If you’re a small business accepting electronic payments, you need a merchant account.

Merchant accounts are bank accounts for businesses that allow you to accept credit or debit card payments.

Because there are so many options, and finding the right merchant account provider can be a daunting task.

Here we’ll cover everything you need to know about merchant account services, credit card processing, and how to find the best match for your small business.

How Credit Card Processing Works

It’s estimated there are 1 billion credit cards in the U.S

Figures from Statista show credit cards were the most popular payment method for U.S consumers.

And the value of credit card payments swelled to $3.6 trillion in 2017, according to the Federal Reserve Payments Study

Thanks to credit card processing technology, these transactions take just a matter of seconds. Two days later, the funds are in your account.

What we can learn from these numbers is that credit card transactions are embedded in the customer journey. 

So if you’re accepting payments from your customers, no matter what industry you’re in, you’ll need to be set up to process credit card transactions.

Here’s where it helps to understand how the process works. And that’s because once you have more information, you’ll be able to determine the kind of merchant account you need.

credit card processing flow

We’ll uncover each participant involved in credit card processing.

  • The customer: the customer wants to purchase your services or goods. They have obtained their credit card from a financial institution, also called an issuing bank.
  • The business owner/merchant: to process credit card payments, you’ll need a merchant account from a merchant bank. As a business, you’ll typically accept credit card payments in two ways. E-commerce purchases are processed using an online payment gateway. In-store payments are collected using a credit card reader. 
  • Payment gateways and processors: the payment gateway collects the information from your customer, does a fraud check, and sends the payment information to the acquiring bank/processor. The processor connects the transaction to card networks like Visa or Mastercard.
  • Card networks (also called payment networks): the card network does an additional fraud check and sends the transaction data to the bank that issued the card. 
  • Issuing bank: This bank does another fraud check and approves or declines the purchase.

You’ll pay credit card processing fees, including:

  • Interchange fees: the per-transaction fee you pay for transferring the funds from the customer’s bank to your bank. Usually collected by the card associations, these costs are paid to your customers bank
  • Payment processor markup: the fee charged by your payment processor for facilitating the transaction 
  • Flat fees: some processors will charge you set, monthly fees for using the service
  • Incidental fees: in the case of chargebacks, you’ll pay a fee

Fees differ, and it’s key to find a provider with a transparent pricing policy. For instance, some credit card processing companies will charge tired transaction fees based on the per transaction risk. As you can imagine, this could result in unexpected high costs.

Different Types of Credit Card Processors

Merchant service providers are one of the ways to process card payments, but that’s not the only option available. 

There are different ways to handle credit card processing, such as:

  • Banks
  • Independent Sales Organization 

You might approach your bank for credit card processing because you think it’s the easiest option. After all, there’s an existing relationship. Even if your bank approves your application, they might end up referring you to a third-party company for other merchant services needs, like point of sale software and payment technologies, like a card reader.

Independent Sales Organizations and Merchant Services Providers act as the link between all the participants in the credit card processing system. These third-party companies are typically more affordable and flexible when compared to banks. 

What Are Merchant Services?

Merchant account services are banking services that let you process payments via electronic methods.

That includes credit cards, debit cards, and mobile payments. On top of that, merchant services cover the software you use and the hardware you need to facilitate electronic transactions. And a merchant services provider (MSP) is the company that makes all of this possible.

customer swiping her card to make an electronic payment
Image courtesy of Blake Wisz on Unsplash

To give you a better idea of why you’d need a merchant account, we’ll break down a typical credit card transaction.

Credit card processing involves three stages: authorization, settlement, and funding

In the authorization phase, the following steps are taking place:

  1. Your customer initiates a payment; this can be done via your shopping cart (online) or by swiping their card (in person)
  2. Your shopping cart or point-of-sale terminal requests authorization for payment from the payment processor
  3. The payment processor sends relevant transaction information to the credit card company (e.g., Visa, Discover, MasterCard, American Express)
  4. The credit card company then passes the transaction information to the bank that issued the card
  5. The bank then approves or declines the transaction based on the status of the customer account, and this information is returned to you

In the settlement and funding phase, the following steps are taking place:

  1. You’ll send authorized transactions to your payment processor at the end of the day. These funds are collected from the consumer’s bank.
  2. The customer bank (the issuing bank) charges the customer’s account for the purchase
  3. The funds are transferred to your bank, less the interchange fees
  4. Finally, your bank deposits the funds into your account, typically within 48 hours

Think of an MSP as a facilitator between your bank account, the credit card companies, and the customer’s bank (who issued the card). They let you accept electronic payments securely.

How do You Get a Merchant Account?

If you’re ready to set up a merchant account, it’s worth mapping out the process before you begin.

1. Determine Your Credit Card Processing Needs

The right merchant service provider will depend on your business needs.

Decide on how you’ll accept credit cards. For instance, will you be accepting credit cards online, in-store, or both?

