aggregator, I'm not going to name names to pick on any service. But usually, you're getting a flat rate around 3% or 2.9%.

If you have your own merchant account, the costs will be far lower. So that's what a merchant account is. At we actually provide the merchant account and the payment gateway, and then we can help you to set up a shopping cart that's compatible with our services. I could go on, but I don't want to do that. I intended this to be a short video. I hope that demystified and blew all the mystery out of the water as to what a merchant account is. Thanks for watching and have a good day there.

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David Goodale About the Author

My name is David Goodale, CEO at Merchant I launched our business in 2001 and have over 20 years of expertise in the field of online payments. If you have a payments related question or project, and especially if it relates to multi-currency or international e-commerce don't hesitate to contact me. I'm always happy to help with an honest opinion, and enjoy chatting with folks from interesting businesses.

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