Does My Subscription Business Need a Merchant Account?

merchant account

As we move to a cashless society, and especially when you are a subscription business owner, accepting credit cards is a no-brainer. (When was the last time you carried cash in your wallet, or somehow beamed it to Amazon for your latest audiobook, right?)

Technically, your business can process credit cards whether or not you have an associated merchant account…but do you want to? There’s confusion around the payment back end, especially for startups and first-time business owners.

So, how do you know if you need a merchant account? To make the best decision for your business, read on. You’ll learn:

  1. What a merchant account is and how it works
  2. How a merchant account works
  3. The benefits of a merchant account
  4. Advantages of using a merchant account over a payment processor
  5. How to get approved for an account
  6. How to get your account set up

What is a merchant account?

A merchant account is a type of business bank account that allows you to accept and process electronic payment card transactions in person, by phone, and online.

A merchant account processes electronic payments by transferring funds between customers’ and merchants’ banks. Essentially, a merchant account fronts your business money before your customers pay off their credit card.

During a sale, the merchant account works behind the scenes to withdraw funds from the customer’s bank and deposit them directly into the merchant’s checking account.

For in-person sales, “card present” transactions occur at the point of sale, connecting to the credit card company to ensure the transactions can go through. In a “not present” transaction, this is completed online by a payment gateway that connects to the credit card company.

For online sales, merchant accounts are required if you want to use a payment gateway to process transactions from your website. Payment gateways connect customers wanting to make a payment with a bank or merchant account provider that processes the transaction.


How does a merchant account work?

Here’s how it works when a credit card transaction takes place:

  1. The customer submits card data
  2. The data is sent by the merchant’s payment processing solution to the merchant’s account
  3. Then it is sent to the credit card network (Visa, MasterCard, Discover, and American Express) and the customer’s bank
  4. The customer’s bank approves or declines the transaction and sends a response back through the card network, to the merchant bank, and ultimately to the merchant’s processing solution to complete the sale.

What are the benefits of having a merchant account?

  • Allows you to manage your money and transactions better
  • Gives you the ability to accept payments in a wide variety of currencies
  • Provides safe payment options for your customers
  • Protects your customers’ sensitive data
  • Protects you from fraudulent transactions and chargebacks
  • Increases sales
  • Keeps you competitive in the marketplace

What are the advantages of using a merchant account over a payment processor?

A payment processor is a third-party company that handles transactions for a merchant such as Authorize.Net, Paypal, or Stripe. When you choose a merchant account over a payment processor, you can benefit from the following advantages.

  • Quicker access to your money. When customers pay through a payment processor service such as Paypal, the payment arrives in your account, but not immediately in your bank account. It stays there until you request a transfer, which can take up to seven days. With a merchant account, funds sit in a merchant account before they are automatically deposited into your bank account.
  • More cost effective. Payment processors charge higher transaction fees. If your business has a high monthly transaction volume, a merchant account will be less costly.
  • Convenient for your customers. Your customers stay on your website and are more likely to complete the transaction. If they are re-routed to a payment processor website and the process isn’t seamless, you could lose the sale.
  • Better service. A merchant account provides a higher level of customer service than a payment processor.

Will I get approved for a merchant account?

To increase your chances of being approved for a merchant account, a good credit score is key. You will also need a business bank account and, in many cases, a business license.


How do you set one up?

Signing up for a merchant account includes a completed application and approval by the service provider’s underwriting team. The process takes time because the merchant account provider needs to assess the financial risk of fronting your business money.

Follow these steps to set up a merchant account:

  1. Decide how you will accept credit card payments (online, in person)
  2. Research merchant accounts providers for:
    • Customer and technical support (customer service hours)
    • Sufficient experience (length in business)
    • Solid reputation (proven track record, check the Better Business Bureau)
    • Offer a full range of features (unique Merchant ID number, PCI compliance, fraud protection, online reporting capabilities)
    • Processing time (how quickly funds are deposited into your bank account)
    • Length of contract (how long you are required to stay with the provider)
  3. Review fees.
    • Account set up or application fees. (Most merchant accounts have done away with these fees.)
    • Maintenance fees, usually billed monthly or annually.
    • Transaction fees. Typically these fees include a flat fee assessed for each credit card payment and a fee that is a percentage of each amount of the transaction.
    • Monthly minimum fees. If you fail to meet the monthly transaction minimum, you might be charged a fee.
    • PCI compliance fees. These fees are charged to ensure that your account remains PCI compliant.
    • Statement fees. You could be charged to receive your statement.
    • Early cancellation fees. The average agreement lasts three to five years.
    • Chargeback fees. Chargebacks are incurred when the processor has to reverse a charge and can be costly.
  4. Apply by supplying personal and business information.
  5. Review the Terms and Conditions.
  6. Install the software or connect the gateway to your portal to accept online credit card payments.

Now that you know how to get a merchant account, find out what you should look for in your subscription billing tool. Download our Six Must Haves guide to get a list of the must-haves (and why they matter), plus a bonus three-page feature checklist. Get it for free below:

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