Where are you, customers? Perhaps you’ll only need to accept popular cards, like Visa. The Nilson Report shows Visa is the most popular method of credit card payment in the U.S. Mastercard and American Express trail behind.

So, if your customers are U.S based it makes sense to focus on those credit cards. But if your customers come from across the world, you’ll need to study their card brands so you’re set up to process transactions.

2. Study The Merchant Services Providers Market

Based on your needs, evaluate the options to find the right match for your business. The best thing about performing a needs analysis, is you know exactly which features to prioritize.

As part of this process, it might be a good idea to send a request for a quote to a few providers. Yes, this might be a tedious task but it will be worth the effort.

3. Get your Website Ready

Most institutions will require your website meet a set of minimum guidelines. For example, Visa sets out the following criteria for merchants websites:

  • A comprehensive description of goods and services for sale. This goes down into granular detail, like the voltage requirements of electrical goods. It’s a policy that aims to avoid refunds because a customer can’t use the product.
  • Detailed customer service contact information
  • Overview of refund and cancellation policy must be posted clearly on your website
  • Delivery policy, specifically any restrictions.
  • Your location

On top of those basic requirements, your website should include information on when your customer’s card will be charged and the security in place to protect your customers financial data.

4. Gather The Relevant Documentation

For most applications, you’ll need to provide an Employee Identification Number or social security number, if you’re a sole proprietor. Other requirements include a business license.

You may also need to attach processing statements, such as the volume of transactions and refunds.

5. Submit your Application

Depending on your provider, you might be able to apply online within minutes.

A merchant services provider will screen your application, checking issues like your credit and past financial issues, like judgments. It’s best to disclose any challenges during your application.

6. Prepare for Underwriting

A merchant services provider will evaluate your risk during the application. After all, a merchant services provider takes on a lot of liability.

Think about it like this, chargebacks are changed against the merchant services providers and its partner banks. So, if you have a history of high volumes of chargebacks, you may be assessed as a high-risk merchant.

Other aspects included in understanding would be your industry and company longevity.

7. Set up Your Merchant Account Services

Once you’re approved, you could be set up within a few days. In this phase, you’ll get the technologies you need to process credit card payments. This will range from payment gateways to credit card reader, depending on the services you need.

How to Choose a Merchant Service Provider

When it comes to choosing a merchant service provider (MSP), there are several things to consider:

  • Whether the company supports the type of transactions you want to accept (e.g., Apple Pay or Android Pay in addition to the major credit cards, in-person point-of-sale terminals)
  • Payment fees (e.g., different fees for keyed-in transactions vs. swiped transactions)
  • Costs associated with equipment rentals; some companies (e.g., Square) will provide you basic equipment free of charge, while others charge rental fees for anything you use (scanners, receipt printers, cash drawers, etc.)
  • How much the MSP charges in terms of transaction fees
  • Ease-of-use and whether you can integrate it into software (e.g., accounting suites) you already have
  • Virtual terminal: allowing you to accept payments using a computer with internet access
  • Waiting time before you receive your funds; you typically do not get paid immediately after the customer has paid
  • PCI Compliance to keep your clients’ financial data safe
  • Reporting and analytics features so you can easily see your monetary inflows or send the data elsewhere for visualization

The specific feature set that is right for you depends on the needs of your business. But let these tips guide you as you seek the best MSP.

The Top Merchant Services Providers

Finding the right merchant service provider can be overwhelming, so we have provided brief reviews of some of the best MSPs in business today.

Chase for Business

Chase for Business offers solutions that allow you to accept payments online, in-store, or on-the-go (e.g., pop-ups, ad hoc markets, etc.). Chase supports payments using all major debit and credit cards and provides you with online dashboards to manage your account.

chase merchant servies

Fees begin at 2.90% + $0.25 flat rate charge per transaction. There are alternative options for those who handle a high volume of transactions.


Popular with small businesses, Square is known for its Apple-based payments system. It allows you to accept all types of payments in-person and online.

Square integrates with a variety of e-commerce platforms like Shopify and BigCommerce. Unlike some providers, Square doesn’t charge monthly or setup fees.


Square charges 2.9% + $0.30 per transaction, though users with paid plans pay lower fees. Square provides reporting and analytics features, basic payroll functionality, and lines of credit.


eMerchant is a full-service payment processing system that supports both online and brick-and-mortar businesses.


In addition to one-time payments, eMerchant supports recurring billing and multi-currency transactions. eMerchant charges a monthly fee that ranges between $10-$49, in addition to per-transaction fees ranging from 1-4% + $0.25.

Bank of America Merchant Services

Bank of America Merchant Services lets small and large businesses accept point-of-sale payments using a variety of terminal types.

