How Does A Merchant Account Work?

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How Does A Merchant Account Work?

If you run a business, you’ve likely heard of merchant accounts, and you probably know that they’re a tool many business owners use for payment processing.

Still, many business owners question what merchant accounts are, how they work, and what makes them different from “normal” bank accounts.

In this blog, we’ll take a closer look at the features and functions of merchant accounts and discuss how using one can help you scale and grow your business.

What is a Merchant Account? 

A merchant account is a bank account that allows businesses to accept and process payments from customers using various payment methods, including debit and credit cards and electronic checks. 

For business owners, merchant accounts offer a variety of benefits, including the following:

  • The ability to process electronic payments safely and securely.
  • The ability to accept various payment methods, including credit and debit cards and electronic checks.
  • Better customer service.
  • Increased sales potential. 
  • Convenience and efficiency for both businesses and customers.
  • Faster payments - no more waiting for paper checks.
  • Global reach and the ability to accept payments from customers outside the business’s immediate area. 
  • Reduced risk of fraud and advanced security features.
  • Reporting and analytics to provide valuable insight into sales, transactions, and more.
  • Steady and streamlined cash flow. 
  • Dedicated merchant account support.
  • And more.

How are Merchant Accounts Different From Consumer Accounts?

While a basic bank account held by an individual is used primarily for banking activities like depositing and withdrawing funds and managing personal finances, merchant accounts serve slightly different purposes.

Here are a few of the unique features you can expect from a merchant account:

  • Payment processing. Unlike individual accounts, which don’t have built-in payment processing functions and can’t process customer payments, merchant accounts integrate with payment processing systems, payment gateways, or point-of-sale (POS) systems. This integration allows businesses to accept and process payments from customers. 
  • Transaction settlement. With standard bank accounts, any funds deposited usually belong to the account holder and can be used as needed. With merchant accounts, however, funds received from customers are secured in the account until they’re either settled or transferred to a designated business bank account. The settlement occurs after a given period, either daily or weekly, depending on the provider. 
  • Fees and charges. While standard bank accounts may come with charges like ATM or account maintenance fees, the fees associated with merchant accounts usually differ. Merchant accounts incur fees related to the act of payment processing. Examples of these fees include interchange and transaction fees, monthly fees, and chargeback fees - all of which are specific to processing customer payments and do not exist with standard bank accounts.
  • Account management. If you opened an individual checking account, you could access a range of banking services, including account management features like bill payments and online banking. With a merchant account, however, you’d have access to more specialized tools and features to help you manage payment transactions, including chargeback management, dispute resolution, analytics and reporting, and more. 

How Merchant Accounts Work

Now that we’ve discussed the difference between individual accounts and merchant accounts let’s take a brief look at how merchant accounts actually work. 

Here’s a quick breakdown of how the typical merchant account processes and receives payments:

  1. A business opens a merchant account. Companies apply for merchant accounts with payment service providers and are either approved or denied. If the account is approved, the business will set up a payment gateway or use payment processing software to connect its payment acceptance channel to the merchant account. This integration acts as the bridge that supports secure payment information processing. 
  2. The customer makes a payment. Once the merchant account is open, customers can make purchases. Customers provide their payment details, such as debit or credit card numbers, during the purchase. The payment details are transmitted securely to the payment gateway or processing software.
  3. Authorization. Next, the payment network sends the payment information to the merchant account provider, forwarding the transaction details to the Automated Clearing House (ACH) network or credit card provider. The payment network verifies the customer’s payment details and authorizes the transaction.
  4. Funds transfer. When the transaction is authorized, the payment network transfers funds from the customer’s account to the business’s merchant account. 
  5. Settlement. Funds from customer payments accumulate in the company’s merchant account and are settled or transferred into the company’s designated bank account according to a set schedule. 
  6. Deduction of fees and charges. Once the payment has been processed, the merchant account provider deducts various fees and charges to cover their processing services. Usually, these fees are based on a percentage of the transaction amount, although they can be a flat fee per transaction. 

Seamless Chex: Your Source for Reliable Merchant Account Services

If you’re looking for a merchant account to help your business grow and scale, look no further than Seamless Chex. Our reliable and robust merchant accounts make accepting payments online easy and secure and can help you make more sales. 

Contact us today to learn more. 

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