What Is a Merchant Account? 2022 Guide for Small Businesses

A merchant account is essentially a business bank account that lets you accept all kinds of electronic payments, from credit cards to ACH and bitcoin. You get a merchant account from a merchant account service that handles the communications, administration, and security of the account. Most merchant account services also act as a payment processor to facilitate the transactions.

Fortunately, getting and using a merchant account is not especially hard. Let’s go over the basics of a merchant account, how to get one, how to make sure you keep your payment processing costs down, and trends to watch out for.

Merchant Account Process Basics

Your first step is to sign up for a merchant account and payment processor—a merchant account works as a middle account between your customer’s bank account and your business bank account. Then, you can start accepting payments, whether by having the customer put in their card information or having them swipe, dip, or tap their card. Online, some processors let your customers pay with the click of a button.

The merchant account then handles the work of requesting the money from your customer’s card issuer and bank, which, in many cases, includes fraud checks and authenticating the account. Then, the money is transferred to the merchant account.

It’s held in the merchant account until the transaction is completely cleared and is then forwarded to your personal bank account. Usually, this is the last step, with payouts being done on a daily or weekly schedule.

Our article on how payment processing works describes the process in greater detail.

How To Get a Merchant Account

Getting a merchant account can be as easy as filling out a form—but that does not guarantee you get the best account for your business. Before you pick the first one you see or even the cheapest, do a little research. For instance, if you make high-risk or high-volume sales, you may need a more specialized merchant account. These sometimes require a more in-depth application and approval process.

You would need to gather your business information, such as your employer identification number (EIN), to proceed with your application. Finally, order any equipment you need, and then you’re ready to process your first payment.

Download our free step-by-step guide to applying for a merchant account (including tips for getting the best rates). And continue reading for an overview on what to look for in a merchant account and how to apply.

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What To Look for in a Merchant Account

Merchant services cost between 2% and 4% of your sales, and some services require a commitment of a year or more. These considerations can help you avoid costly mistakes and get you the best plan for your business.

Step 1: Determine what you need. At Fit Small Business, we’ve evaluated hundreds of payment processors, from all-in-one payment and point-of-sale (POS) systems like Square to high-risk providers like PaymentCloud. We know that a good fit is as important as the quality of service. Therefore, you should know what you want out of payment processing.
- Know your business: Are you in a high-risk industry? Do you have a history of chargebacks? Will you be online, in-store, or taking mobile payments?
- Know your processing history: How much do you process in a month? How often do you need payment processing? What kind of processing do you handle most (online, keyed-in, card swipe or chip, non-contact payments?). Do you have high- or low-ticket sales?
- Know your needs: Do you also need a POS system? If you have one, how easy is it to integrate the merchant service? Are you planning to grow your online presence? Do you need to integrate payments with other business software like Salesforce?
- What do your peers use? Ask friends in your industry (or check out competitors) and see what they use and if they’re satisfied.

Merchant accounts often come with other services like PCI compliance and encryption to increase security, and additional payment processing tools like ACH transfers, gift cards, customer loyalty programs, a payment gateway, and merchant cash advances. Some even have POS systems with software for managing your business.

Step 2: Look for providers. Here are a few things to consider:
- Fees: Some offer a simple flat rate per transaction; others offer interchange-plus. Some have monthly membership fees. Others charge additional small fees. Be careful, as one of the most common user complaints is being nickel-and-dimed to death with hidden fees. Ask to see a contract and follow up on any fees you don’t understand.
- Fee structure: Is the transaction fee by percentage, by cents, or a combination? If you do mostly small-ticket sales, then a percentage fee may be cheaper than a straight cents-added fee.
- Contract length: Ideally, your merchant service has month-to-month plans. However, if you are purchasing or renting equipment, high-risk, or getting a really low rate, they may require a contract. These are notoriously hard to get out of, and expensive to forfeit.
- Services: Some merchant services include POS, virtual terminals, and more for free. Others charge for specific tools. There are even some that require a separate payment gateway, which then adds its own charge to your processing fees. Know exactly what solutions you need ahead of time so you can get specific estimates.
- Quality of its apps: If you plan to use its POS system or app, check out the user reviews. Look for ease of use, complaints about downtime, and reports of withheld funds. For mobile apps, pay attention to whether it supports your version of Android or iOS.
- Ease of use: Merchant services should be easy to integrate and use, with intuitive software and an online system that makes it easy to see how much you spend on fees. Customer support should be available when you need them, especially if they supply you with your POS system.
- Complaints: It pays to check the experience of other users. We recommend the Better Business Bureau and Capterra when it comes to user review research. Keep in mind that the bigger the business, the more numerous the complaints; for example, there are thousands of complaints about Square and PayPal withholding funds, yet they serve millions of customers and are highly rated. (For a good source for reports on withheld funds, check out Card Payment Options.)
Step 3: Compare your top choices. Some make it easy because they list their prices and features right on the website. For those that don’t, you’ll need to call and give some basic information about your business. In those cases, always ask to see a sample contract and check the contract length along with fees you don’t understand.

