What Is a Merchant Account? A Guide to Merchant Services for Businesses
Accepting payments is a basic part of doing business. What happens after a customer taps a card, inserts a chip or pays online is considerably more complex.
Merchant services provide the technology and payment-processing infrastructure businesses use to accept credit cards, debit cards, mobile wallets and other electronic payments. Depending on the setup, those services may include a merchant account, payment processor, payment gateway, card terminals, point-of-sale technology and reporting tools.
Understanding how those pieces work together can help you compare providers, evaluate fees and choose a payment solution that fits the way your business operates.
Key Takeaways
- Merchant services allow businesses to accept card and digital payments and transfer the proceeds into a business bank account.
- A merchant account, payment processor and payment gateway perform different functions within the payment process.
- Card transactions generally move through authorization, clearing and settlement before funds reach your business account.
- Merchant services pricing may include interchange-plus, flat-rate or other pricing structures, along with account, equipment, compliance or chargeback-related fees.
- When comparing providers, consider more than the transaction rate. Technology, integrations, security, reporting, support and settlement are also important.
- Connecting payment processing with your broader banking relationship can provide greater visibility into the cash flowing through your business.
What Is a Merchant Account?
A merchant account is an account used as part of the card-payment process that allows a business to accept electronic payments.
When a customer pays by credit or debit card, the funds do not move directly from the customer’s account into your business checking account the moment the transaction occurs. The payment must first be authorized and processed through the appropriate payment networks. After processing and settlement, the proceeds are deposited into the business account associated with your merchant services setup.
Merchant accounts are one component of the broader category known as merchant services.
A few terms are helpful to understand.
Merchant Account
The merchant account facilitates the movement of funds from processed card transactions before they are settled into the business’s designated bank account.
Payment Processor
A payment processor manages the communication required to complete an electronic transaction. It transmits transaction information among the merchant, card network, issuing bank and other parties involved in approving and settling the payment.
InBank provides merchant services through its relationship with Payroc.
Payment Gateway
A payment gateway securely captures and transmits payment information, particularly for ecommerce and other card-not-present transactions.
If a payment terminal is the physical connection between a customer’s card and the payment network, a payment gateway performs a similar function in a digital environment.
Payment Aggregator
Payment aggregators allow multiple businesses to process transactions through a shared merchant services structure rather than establishing an individual merchant account for each business.
Platforms such as Square and Stripe commonly use versions of this model. Aggregated payment platforms can offer straightforward onboarding and may work well for certain businesses, particularly those with relatively simple payment-processing needs.
A dedicated merchant services relationship may offer greater flexibility around pricing, technology, support and payment volume. The right approach depends on your business model and how you accept payments.
How Does Credit Card Processing Work?
To the customer, a card transaction may take only a few seconds. Behind the scenes, several parties communicate to approve the payment and move the funds.
The process generally occurs in three stages.
- Authorization
A customer taps, inserts or enters their card information.
The transaction is transmitted through the payment processor and card network to the cardholder’s issuing bank. The bank determines whether the transaction can be approved based on factors such as the validity of the card and available credit or funds.
An approval or decline is then returned to the merchant. - Clearing
Approved transactions are submitted for clearing. Transaction information moves through the card networks so the appropriate parties can calculate and reconcile what is owed.
Approved transactions are submitted for clearing. Transaction information moves through the card networks so the appropriate parties can calculate and reconcile what is owed. - Settlement
During settlement, the proceeds from approved transactions move through the payment system and ultimately into the business’s designated bank account, less applicable processing costs.
Settlement timing can vary based on the processor, payment type, transaction timing, weekends, holidays and other factors.
What Types of Payments Can Merchant Services Accept?
Today’s customers may want to pay in several different ways.
Depending on the equipment and payment-processing solution a business uses, merchant services may support:
- Credit cards
- Debit cards
- EMV chip transactions
- Contactless or tap-to-pay transactions
- Mobile wallets
- Online payments
- Card-not-present transactions
- Mobile card readers
- Point-of-sale systems
InBank merchant services support major payment networks and payment methods including Visa, Mastercard, American Express, Discover, Apple Pay, Google Pay and contactless payments.
Businesses can also choose from payment terminals, smart point-of-sale systems and mobile payment solutions based on how and where they conduct business.
Merchant Services Fees: What Businesses Should Know
Merchant services pricing can be complicated because the advertised transaction rate is not always the complete cost of accepting a payment.
Understanding the pricing structure is more useful than comparing a single percentage in isolation.
Interchange-Plus Pricing
With interchange-plus pricing, the underlying interchange cost associated with processing the card transaction is passed through to the merchant, and the provider adds an additional agreed-upon markup.
Because the components are identified separately, interchange-plus pricing can provide businesses with greater visibility into their processing costs.
Flat-Rate Pricing
Flat-rate pricing charges a predetermined processing rate for qualifying transactions.
The simplicity can make processing expenses easier to understand and forecast, particularly for businesses that prefer a straightforward pricing structure.
Tiered Pricing
Under tiered pricing, transactions may be classified into categories such as qualified, mid-qualified and non-qualified, with different rates applying to each category.
Businesses considering this structure should understand how transactions are categorized and how those classifications can affect their total processing costs.
Look Beyond the Transaction Rate
Processing rates are only one part of merchant services pricing.
Depending on the provider and solution, businesses may also encounter costs associated with:
- Monthly account services
- Payment terminals or other hardware
- PCI compliance
- Chargebacks
- Payment gateways
- Software integrations
- Contract termination or equipment agreements
Before selecting a merchant services provider, ask for a clear explanation of the complete pricing structure and the circumstances under which additional fees may apply.
