What a Merchant Account Does
A merchant account is a special bank account that temporarily holds funds from card transactions before transferring them to your regular business bank account. Without one, you cannot process credit or debit card payments online or in person. The account sits between your customer's card issuer and your business bank, handling authorization, batching, and settlement.
More from this site
Keep reading the latest coverage
Why Getting Approved Can Be Difficult
Providers treat merchant accounts as high-risk because chargebacks, fraud, and regulatory scrutiny exist. Your application is evaluated on your industry, processing volume, personal credit, and business history. Some sectors—online gaming, CBD, travel—face extra scrutiny. If you have a low credit score or a history of chargebacks, you may need a high-risk merchant account or a specialized processor instead of a standard bank.
Types of Merchant Accounts
- Retail (swiped) accounts — lowest rates, for in-person card-present transactions.
- Online (card-not-present) accounts — higher fees, for e-commerce and mail-order.
- Mobile accounts — use a card reader attached to a phone or tablet.
- High-risk accounts — for industries with elevated chargeback or fraud rates.
- Aggregate accounts — shared underwriting through a payment service provider, easier to qualify for.
Common Requirements to Get a Merchant Account
- Business entity (LLC, corporation, or sole proprietorship)
- Employer Identification Number (EIN) or Social Security Number
- Business bank account
- Valid government ID
- Processing history or personal credit report
- Website or business address for online applications
Fees and Pricing Structures
Merchant account providers charge several types of fees. Understanding them helps you compare options. Common charges include setup fees, monthly statement fees, per-transaction fees, and chargeback penalties. Pricing usually follows one of three models.
| Pricing Model | How It Works | Best For |
|---|---|---|
| Flat-rate | Same rate for all transactions, typically 2.6%–3.5% plus a small per-transaction fee | Small businesses, startups, low volume |
| Interchange-plus | Cost of interchange plus a fixed markup, transparent breakdown | Higher-volume businesses that want lower effective rates |
| Tiered | Transactions sorted into qualified, mid-qualified, and non-qualified tiers with different rates | Businesses with mixed card types; can be less predictable |
Step-by-Step: How to Get a Merchant Account
Merchant Account vs Payment Service Provider
A traditional merchant account gives you more control and lower per-transaction costs at scale. A payment service provider like Stripe or Square offers faster setup, simpler onboarding, and aggregate underwriting—meaning your risk is pooled with other businesses. If you are a startup or process under a few thousand dollars a month, a PSP can get you started immediately. For established businesses with steady volume, a dedicated merchant account usually saves money over time.
Tips to Improve Your Chances of Approval
- Clean up your personal and business credit before applying.
- Prepare a clear business plan that explains your processing volume and average ticket size.
- Use a payment gateway with built-in fraud tools to reduce chargeback exposure.
- If you are in a high-risk industry, apply with a provider that specializes in that vertical.