Merchant Accounts Explained: How They Work and What They Cost

How a card payment reaches you

The customer's card issuer approves the sale, the network routes it, and the processor deposits the funds in your account minus fees, usually within a day or two.

Behind a simple tap are several parties: the customer's bank, the card network, your processor and your merchant account. The processor handles authorization and settlement. The merchant account is where approved sales are held before they land in your business bank account.

Some providers bundle all of this. Others, called payment facilitators, pool many sellers under one account. Both let you accept cards, with different tradeoffs.

Dedicated merchant account versus payment aggregator

A dedicated account has its own underwriting and often lower rates at volume. An aggregator is quicker to start but can hold funds or freeze accounts.

For more on how per-sale costs add up, see debit card processing fees.

Fees to look for

Expect transaction fees, monthly and statement fees, PCI fees, chargeback fees and sometimes equipment charges and termination fees.

• Per-transaction percentage and fixed fee
• Monthly account and statement fees
• Minimum monthly processing
• PCI compliance fees
• Chargeback fees
• Terminal or gateway charges
• Early termination fees

Calculate your effective rate: total fees divided by card sales. Compare that number across quotes, not headline rates.

Contract traps to avoid

Watch for long terms, automatic renewals, large termination fees, equipment leases that outlast the contract and vague rate language.

1. Ask for the full fee schedule in writing.
2. Check the contract length and how to cancel.
3. Look for any equipment lease and its term.
4. Check whether rates can change, and how much notice you get.
5. Confirm how quickly funds are deposited.

A processor that makes cancellation hard may not be confident in its service. Keep copies of everything you sign.

Review your statement every month for the first six months of a new account. Compare the fees charged with your signed schedule, and question anything unfamiliar. Errors and added fees are common, and most providers will correct them when you ask with the statement in hand.

Chargebacks and risk

A chargeback happens when a customer disputes a charge. Too many can lead to fees, reserves or loss of your account.

Reduce disputes with clear descriptors on card statements, prompt customer service, accurate product descriptions and signed receipts for large jobs. Keep delivery records. Respond to disputes quickly with documentation.

Providers may hold a reserve, delay deposits or end the relationship if chargebacks are frequent. Plan for deposit timing in your cash budget. See accepting credit card payments.

Fraud controls help too. Use address and security code checks on keyed sales, require signatures or tap for large in-person purchases, and keep a clear refund policy posted. Fewer disputes protect your standing with the processor.

Merchant accounts and business funding

Funders often review card deposits to see revenue. ROI Funder does not provide merchant accounts, but card sales history can support a funding file.

Steady card volume shows up in bank statements and helps a funder size an offer. ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ monthly revenue, and a complete file is the application plus three months of business bank statements.

Funding that repays as a share of sales is covered under revenue-based financing. Where the payment is not a fit, read working capital. You can compare small business payment options separately.