What's a merchant account?

This is not my first post on trying to explain what a merchant account is and I’m sure it won’t be my last. I strongly believe that the entire credit card processing industry is to blame for creating such a confusing market of services, and it’s our duty for us here at Helcim to try and bring some sense to it all.

A merchant account is really a “line-of-credit”, if you will, that a credit card processor in partnership with a Visa/MasterCard acquiring bank extends to a business. In other words, a business wants to accept credit card payments, and someone must take on that risk in case the business disappears and all customers want their money back. The line between the processor and the bank are often very blurry, as most processors are owned by banks or in partnership with them. Nevertheless, they agree to approve the “merchant account” for the business.

Now this merchant account is not a real “account” in the same sense as a bank account. It is really just a client-relationship established with the processor (same as having an “account” with your cable provider). When credit card transactions are processed, the processor’s job is to collect the funds from the customer’s credit card bank, and then deposit those into your business’ real bank account.

In order for those transactions to take place, the processor will provide you with a processing platform, such as a retail terminal, a virtual terminal, an online gateway or a software package. What this platform will do is communicate with the processor, identify that these transactions are being performed for your business, and authorize those transactions.

The processor will also register your business with Visa and MasterCard, giving you more control over your transactions (such as your business name showing up directly on your customer’s card statements and having the ability to contest chargebacks).

In the end, a merchant account is a fancy term used for a processor/acquiring bank giving you the thumbs up for processing Visa and MasterCard payments with them.