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What Is a Merchant Account?

What is a merchant account and Why Do I Need One?

Is it just the name for the bank account owned by any merchant? And, if you’re a business owner, why do you need a merchant account?

Merchant accounts are not just accounts owned by merchants. In fact, merchant accounts are much more powerful than regular bank accounts because they allow your business to accept credit card payments. Processing credit cards is an integral part of almost any business, but it’s something that you just can’t do without a merchant account. When somebody makes a credit card payment, the money ultimately gets transferred into a merchant account. From there, you can transfer it to your business’s regular checking, but if it’s coming from a payment made by a credit card, it will first have to go into a merchant account.

Unfortunately, getting a merchant account is not necessarily as easy as getting a regular checking for your business. For banks that are processing credit cards, allowing businesses to open merchant accounts actually involves taking on some level of risk. See, within a few days after a payment is made, the money is transferred into the merchant account of the seller. However, if there is a chargeback, then the bank has to get money back from the account holder. Chargebacks represent a risk to – and extra work for – the bank. So banks want to avoid companies that they think might have a lot of chargebacks. Chargebacks can happen when a product is returned, when it is ordered with a stolen credit card and the real card owner realizes it, if the card holder commits fraud by lying to their bank saying they didn’t authorize the order, or if the product never arrives.

To avoid having to deal with chargebacks, banks often refuse to give merchant accounts to businesses that are in high risk industries and businesses with poor credit histories or a history of problems with past merchant accounts. Also, businesses that are in industries known for committing fraud are denied, as are businesses in industries associated with a higher rate of fraudulent customers. Unfortunately, that means that even if you own a stable and honest business, if you are in an industry that banks consider high risk, it will be extremely difficult to open a merchant account. What industries are considered high risk? Some of the high risk industries are somewhat intuitive, but some of the high risk industries are less obvious, though, like natural health and nutritional supplement sellers, SEO companies, collection agencies, web hosting businesses, subscription sales, and charity online contributions.

Now that the question of what is a merchant account has been answered, you’re probably still wondering how to get one if you are in a high risk industry or have bad credit. For businesses that are denied merchant accounts through the banks that would usually issue them, you will need to find a merchant services consultant. Merchant services consultants specialize in arranging merchant accounts for businesses in high risk industries. If you want your business to begin accepting credit card payments – either online or in person – contact a merchant services consultant like Rapid Financial Solutions today.

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