It is essential for every business that offers a product or service to be able to reliably accept and process payments from their clients or customers. Whether you run a brick-and-mortar store, an online shop, or a combination of both, you need a merchant account to securely process credit and debit card transactions.
In this guide, we explain what a merchant account is, how it works, and why it’s a smart investment for any business looking to streamline payment processing, increase revenue, and build trust among their customers.
What is a Merchant Account?
A merchant account is a business bank account that allows businesses to accept and process debit and credit card payments and other types of electronic payments. The account is provided by a payment processor like First MCS and it acts as a bridge between your business checking account and the issuers of customer credit and debit cards. When a transaction occurs, the funds immediately appear in the business merchant account until the transaction is settled. The funds are then transferred to the business checking account.
Merchant accounts are business bank accounts and require a business license to set up. Once your merchant account is active, you can begin accepting credit and debit card payments. You will also likely need equipment that includes hardware and software so you can read cards and securely process payments.
How Does a Merchant Account Work?
When your business accepts a credit or debit card payment, the payment is processed in the following steps:
- Transaction enters the payment gateway: The payment gateway is the card reader or online gateway that accepts the cards and communicates with the card issuer to ensure that the customer’s account has sufficient funds. The payment processor can help you set up your payment gateway along with your merchant account.
- Funds are deducted from customer account: Once the transaction is accepted, the funds, including the transaction fee, are deducted from the customer’s credit card or bank account by the payment processor. The money is deposited into your merchant account, but it is not yet available for you to access.
- Funds are deposited into business account: After the transaction is settled, the payment processor deposits the money into your business checking account. These deposits generally occur together at the end of the day as opposed to individually after each transaction.
- If customers dispute the purchase: If a customer disputes a charge, the transaction must be verified by the merchant account which involves a fee. The funds will be withdrawn from your account and returned to the customer’s account if the refund or chargeback is accepted. You can dispute chargebacks and go through a resolution process which could result in the chargeback being accepted or the customer’s dispute being dismissed.
Types of Merchant Accounts
Not all merchant accounts are the same. Determining the right type of merchant account for your business will depend on how and where you process transactions, your industry, and your sales volume. Here are the most common types:
- Retail merchant accounts: These accounts are best suited for brick-and-mortar businesses where transactions are processed in person using a physical point-of-sale (POS) system. They typically come with lower processing fees since card-present transactions are considered lower risk.
- E-commerce merchant accounts: These accounts are ideal for online stores as they integrate with your website’s check out system to process card-not-present transactions. They include payment gateways for secure online processing and fraud prevention tools to protect your business.
- Mobile merchant accounts: Mobile accounts allow businesses on the go, such as food trucks, market vendors, and service providers, to accept payments anywhere using a smartphone or tablet connected to a card reader.
- High-risk merchant accounts: Certain industries, like travel, adult services, or subscription-based businesses, are considered “high risk” due to higher chargeback rates. These accounts are tailored to manage risk with stricter underwriting, higher fees, and additional fraud prevention measures.
- Mail order and telephone order (MOTO) accounts: For businesses that take orders over the phone or via mail, MOTO accounts allow you to manually enter card details into a virtual terminal. They’re especially useful for catalog-based companies or small home businesses without a physical storefront.
- Aggregator accounts: Also known as third-party processor accounts (like PayPal, Square, or Stripe), these allow multiple small businesses to share one large merchant account. They’re quick to set up but may have higher fees and less control compared to dedicated accounts.
How to Get a Merchant Account
For your business to accept and process credit and debit card payments, it is essential for you to set up a merchant account. Obtaining a merchant account can be a straightforward process if you follow these steps:
- Determine your needs: The best type of merchant account for your business depends on how and where you accept payments, whether that is in person, online, or both. This will help you find a payment processor that can accommodate your specific needs.
- Research payment processors: Take the time to research payment processors, including the specific services they offer as well as their fees and limitations, so you can determine which one is the best fit for your business. You can also get recommendations from other business owners in your field or from your bank.
- Gather business info and paperwork: Payment processors require basic information about your business including your legal business name, tax ID (EIN), business license, and bank account information. They may ask you to provide proof of your business address as well as the identity of the business owner. You will also be asked to provide documentation including recent bank statements, credit history, and possibly past processing statements to assess your financial stability and risk level.
- Submit your application: You will need to submit your application along with the requested information and materials. Make sure that you provide all materials requested and fill out the application with accurate information. It helps to include a cover letter to explain what your business does and why you need a merchant account. Some payment processors require an application fee, and it can take several days for approval.
- Underwriting and approval: The provider’s underwriting team will review your application, verify your documents, and assess your risk level. This often includes checking personal and business credit histories, considering the type of transactions your business accepts, and whether your business had a previous merchant account. High-risk businesses may need to meet additional requirements before approval and could be subject to higher fees.
- Set up payment system: Once approved, your provider will help you integrate payment processing into your point-of-sale system, website, or mobile app. Be sure to test everything before accepting live transactions.
Merchant Account Services from First MCS
In an increasingly cashless economy, having a reliable merchant account is no longer just an option, it’s a necessity for businesses that want to stay competitive, streamline operations, and meet customer expectations. By understanding what a merchant account is, the types available, and the steps to set one up, you can choose a solution that fits your business model and sets you up for long-term success. Whether you’re a small local shop, a growing e-commerce brand, or a high-volume enterprise, partnering with a trusted payment processor like First MCS ensures every transaction is secure, efficient, and customer-friendly to help your business thrive in the modern marketplace.
Don’t let limited payment options slow your business down. With First MCS merchant account services, you’ll get secure, reliable, and flexible solutions tailored to your unique needs whether you’re processing transactions in-store, online, or on the go. Our team will guide you through every step, from application to set-up, so you can start accepting credit and debit card payments quickly and securely.
You can call First MCS at (866) 673-3099 to discover how we can help your business streamline payment processing, boost revenue, and build lasting customer trust.
