What is a merchant account?
A merchant account is a type of business bank account that temporarily holds funds from credit and debit card sales before transferring them to your main business checking account, allowing you to accept electronic payments from customers.
If you’ve ever wondered where your money goes between the moment a customer swipes their card and when it hits your bank account, you’re not alone. That’s where merchant accounts come in.
A merchant account is a special type of bank account that helps you accept card payments securely and efficiently. They’re built to handle electronic payments, and they can offer lower fees, better fraud protection, and faster access to your funds.
In this guide, we’ll break down what merchant accounts are, how they work, and why they might make sense for your business.
What you need to know
- A merchant account holds transacted funds before depositing them in your business checking account, allowing you to receive funds faster.
- Compared to payment processors alone, merchant accounts offer more customization, lower fees, tailored support, and enhanced security.
- Opening a merchant account requires an application and review, and you’ll need to provide supporting documentation and a credit inquiry.
What is a merchant account?
A merchant account is a type of business account that lets you accept credit and debit card payments. When a customer pays, the money first goes to your merchant account before it’s transferred to your business bank account. This extra step helps speed up transactions and ensures the payment flows smoothly between banks.
Merchant accounts are often used with other tools that make up your payment system, like payment processors, point-of-sale (POS) terminals, and payment getaways.
For brick-and-mortar businesses, merchant accounts may come with added hardware or transaction fees, so it’s worth comparing costs before you choose a provider.
Do I need a merchant account?
Yes—if you accept credit or debit card payments regularly, you’ll need a way to process those transactions. That typically means having a merchant account. But here’s the nuance: you don’t always need to set up a separate merchant account.
Many modern business checking accounts or payment processors let you accept card or digital payments directly, without the extra hassle of maintaining a traditional merchant account.
How do merchant accounts work?
When a customer pays with a credit or debit card, the funds are first routed through a merchant account, which temporarily holds the payment while it’s authorized and processed.
While payments technically go through a merchant account, if you’re using a platform like Bluevine, that process is handled behind the scenes and all you’ll see is the money landing in your business checking account—no extra steps, no separate account to manage.
Here’s what happens behind the scenes:
- The card payment is submitted through your POS system or online checkout.
- Your payment processor verifies the transaction with the customer’s bank.
- Once approved, the funds are deposited into your merchant account.
- After a short holding period—usually one to two business days—the money is transferred to your business bank account.
Get paid effortlessly directly to your business checking account with easy invoicing and payment links.
Merchant account providers vs. payment facilitators
It’s important to know the difference between merchant account providers and payment facilitators because it affects how much you pay, how much control you have, and how fast you get your money—which all make a big difference for your business.
Merchant account providers give your business its own dedicated merchant account. This setup offers more control over how you accept payments, often with lower transaction fees as your volume grows. You may also get advanced fraud protection tools, custom payout schedules, and the ability to integrate with a wider range of payment platforms.
Payment facilitators let you accept card payments through their payment facilitator merchant account. It’s fast to set up—often with no underwriting or approval process—but comes with trade-offs. You may face higher fees, limited options for customizing your checkout experience, and less control over how and when your funds are deposited.
| Merchant account provider | Payment facilitator | |
| Setup time | Longer (requires approval and underwriting) | Fast (often instant, no approval needed) |
| Account type | Dedicated merchant account for your business | Shared account under provider’s master account |
| Fees | Typically lower for higher volumes | Flat, often higher per transaction |
| Flexibility | High—custom payout schedules, integrations, and tools | Limited—less control over features and payout timing |
| Risk of account holds | Lower—more stable with consistent transaction history | Higher—accounts may be frozen with less notice |
| Best for | Established businesses with steady volume | New or small businesses needing fast setup |
| Checkout customization | More options for branding and customer experience | Basic customization, limited to provider’s tools |
| Customer support | Often more tailored, with dedicated reps | Varies—usually self-service or general support |
Traditional merchant accounts vs. high-risk merchant accounts
Knowing the difference between traditional and high-risk merchant accounts matters because it affects your approval chances, fees, and how your business is treated by payment processors.
Traditional merchant accounts are designed for businesses with standard risk profiles, such as retail stores, restaurants, consultants, and professional services. These accounts offer merchant services such as competitive fees, faster approvals, and straightforward terms because the chance of fraud or chargebacks is relatively low.
High-risk merchant accounts are for businesses that operate in industries prone to chargebacks, fraud, or complex regulatory requirements—think travel agencies, online gambling sites, adult entertainment, and CBD or cannabis sellers.