Bank of America is also an e-commerce payment gateway for online stores. Fees are not published, but current customers indicate that there are additional PCI compliance fees, as well as varying per-transaction fees based on the transaction type (e.g., payments from swiped cards do not cost as much as keyed-in transactions).

bank of america

American Express Merchant Services

American Express Merchant Services comes with easy reporting and dispute resolution in case of chargebacks. For physical stores, packages offer complimentary signs and supplies (including stickers and logos).

You also get access to 24/7 customer support.

american express merchant services

First Data

First Data, now known as Fiserv, is the company behind the Clover point-of-sale systems for small businesses. The company also offers support for building loyalty and rewards programs, gift cards, and e-commerce transactions.

First Data’s Payeezy solution allows you to accept any credit card, PayPal, and electronic checks in multiple currencies. Fees start at 2.90% + $0.30.

first data


Already using QuickBooks to manage your accounting? Consider QuickBooks from Intuit Merchant Services.

You can accept credit cards, debit cards, and bank transfers (and for qualifying accounts, the company also offers next-day deposits).

You can also use QuickBooks to send invoices, key-in your customers’ credit and debit cards, accept recurring payments, or take advantage of the on-the-go card reader.


There are no monthly or setup fees, with per-transaction rates starting at 1% for bank transfers and $0.25 + 2.4% for swiped transactions. QuickBooks offers discounts for those handling more than $7500 per month.

Wells Fargo

Wells Fargo offers support for both in-person and online payments via electronic payments (e.g., Apple, Android Pay) and all major credit cards. Wells Fargo utilizes the Clover POS systems.

Fees are $9.95/month for each in-person location and $24.95 for online stores. The monthly fees are in addition to per-transaction fees that start at 2.5% + $0.15.

wells fargo


PayPal offers you more than just the ability to send and receive money online.


PayPal’s services for merchants include:

  • In-person payments
  • Send and collect on invoices
  • Set up custom checkout processes for your e-commerce store
  • Collect payments from customers in more than 200 countries
  • Access to shipping integration and other merchant lending services.

PayPal’s fees vary based on the services you are using but begin at 2.9% + $0.30 per transaction for online payments and invoicing.

Merchant Services Provider Comparison

If you’re a small business, you need to pay attention to the costs that come with processing transactions. Many providers will charge a per-transaction fee on top of a monthly fee. Not all providers provide transparent pricing, either.

Some, like Square, will present the cost structure clearly. Square also doesn’t charge setup, monthly, or PCI fees. Other providers may offer special discounts. You can, for example, get 100 free monthly transactions with Chase.

Merchant Services ProviderBest for...
Chase for BusinessOnline stores, bricks and mortar stores, pop-up shops
SquareSmall businesses - online or instore
eMerchantOnline and physical stores; recurring payments and multiple currencies
Bank of America Merchant ServicesPOS payments
American Express Merchant ServicesPhysical stores
First DataLoyalty programs, processing checks in multiple currencies
QuickBooks/Intuit Merchant ServicesExisting Quickbooks customers
Wells FargoBasic merchant services, e.g., accepting payments online and in-store
PayPalSimple payment processing; ideal if you and your clients already use PayPal

Finding the Right Merchant Services Provider

There are a few merchant service providers for you to consider. However, not all options are created equal. The needs of your business will influence the final list of companies you evaluate.

To help you determine the best MSP, consider the following questions:

  • Are you strictly an e-commerce business?
  • Do you need point-of-sale (POS) terminals (either for ad hoc or permanent use)?
  • How many transactions do you process per month?
  • How much revenue do you accept via electronic payment methods?

The merchant service provider should take security seriously and safeguard both you and your customer’s information. That’s why you should look into the security practices of the company you are considering and verify that they are adequate.

Frequently Asked Questions About Merchant Account Services

Here are some common queries about MSPs to get you started.

What are merchant services?

Merchant services are a category of financial services for businesses. This term is frequently used for the processes and technology required to accept online payments and in-person debit or credit card payments, including from RFID (or “chip”) cards. It includes the use of security technologies like encryption and entails the payment of fees by the merchant for the processing of these transactions.

Merchant services can also be used to refer to the selling (and use of) point-of-sale (POS) terminals and equipment, and related gift card or customer loyalty programs. The term is also used in conjunction with the processing of food stamps and other forms of Electronic Benefit Transfer (EBT).

What is a merchant account?

A merchant account is a bank account that enables you to accept electronic payments from debit and credit cards. Funds from card transactions are deposited into the merchant bank account first.Those funds are then transferred to your business’s bank account on a daily or weekly basis.

What is a high-risk merchant?

Merchants are classified as “low-risk” (normal risk) or “high-risk” based on several factors. For example, if you have an average monthly sales volume of over $20,000 and your average card transaction is over $500, you could be labeled “high-risk.” If you have a lot of chargebacks or sell to high-risk countries, that could also get you classified as “high-risk.”

Other factors can could get you labeled “high-risk” include whether you accept multiple currencies, sell products that are seasonal, or offer recurring subscription products.