How To Apply for a Merchant Account

The good news is many merchant services don’t have a long application process. In most cases, if they charge a flat rate, you can sign up for them right away.

Square sign up form for merchant accounts.

Some merchant accounts require just basic information to get you started. (Source: Square)

Merchant services that offer interchange-plus pricing usually have a larger application and an approval process. Here’s how the process works:

Step 1: Prep your materials. To make it faster, gather your information:
- Business contact information, including name, addresses, and DBAs
- How long you’ve been in business and your sales history (to help you get the best rates and plans)
- If you’ve used a credit card processor before and the information around it
- Financial information like tax ID, financial statements, bank accounts, and routing numbers
- Credit card to pay the application fee
Step 2: Contact the credit card processor. Some let you apply online; others have you talk to a sales associate who can take your information, discuss your needs, and give you a quote. Once you submit the information, the merchant service will run a check on your personal and business credit history.
Step 3: Wait for approval. This can take up to two weeks, though usually less if you don’t have a high-risk account.

Brick-and-mortar shops can see an increase in purchases by having a merchant account, as most people use cash only for small tickets. However, even solopreneurs making casual sales should consider it, as customers usually only pay cash when it’s under $25—and even those instances are declining.

Best Merchant Accounts

Now that you’ve decided on the kind of merchant account you need, here are some recommendations from our own research:

Best Merchant Accounts At a Glance

	Best for	Monthly fees	In-person fees	Online transaction fees	Contract required?
Square	All-around, retail	$0	2.6% + 10 cents	2.9% + 30 cents	No	Read our Square Review
Stripe	Online sales and integrations	$0	2.7% + 5 cents	2.9% + 30 cents	No	Read our Stripe Review
PayPal	Social sales, casual sales	$0	2.29% + 9 cents (through Zettle)	3.49% + 49 cents	No	Read our PayPal Review
Helcim	Retail	$0	From Interchange + 0.30% + 8 cents	From Interchange + 0.50% + 25 cents	No	Read our Helcim Review
PaymentCloud	High-risk merchants	$25–$30	2.69%–4.25%, depending on risk	2.69%–4.25%, depending on risk	2-year	Read our Payment Cloud Review
Stax by Fattmerchant	High-volume sales	$99–$199+	Interchange plus 8 cents*	Interchange plus 15 cents	No	Read our Stax Review
CDGcommerce	Restaurants	$0–$199	From Interchange + 5 cents*	From 2.9% + 30 cents*	No	Read our CDGcommerce Review

*Varies by subscription type

Still shopping for more options? If none of these satisfy your needs, check out the following articles:

What’s a payment gateway? Payment gateway providers (like Authorize.net) may provide only the tool to connect with your merchant account or may provide merchant services as well.

Understanding Merchant Service Fees

Credit card processing fees can get complicated because there are so many entities involved, and because the fees are not standardized between different merchant service providers. So, the types of fees you pay with one company might be completely different from the structure another merchant service provider uses.

If you want to avoid a complex and potentially confusing fee structure, look for merchant accounts that provide flat rates, like Square or Stripe. This kind of payment provider is what-you-see-is-what-you-get. Usually, the only additional fees are for chargebacks or extra services.

Essentially, processing fees include the following:

Account/service fee: Similar to a statement fee, this is a hidden cost companies add to cover their administrative expenses. It’s a good idea to try and avoid providers that charge these fees.
Application fee: To open a merchant account, you first need to apply. In some instances, there are fees associated with the application process that the merchant account provider passes on to the merchant. (None of the merchant accounts on our best-of lists charge this fee.)
Assessment fee: Calculated as a percentage of your total monthly sales, the assessment goes to the card associations. It’s nonnegotiable.
Batch fees: This may apply each time you settle your terminal. Inquire about the details of the batch fees and consider how frequently you batch your transactions (often daily).
Chargeback fees: Chargebacks happen when a cardholder has been a victim of fraud. Merchant services providers will charge a fee for each instance. Multiple instances may also result in fines. Chargebacks911 predicts that chargebacks will increase by over 10% between 2021 and 2023.
Credit card payment processing rates: Merchantcostconsulting.com estimates the average card processing fees to be anywhere from 1.7% to 2.5% per transaction. Processing fees make up the bulk of the fees that you will pay to accept credit cards. Interchange and assessment fees are typically bundled into this rate.
Equipment costs: You might already own compatible hardware. If you don’t, you’ll either need to purchase it on your own or from the merchant account provider. Many providers also offer the option to rent equipment, which may come with upfront and ongoing costs.
Markup: Merchant services providers add an extra fee to what the card associations charge for processing. These are always negotiable.
Minimum processing fee: Depending on your provider and selected plan, you may have to process a minimum amount in transactions. If you don’t hit this minimum, you may have to pay a fee.
Monthly fee: Some merchant services, like Payment Depot, are upfront about their monthly fee and what you get in return. If this fee is not posted on the website but they charge it, then negotiate to get it removed or lowered.
NSF fee: The not-sufficient-funds fee happens when a cardholder doesn’t have enough balance in their account to cover the amount of the transaction. The issuing bank will typically apply this fee to the cardholder, so this does not impact merchants.
PCI compliance fees: Some providers charge a fee to remain PCI-compliant, though it’s advised to find one that includes PCI compliance with their cost. Non-compliance could also result in fees of around $19.95 per month plus additional fines should there be a breach.
Setup/installation fee: When you get started with a new merchant services provider, it may have setup costs. These expenses can apply both for assisted on-site and self-installations.
Statement fee: Again, this is a hidden cost similar to account, statement, and monthly fees. The best merchant service providers do not charge statement fees.