Due to the increased risk, these accounts often come with higher fees, longer approval processes, and more rigorous monitoring to protect both the merchant and the payment processors.
| Traditional merchant account | High-risk merchant account | |
| Typical businesses | Retail shops, restaurants, consultants, professional services | Travel agencies, online gambling, adult entertainment, CBD/cannabis sellers, subscription services, telemarketing |
| Approval process | Faster and simpler | Slower and more detailed |
| Fees | Usually lower | Generally higher due to increased risk |
| Monitoring | Standard fraud and chargeback checks | More frequent and stricter monitoring |
| Chargeback likelihood | Lower | Higher |
| Payout timing | Typically faster | May have longer holding periods |
Merchant account costs and fees
Merchant services providers charge a merchant fee (also called a transaction fee) for each sale you make. These are deducted before your sale gross is deposited into your business checking account. Merchant fees are negotiable and tax deductible. Other costs include:
- Interchange plus pricing: This pricing model breaks down fees into the interchange rate set by card networks plus a fixed markup from your provider. It’s transparent and often cheaper for businesses with higher volume.
- Flat-rate pricing: This is a simple, fixed percentage charged on each transaction, regardless of card type. It’s easy to understand but can be more expensive if your sales volume grows.
- Application/setup fee: Some providers charge a one-time fee to open your merchant account or get your merchant payment system up and running.
- Service fee: This is a regular fee—often monthly—that covers account maintenance, customer support, and access to payment tools.
- Chargeback fee: If a customer disputes a charge and the payment is reversed, you’ll typically pay a fee to cover the administrative costs of handling the dispute.
- Credit card processing fee: This fee covers the cost of handling credit card transactions and usually makes up the largest part of your merchant fees. It can vary based on card type and transaction method.
How to set up a merchant account
Opening a business merchant account is easier than you might think. Merchant account requirements are pretty simple—you’ll just need a few key documents and a bit of preparation, and you can get set up to accept card payments quickly and securely.
1. Research merchant account providers
Have your accountant or bookkeeper compare the fees and rates of different merchant services providers to calculate how much each company will save you. Then, compare these figures to the features each account offers, such as:
- How fast will I receive payments from this account?
- Is customer support live and/or tailored to my business?
- What security features does the account offer?
- Does the account integrate well with my business banking platform?
- What do customer reviews and testimonials say about the provider?
2. Prepare your documentation
Before you can open a merchant account, your provider needs to verify your business to reduce risk and comply with legal requirements. That’s why your application will ask for important legal and financial documents.
While exact requirements vary, you’ll typically need:
- Business documents and information, such as business license, articles of incorporation, EIN, and business credit history
- Financial statements and tax returns
- Proof of regulatory compliance, such as with the Payment Card Industry Data Security Standard (PCI DSS)
- An open business checking account
3. Complete the application
Fill out the merchant account application and submit all required documents and information. Once the merchant services provider has received all this, they can begin underwriting—evaluating your business risk. This can take days or weeks depending on your business, and will include a credit inquiry. The provider may contact you with additional documentation requests.
4. Start receiving payments
If you haven’t already, set up point-of-sale terminals and payment gateways to receive card transactions. Work with your team to choose a payment processor that smoothly integrates with your operations and sales systems. Once your merchant account has been approved, test transactions to ensure your payment processor and merchant account are coordinating properly.
5. Activate your merchant account
If approved, your merchant services provider will contact you with account terms and conditions. Review these with your accounting and legal teams before signing. Once you’ve opened your merchant account, set up your account preferences, fee payments, security measures, and what transaction information you want to receive.
Take the first step with an FDIC-insured business checking account
Since merchant account funds ultimately land in your business bank account, choosing a reliable, FDIC-insured checking account is just as important as picking the right payment processor.
Bluevine Business Checking offers up to $3 million in FDIC insurance, no monthly fees, and competitive interest—giving you peace of mind and better control over your cash flow.
Merchant account FAQs
Still have questions about merchant accounts? Here are some of the most common ones, answered clearly to help you make the best choice for your business.
What is an example of a merchant account?
If you use a service like Stripe or Square to process payments, they either provide a merchant account directly or connect you to one behind the scenes. This account holds the funds temporarily before transferring them to your business checking account.
What is the difference between a merchant account and a normal account?
A merchant account is specifically designed to handle credit and debit card payments for businesses. It acts as a middleman, holding the funds from sales before they move to your regular business checking account.
A normal account, like a standard business checking account, is where your money is stored and managed day to day but doesn’t always process card payments directly. However, an account like Bluevine Business Checking allows you to accept customer payments directly to your business checking account through convenient invoicing and payment links.
What are the disadvantages of a merchant account?
While merchant accounts offer control and often lower fees, they can come with some downsides. Setting one up usually takes longer and involves more paperwork than payment facilitators.
Fees can vary and sometimes include monthly or setup costs. Plus, if your business is high-risk or has irregular sales, you might face stricter monitoring or holds on your funds.
