How Does a Merchant Account Work?

If a business wants to accept credit or debit card payments, they will need a merchant account. A merchant account is a specialized type of bank account that exists to hold the funds captured from credit and debit card sales. After a card is swiped for payment, the money is held in a merchant account before being transferred out to the normal business bank account. The process is the same for online transactions. Not all banks provide merchant accounts. Some work with merchant account providers. To receive a merchant account, a business needs to apply to a merchant account provider or a bank. Before signing up for a merchant account, it is important to know how they work.

The step-by-step breakdown of how an online credit card merchant account works

Accepting a credit card is fairly simple and takes place in a matter of seconds. First, your customer enters their credit card information into your secure website when purchasing a product or service. This is the equivalent of swiping their credit card at a POS in a brick-and-mortar store. When the online order is submitted, your website sends a transaction request from your server to your merchant account’s payment gateway. A payment gateway processes the credit card transaction in the same way that a POS terminal does. The payment gateway then forwards your customer’s transaction request to their payment processor (for example, Visa, Mastercard, or their credit card issuing bank). The payment processor then either approves or declines and sends the results back to both you and your customer. If the transaction is declined, the customer will be notified as to the reason (insufficient funds is the main reason why most cards are declined), the transaction ends and you will not receive any funds to your merchant account. If the transaction is approved, the issuing bank will transfer the required funds to your credit card merchant account. Once these funds are settled, they are transferred from your merchant account to your regular business bank account. This payout is made according to a schedule provided by your merchant account.

In short, payment gateways and processors work in tandem with merchant accounts and standard business bank accounts to smoothly process online credit card transactions. Many merchant account providers also provide the payment gateway function together with the merchant account.

What does an e-commerce business need in order to get a merchant account?

In today’s modern setting, e-commerce and online shopping is essential for businesses to reach their markets and optimize their sales. Many companies exist exclusively online, while others offer online shopping on their websites together with their physical stores. For a business to be able to provide online shopping capabilities for their customers, they need a merchant account. In order to get a merchant account, they need to meet certain requirements. A positive credit rating and clean financial record may be helpful, although many merchant account providers offer certain merchant account options for high-risk businesses.

For more merchant account information, or to sign up for a merchant account service, please call (888) 924-2743 or go to


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