InBank offers merchant services pricing options based on factors such as the business’s transaction volume, industry and payment-processing needs. Available structures include interchange-plus and flat-rate pricing.
The objective should not simply be to find the lowest advertised rate. It should be to understand what you are paying for and whether the solution supports your business effectively.
How to Choose a Merchant Services Provider
A payment-processing relationship affects more than how customers pay. It can influence cash flow, reporting, customer experience and day-to-day operations.
Consider these factors when comparing merchant services providers.
Transparent Pricing
Ask what pricing model is being used and request an explanation of transaction costs and additional fees.
You should be able to understand how the provider gets paid and what circumstances could change your costs.
Payment Technology
Consider where your customers pay you.
A restaurant, professional services firm, retailer, contractor and ecommerce company can have very different requirements.
Determine whether you need countertop terminals, mobile readers, online payments, smart point-of-sale technology or a combination of solutions.
Software Integrations
Your payment system should work with the technology you rely on to operate the business whenever possible.
Depending on the solution, merchant services may integrate with platforms such as QuickBooks, Shopify, WooCommerce, Toast and Clover.
Integrations can reduce manual processes and provide better visibility across payment, accounting and operational systems.
Security and PCI Compliance
Any business accepting card payments has responsibilities related to protecting cardholder data.
The Payment Card Industry Data Security Standard, commonly known as PCI DSS, establishes security requirements designed to protect payment-card information.
Ask prospective providers what resources they offer to support PCI compliance, security and fraud prevention.
Services and Support
Payment processing can be mission critical.
If a terminal stops working during your busiest period or you have questions about a transaction or chargeback, access to knowledgeable support matters.
Understand who provides support, when assistance is available and how issues are escalated.
Settlement and Cash Flow
Ask how quickly payments typically settle into your operating account and what factors can affect settlement timing.
For businesses processing a significant volume of transactions, even small differences in settlement processes can affect day-to-day cash management.
Why Consider Merchant Services Through Your Bank?
Merchant services should not necessarily be viewed as a standalone technology decision.
Payments are one part of a larger financial cycle. Customers pay your business, those funds enter your operating accounts, and the business then uses that cash for payroll, vendors, debt service, investments and other obligations.
Connecting merchant services with your broader banking relationship can help bring those activities together.
When InBank merchant services are connected with an InBank business checking account, payment proceeds can settle into the same banking relationship you already use to manage your business.
That relationship can extend beyond accepting payments.
Depending on your needs, merchant services can complement treasury management solutions designed to help a business manage receivables, payables, liquidity and fraud risk. InPayables can further support accounts payable processes, while treasury tools such as Positive Pay can provide additional controls around outgoing payments.
The result is a more connected approach to managing cash coming into and moving out of the business.
Merchant Services and Relationship Banking
Technology matters. So does having someone who understands why your business needs it.
InBank approaches merchant services as part of the broader business banking relationship. Rather than evaluating payment processing in isolation, our bankers can work with businesses to understand transaction volume, how customers pay, existing technology and broader cash-management needs.
That reflects our approach to relationship banking: understand the business first, then help identify financial solutions that support where it is today and where it is headed.
Merchant Services FAQs
What is a merchant account in simple terms?
A merchant account is part of the infrastructure that allows a business to accept credit cards, debit cards and other electronic payments. After transactions are processed and settled, the proceeds are transferred to the business’s designated bank account.
What is the difference between merchant services and a merchant account?
A merchant account is one component of merchant services.
Merchant services is a broader term that can include payment processing, payment gateways, terminals, point-of-sale technology, reporting, security tools and other services required to accept electronic payments.
What is the difference between a payment processor and a payment gateway?
A payment processor manages transaction communications among the parties involved in approving and settling a payment.
A payment gateway securely captures and transmits payment information, particularly for ecommerce and card-not-present transactions.
Businesses may use both as part of the same merchant services solution.
How long does merchant processing take to deposit funds?
Settlement times vary by provider, transaction type, batch timing, weekends, holidays and other factors. Businesses should ask prospective providers about normal settlement timelines and any circumstances that may delay funding.
How much do merchant services cost?
Costs vary based on factors such as transaction volume, card type, industry, how payments are accepted and the provider’s pricing structure.
Businesses should evaluate both transaction pricing and additional costs such as account, hardware, gateway, PCI compliance or chargeback-related fees.
What is PCI compliance?
PCI compliance refers to adherence to the Payment Card Industry Data Security Standard, or PCI DSS. These standards establish requirements intended to protect cardholder information and reduce payment-card security risks.
Are Square and Stripe merchant accounts?
Square and Stripe are commonly associated with an aggregated payment model in which multiple businesses process transactions through a broader merchant services platform.
That differs from establishing an individual merchant account. Each model can be appropriate depending on the business’s size, transaction volume and payment-processing needs.
Can merchant services integrate with accounting or point-of-sale software?
Many merchant services platforms integrate with accounting, ecommerce and point-of-sale systems. InBank merchant services solutions can support integrations with platforms including QuickBooks, Shopify, WooCommerce, Toast and Clover, depending on the solution.
Find Merchant Services That Fit Your Business
The right merchant services solution should make it easier for customers to pay you while giving your business the technology, transparency and support it needs to manage those payments effectively.
At InBank, merchant services are part of a broader conversation about how your business manages cash.
Our bankers can help you evaluate payment technology, integrations and pricing while considering how merchant services fit with your business checking and treasury management relationship.
Ready to evaluate your payment-processing options? Talk with an InBank banker about merchant services for your business.