What Are Merchant Accounts Used For?

A merchant account is used for one thing: accepting electronic payments. When a customer pays by credit card, debit card or digital wallet, the funds do not go straight into your business checking account. They pass through a merchant account first, where the transaction is authorized, captured and settled.

That is the short answer. The longer answer — and the one that matters if banks treat your business as high-risk — is below.

What Is a Merchant Account Used For?

A merchant account is a specialized account that sits between your customers' card networks and your business bank account. It exists so that card payments can be accepted, verified and settled in an orderly way. Without one, or without a provider that supplies one on your behalf, a business cannot take card payments at all.

The Specific Jobs a Merchant Account Handles

In practice, a merchant account is used for five things:

• Authorizing transactions. When a card is presented, the account routes the request to the issuing bank for approval.
• Capturing funds. Once approved, the transaction amount is captured for settlement.
• Holding funds between authorization and settlement. Money sits in the merchant account briefly before it moves on.
• Settling to your bank account. Captured funds are deposited into your business checking account on a set schedule.
• Processing refunds and chargebacks. When a customer disputes a charge or requests a refund, the debits run back through the same account.

Every card transaction your business takes — in person, online or by recurring billing — runs through these steps.

Merchant Account vs. Business Bank Account

The two are often confused, and they are not interchangeable. A business bank account holds your money. A merchant account moves it. You cannot accept a card payment directly into a checking account, because checking accounts are not connected to the card networks. The merchant account is the connection, and the bank account is the destination.

Merchant Account vs. Payment Aggregator

Some providers skip the dedicated account and pool many businesses under one master account. That approach gets a business processing with little more than a sign-up, but the business is never individually underwritten, so the provider knows very little about it until something looks unusual.

A dedicated merchant account works the other way. Your business is underwritten before you process a single payment. The provider knows your industry, your volume and your chargeback history going in, and the terms reflect your business rather than an average of thousands of others.

What High-Risk Businesses Use Merchant Accounts For

For most businesses, a merchant account is plumbing. For a business that banks label high-risk, it is also the document that defines the relationship: reserves, chargeback thresholds, settlement timing and fees, put in writing before processing begins.

That is why a dedicated high-risk merchant account matters more in our category than anywhere else. If your previous processor exited, the account terms are what determine whether it happens again. We underwrite high-risk businesses as our only line of work. Most merchants are approved within 24 hours, and pricing starts at interchange plus 0.80%, with every fee disclosed in the merchant service agreement before you sign. You should be able to read your agreement and understand every line of it, and with us, you can.

How to Open a Merchant Account

The process is the same across the industry: you submit an application, the provider's underwriters review your processing statements and business documents, and once approved, you connect the account to your website, point of sale or billing system.

If your business has been declined before, start an application with us and include your processing statements. We will give you a straight answer on where you stand, and most merchants are approved within 24 hours.