What is a merchant account?

A merchant account is your golden ticket to accepting card payments. This is our jargon-busting guide to help you pick the best merchant account for your business

Our Research

Our expert team of writers and researchers worked to identify the best payment processing and merchant account providers by focusing on the factors small businesses care about most – value for money, including fees and hidden extras; security protocols and fraud protection; customer support, and ease of access across platforms including mobile.
Written and reviewed by:
Robyn Summers-Emler Grow Online Editor

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A merchant account is the holding or current account that lets your business process card payments. You can think of your merchant account service like a holding pen for your money once it’s been processed by the bank.

A merchant account is essential if you want your business to start processing card payments, and with so many providers available to choose from, it can be difficult to find the cheapest, most suitable merchant account for your business needs.

It can take days to research merchant accounts and their fees one by one. But, we can help save you time and money, by doing all the hard work for you. Our in-house merchant account experts have created an easy-to-use 🔍merchant account cost comparison tool, below, that asks a few simple questions to pair you with the right provider:

How do you need to take payments?

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If you’re just getting started with the world of merchant accounts, then you may have concerns, like are you even eligible? What if you have bad credit? And how do you get a merchant account for your business?

Here we address all your concerns by breaking down merchant accounts for small business owners, how they work, and informing you everything you need to know so you can stand the best chance of being accepted for an account.

How do merchant accounts work?

Merchant accounts automatically process your card transactions, charge a small processing fee, then deposit the remaining earnings from the sale into your bank account.

Every time you make a sale, the money doesn’t pass straight into your bank account – it first needs to be authorised (by your customers’ bank) and processed (by your merchant account).

There are a few steps in place to protect you from card fraud and check the customer has the funds to pay you. Once your customers’ card payments are checked after the transaction, the money gets sent directly to your merchant account.

There is then a short settlement time for the funds to reach your own bank account – usually one to three working days – but with some credit card processing companies like PayPal, it can be instant.

This infographic explains the four steps in processing a credit card transaction (using Worldpay as an example merchant account):

how a merchant account works

Side note: Take a look at our PayPal card machine review and Worldpay review for more information on these merchant account providers.

The latest global payments report from processing company Worldpay found that cash accounted for only 13% of in-store transactions last year, compared to 27% in 2019. 

The report predicts usage will continue to drop over the next three years as card payment transactions increase, becoming the primary payment method for consumers. 

Merchant account fees

Merchant account fees include one-time fees, monthly fees, transaction fees, and discount fees – all depending on your contract. They also vary according to your business. For example, shops will need to fork out for a physical card reader, while eCommerce businesses have to purchase an online payment gateway before they can accept payments. For more information on this, you can visit our page on the best payment gateways.

There are many merchant account costs your business may face, and it can be tough to get your head round all the charges involved.

To help, we’ve published an extensive guide to merchant account and credit card processing fees so you can calculate how they may impact your business.

Merchant account types

There are four types of merchant accounts:

  • aggregate merchant accounts
  • ISO merchant accounts
  • high risk merchant accounts
  • internet merchant accounts

Aggregate merchant accounts

Aggregate accounts are the most common option for small businesses, as they often have no set-up or monthly fees – you’re only charged when you make a sale.

Aggregate merchant accounts are also called payment service providers or payment facilitators – and that’s just what they do.

These accounts pool the funds of multiple merchants (just like you) together, so you become sub-merchants to a company acting as the main merchant – just like subleasing a property.

Your business gets a code based on your industry, and you’re matched with similar businesses. But don’t worry, their credit score or charges won’t affect yours – this group will just help you all get a better rate than going it alone.

By joining a shared merchant account, small businesses can enjoy the lower merchant fees that are usually only available to larger companies that can more easily prove their salt.

Examples of aggregate merchant account providers:

ISO merchant accounts

Your second option is to get a dedicated merchant account from an independent sales organisation (ISO).

With an ISO merchant account, you’re the only merchant, so you can get a more flexible contract with all the perks you need.

But dedicated merchant account contracts generally carry set-up and monthly fees, so are only really a good idea for businesses with supercharged sales volumes.

Card processing companies set the thresholds for ISO merchant accounts, which are:

  • Visa – £80,000
  • MasterCard – £800,000
  • American Express (Amex) – £400,000

So, unless you’re hovering around these annual sales figures, you’ll probably want an aggregate merchant account or even a high-risk merchant account.

Examples of ISO merchant account providers:

High-risk merchant accounts

Can you get a merchant account with bad credit? Yes, if you go for a high-risk merchant account.

High-risk merchant accounts can be a lifesaver for small business owners, even if you have a good credit score yourself.

You might be surprised by the variety of businesses that are considered high risk, such as:

  • Travel – Where there are often cancellations
  • Subscription services – Where it can be tough to guarantee cashflow
  • Online healthcare – Where there is a greater risk of fraud

Opting for a high-risk merchant account is a legitimate decision that may have more to do with the industry you are in than your own risk factor.

