Question 1

What is a merchant account?

Accepted Answer

A merchant account is a type of business bank account that enables a businesses to accept and process electronic payments. When a customer buys something from your business via card, the money is first deposited into the merchant account. Then these funds are transferred to your business bank account.

Question 2

What is a payment processor?

Accepted Answer

The payment processing ecosystem can be a bit confusing with payment processors, merchant service providers, MSPs, merchant accounts, payment service providers and PSP terms being used interchangeably to describe companies specialising in just one or multiple stages of the card payment process.

Question 3

Is a merchant account the same as a business bank account?

Accepted Answer

No, your business bank account is where money ultimately gets deposited after customers pay you. Before it gets there, it comes via a merchant account (if the customer paid by card).

Question 4

How many merchant accounts will I need?

Accepted Answer

Most businesses will only need one. However, there are some providers have restrictions on the volume of monthly transaction so some higher volume businesses may need multiple accounts from merchant account providers.

Question 5

What a typical merchant account fees?

Accepted Answer

Once you shortlist a few companies you need to speak to them in order to find the following if it is not obvious from their website:
Transaction fees: This is what you’ll be charged every time someone pays you by card or using one of the online services you’re signed up to. This is normally set as a percentage for credit card transactions (between 0.5% and 4%) and as fixed fees for debit card ones (between 5p and 50p).
Minimum Monthly Fee: Some providers will set a minimum monthly fee, which is the value of transactions you’ll need to make within a month. If, for instance, your minimum monthly fee is set at £50 and you only make £30 in card transactions for a particular month, your provider will charge you £20.
Chargeback Fee: Chargebacks are the bane of the merchant services industry, as they could lead to losses for banks if it turns out that their merchant clients are engaged in unethical business practices. Thus, providers are stringent with their chargeback policies. If you get a chargeback, you will not only be charged the amount of transaction but an extra fee as well. Paypal, for instance, charges £14 per chargeback.
Contract Length & Early Termination Fee: It is very important to look into this if you’re going to be tied down to a contract with your provider. Contracts can last between one and three years, and a number of providers will make it difficult for their clients to get out of these contracts by charging exorbitant early termination fees.
Hidden fees: Hidden fees are, well… hidden and you’ll do well to spot them – one reason we like to look into the background of each company.
If you are interested in knowing more about this, check out our article on credit card processing fees.

Question 6

How should I choose the best payment services company?

Accepted Answer

Know what you need (and don’t): Aside from choosing payment services that provide everything you need, you want to make sure you’re not paying for anything you don’t need.

Do your research: Always do your research on payment service companies before dealing with them.

Be wary of third-party sales teams: Be wary of third-party sales teams and try to speak to companies directly.

Compare quotes: Get quotes from multiple providers and carefully compare them.

Don’t be afraid to negotiate: You’re well within your rights to negotiate with these companies – especially if you’ve been given a better price elsewhere.

Know your contract: Make sure you read and understand everything in your contract before signing anything. Get a lawyer to review things for you, if necessary.

The merchant account services and payment processing industry has a bad reputation for hidden costs, dodgy contracts and all kinds of headaches.

In many cases, this is justified but so many issues with these companies would be avoided if contracts were fully understood before merchants sign them.

Yes, contracts are made overly complex to catch people out but you have to be sceptical about the terms of any contract before you sign on the dotted line – especially in this industry.

Question 7

What fees are changed by payment facilitators?

Accepted Answer

The fixed transaction fees charged by a payment facilitator is normally around 1.65% – 1.75%  and up to 2.5% for ‘card not present’ transactions. These relatively high rates will really only make commercial sense for businesses with relatively low card turnover (less than £5K per month) and/or low average transaction values.