What Is A Merchant Account?

Merchant accounts are special bank accounts which accept funds funds generated by credit card transactions.

Basically, when you run a credit card, the money is sent to your merchant account by the credit card processor company (gateway).

What Makes a Merchant Account Special?

Merchant accounts are treated a little differently than regular accounts by most banks. This is because if there is a disputed transaction, funds may be taken back out of the account by the credit card processor. For this reason, banks treat merchant accounts more like a line of credit.

Here's an example of how this might work:

Suppose you have a customer purchase five thousand widgets on your website for $12,000.00 and pays with a Visa card.

The credit card processor performs the transaction and deposits $12,000.00 into your merchant account.

Two weeks later, it becomes known that this was a fraudulent purchase using a stolen credit card. (hopefully you haven't shipped the widgets yet).

The credit card company wants it money back.

Does the company call you? Do they send you a polite email requesting the money back? Do they work with you to get the money back?

Nope. They swoop in and grab the money out of your bank account. This is possible because it's a merchant account, and in order to get a merchant account from any bank - you agree to this arrangement.

"Well," you might ask, "what if I already withdrew the money?".

Good Question!

If you've already withdrawn the money, your bank will pay it back to the credit card processing company - then come after you with a vengence.

That's why banks regard merchant accounts as entailing a certain degree of risk. They're on the hook too!

How Do I Get A Merchant Account?

Merchant accounts are set up through your bank - or may be set up through some credit card processor companies like Authorize.net.