To see if your business may be high risk, take a closer look at our in-depth analysis of high-risk merchant accounts.

Examples of high risk merchant account providers:

  • Instabill
  • Verotel
  • Durango
  • eMerchantBroker

Internet merchant accounts

In order to accept payments online, your business must have an internet merchant account (IMA). This type of account enables you to accept customers’ credit and debit card payments online and is a vital component of any e-commerce operation. Like other merchant accounts, there are fees for using an IMA, including transaction charges and a setting-up fee.

Even if you already have a merchant account for in-store transactions, for example, an aggregate account, you will still need an IMA to accept online payments directly from customers’ credit or debit cards.

Examples of top internet merchant account providers

Here’s a quick rundown of some of the leading merchant accounts providers for UK businesses:

  • PayPal – great for Instant settlement times, good brand recognition
  • Worldpay – great for brand familiarity, being one the UK’s largest and leading merchant service providers
  • Payzone – great for add-on payment services and offering shorter contracts
  • Paymentsense – great for services focused on small business and customer service
  • Barclaycard Payments – great for catering to a broad range of small businesses and ease of use
  • Elavon – great for reporting and analytics of sales and revenue
  • RMS – great for new and smaller businesses, and has an excellent Trustpilot rating
  • Clover – great for medium, more established businesses and e-commerce solutions
The best merchant account providers for your business

For support with finding a merchant account that suits your business’s needs, we also have a detailed review of the best merchant account services and credit card processing companies in the UK.

How do you get a merchant account?

A positive credit rating is rule number one in getting your hands on a merchant account, but even businesses in high risk industries or merchants with poor credit can be eligible.

Merchant account providers – whether a bank (like Lloyds) or an independent sales organisation (such as Payzone) – consider three main factors when approving you for their merchant account service:

  • Your business’ age – The longer you’ve been in business, the more you understand the risks involved in accepting credit card transactions
  • Your credit history – Your credit report shows how you have managed to repay loans in the past, and whether you have defaulted
  • Any previous merchant accounts – Positive past experiences of using a merchant account makes you easier to trust

To help give yourself the highest chance of being accepted for a merchant account, your best bet is to work on your credit rating.

If you’re a start-up and you’ve just started trading, you may be wondering how to get a good credit rating.

In this instance, it’s likely that your personal finances as a business owner could be taken into account when your business’ is being assessed, so check that these are in order.

In addition, ensure that your business’ information and records are up-to-date and that your business meets the deadlines for returns and payments.

Are you eligible for a merchant account?

If you have any past bankruptcies or late payments on your credit report, just write to a credit reporting agency such as TRW Credit Services or Experian, who can have any resolved blotches removed from your record to boost your credit rating.

Even if you have a few black marks on your credit report, it may still be possible to get a merchant account – and it’s well worth it, so you can give your customers as many ways to pay as possible.

In these cases, you might face slightly higher charges, but once you have a good track record behind you (and healthy sales), you can always renegotiate your merchant account fees.

How to get merchant status

The main high street banks offer pretty much uniform services in terms of getting merchant status: NatWest’s Streamline and Barclaycards’ PDQ, for example, all work in the same way. To apply get in touch with your business bank.

A NatWest spokesman confirms that the process can take up to two weeks and contrary to popular belief, you don’t need masses of trading history to get your machine. “For a start-up, we’d want to see the business plan; if longer-established businesses have three years’ accounts then we’ll look at them, but if for some reason they don’t then we’ll look at projections.”

Are you interested in opening a merchant account?

Merchant accounts allow you take payments in ways that improve efficiency across your business. The best way to find the right deal is to speak to suppliers that understand your needs. We can help with that - simply complete our quick and easy form and we'll connect you with relevant providers.

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Next Steps

By reading this guide, you’ve learned more about what a merchant account is and how to get one, as well the different types available and which might be best for your business.

All of this newfound knowledge is useful, but making a clear decision about which merchant account provider is best for your business is a challenge in itself.

This is why we’ve created a short questionnaire to give you quotes from providers most suited to your business needs. Simply fill out the form and we will do the rest. 

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Written by:
Stephanie Lennox is the resident funding & finance expert at Startups: A successful startup founder in her own right, 2x bestselling author and business strategist, she covers everything from business grants and loans to venture capital and angel investing. With over 14 years of hands-on experience in the startup industry, Stephanie is passionate about how business owners can not only survive but thrive in the face of turbulent financial times and economic crises. With a background in media, publishing, finance and sales psychology, and an education at Oxford University, Stephanie has been featured on all things 'entrepreneur' in such prominent media outlets as The Bookseller, The Guardian, TimeOut, The Southbank Centre and ITV News, as well as several other national publications.
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