Learn more about different types of merchant service markups and what to expect for average processing rates, read our full guide on credit card processing fees.

How To Lower Credit Card Processing Fees

Here are some ways to get lower processing rates:

Shop around. Do your research to find out who charges the lowest rates and which fee structure works for your average transactions.
Ask. Sometimes your current business tools can negotiate their rates for you. This works especially well if you have a long and good relationship with your merchant services provider.
Fight fraud. Look for ways to prevent chargebacks and other fraudulent activity so you don’t waste time and money on recovery. Many merchant services offer fraud protection tools, some free, some with an additional charge.
Avoid chargeback fees. Not all chargebacks are because of fraud. Some are legitimate mistakes. Learn more in our article on how to prevent chargebacks.
Implement surcharging. Credit card surcharging is the process of passing transaction fees on to customers. Learn more about it in our guide to credit card surcharging.
Swipe when possible. Card-present transaction fees (swipe, chip, and NFC payments) are lower than online transaction fees because there is a reduced fraud risk. You can lower your fees by opting for these payment methods whenever possible.

Merchant Account & Payment Trends in 2022

COVID-19 has changed how we shop, and those changes are continuing even as the world recovers. Here are some trends you can look forward to—or prepare for—through 2022:

Visa and Mastercard rate increases: Visa changed its rates in April 2021, and Mastercard changed its rates in April 2022. This will mean increased rates for interchange-plus accounts at least and may have trickle-down effects on flat rates.
ACH transactions: According to Nacha, consumers are increasingly looking for ACH, or bank-to-bank, transactions as a way to pay for items, including online. Not all merchant services offer this, so look for this feature, especially if you do B2B sales.
Contactless payments: This continues to rise, and is becoming a standard. Many card readers, like Square and PayPal, already have NFC payment capabilities. Contactless payments are also more secure than traditional swipe or chip payments because of the encrypted microchips in mobile apps.
Embedded finances/brands-as-banks: Well-known brands like Amazon and Google are starting to create their own payment services. Other stores, like Target, are creating debit cards. Merchants will need to be able to accept these new types of payments.
Social shopping: Insider Intelligence is predicting that US retail social commerce sales will rise by 24.9% to $45.74 billion in 2022. According to SproutSocial, 45% of shoppers get excited about buying directly from their favorite platforms. Gen Z are the most enthusiastic (52% ready to buy). While PayPal is an easy way to add social selling, most merchant services are starting to enable social selling as well.
Biometric authentication: The quest for increased security and multifactor identification is leading to the increased use of biometrics for verifying payments. BiometricUpdate.com reports new technologies for facial and iris recognition as well as cards and banks adopting the technologies.
Paying with crypto: Inside Intelligence says that by the end of 2022, 12.8% of US adults will own cryptocurrency, a rise of 19%. That’s 33.7 million in the US alone, with 3.6 million using their crypto to purchase items. Buying with bitcoin and other cryptocurrencies has started to move into the mainstream, and many payment processors, like PayPal, have been quick to adopt this new currency.

Check out these other sources to help you plan for the future:

Payments trends and statistics gathered by industry
Our payment report on the state of payment processing for retail and ecommerce.
Online shopping statistics for how consumers prefer to buy online.

Bottom Line

If you are selling in today’s world, you need a merchant account. Getting one is pretty easy, but choosing the right merchant services provider for your small business takes some work if you want the best fit. It may be tempting to go with the first one recommended to you or the one with the lowest rates, but it’s important to think about security features, tech integrations, and chargeback management. Start by identifying your unique business needs and challenges, and then rank each option against your qualifications to make an informed, strategic decision.

Take the next step towards processing payments with our guide on how to accept credit cards.