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What is a Merchant Account?

Merchant Accounts provide payment processing solutions for small and large businesses; here's a closer look at what they offer. 

Everything You Need to Know About UK Merchant Accounts

Merchant accounts are essential to any modern business. Without them, you could find yourself failing to meet the demands of your customers and falling behind your competition.

 

But what are merchant accounts? What type of merchant account fees will you have to pay? How do merchant accounts work? 

 

To find out these answers and more, keep reading our one-stop guide to everything you need to know about merchant accounts and how to compare providers for free. 

What Are Merchant Accounts?

A merchant account is a type of bank account offered by an 'acquiring bank' exclusively for businesses where funds from electronic payments, such as those from credit & debit cards, are held while being processed. 

 

Think of them as a secure holding pen where the funds from a transaction wait whilst all relevant checks are carried out before the money is passed on to you. Without a merchant account, you cannot take electronic payments in any capacity. 

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  • Barclays Bank PLC
  • Fiserv (Europe) Limited
  • Handepay Limited
  • Inspire Payment Services Limited
  • ResQ Limited
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  • SumUp Payments Limited
  • Take Payments Limited
  • The Redwood Group and Associates Limited
  • WorldPay (UK) Limited
  • YUMAPOS UK LTD
Our Products
  • Business Accountancy
  • Business Epos Systems
  • Business Telephone Systems
  • Commercial Waste Collection
  • Digital Marketing
  • Fleet Tracking
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  • Merchant Accounts
  • Website Design
Electronic Payments are Taken in Three Main Ways.
  • 1

    In Person

    Usually taken with a card machine that may be supplied by your merchant account provider.

  • 2

    Over the phone 

    To do this, you will require a 'virtual terminal' which is a secure webpage that you access through a web browser where you enter your customer's payment information. 

  • 3

    Online 

    If you want to take online payments then you will have to have a 'payment gateway' such as PayPal Merchant Services. This is just a fancy way of describing those checkout pages you have to fill out when making an online purchase.

How Much do Merchant Accounts Cost?

Merchant account fees tend to be based on the volume of card transactions that your business processes. The more you process, the lower the rates that you could qualify for. 

 

Although some rates are capped by law, those that are not may differ from provider to provider so it pays to shop around and find the best merchant account provider for you. 

 

These fees will be charged either monthly or per transaction. See the table below for a breakdown of how the different fees are charged:

 

Fee

Charged

Debit Card

Per transaction

Credit Card

Per transaction

Authorisation Fee

Per transaction

Card Terminal Rental

Monthly

Payment Gateway

Monthly

Virtual Terminal 

Monthly

Minimum Monthly Service Charge*

Monthly

 

*This will only apply to you if you fail to reach a pre-agreed monthly transaction volume.

Merchant Account Fees
  • One-off Fees

    Depending on which provider you choose to go with, these fees may not even apply to you, but a few examples of one-off payment you could be faced with include joining fees, early leaving fees, and hardware purchase fees.

  • PCI Compliance Fees 

    PCI compliance is a legal requirement for everybody taking electronic payments and it's there to make sure that the sensitive data you're taking from your customers is handled responsibly. Your provider should offer this for a small monthly fee and we suggest you pay it. 

     

    If you take payments without PCI compliance then you could be subject to fines of £10,000 or more and your provider may remove your ability to take card payments altogether.

  • Chargeback Fees 

    These are in place to protect the customer against any fraudulent payments that are made. 

     

    If they think something is wrong they can challenge the payment with their bank. For every challenge that is upheld then you will typically be charged £15. 

  • Interchange Fees

    Another mandatory fee, an interchange fee is paid by your bank to your customer's bank. 

     

    These will always be capped at 0.2% per debit transaction and 0.3% per credit transaction so if your provider is trying to charge you more, find someone else. 

Different Types of Merchant Accounts

Not all merchant accounts are created equal and what works for one business may not work for yours. Here's a brief rundown of the types of merchant accounts available. 

 

Aggregated Merchant Account 

 

These will be arranged by something called a payment facilitator who essentially acts as a recruiter for acquiring banks and are perfect if you're a smaller business. 

 

You are pooled with a group of other businesses and because of this, the acquiring bank will receive a larger number of transactions meaning that you could benefit from better rates usually only available to larger businesses 

 

Dedicated Merchant Account 

 

There is no middleman here like with an aggregated merchant account. 

 

You are set up directly with the acquiring bank giving you more flexibility when it comes to negotiating specific terms and fees for your business. 

 

High-Risk Merchant Account 

 

If you have a poor credit history then this may be your only option. 

 

Likewise, if any of these apply to you then it's likely that you will have no choice other than a high-risk merchant account. 

 

  • Travel 
  • Online healthcare 
  • Gambling 
  • Subscription-based
  • If you want to take payments internationally 

 

Internet Merchant Account 

 

If you want to be able to accept online payments then you will need an internet merchant account.

 

Even if you already have an in-store merchant account for example an aggregated merchant account you will still need an internet merchant account to take online payments. 

 

To learn more, be sure to check out our post dedicated to the different types of merchant accounts. 

How do Merchant Accounts Work?
  • 1

    The transaction takes place

    Your customer is served as your establishment or completes a purchase on a virtual checkout. 

  • 2

    The payment is processed

    Your card reader sends a signal to the merchant account and then forwards the details of the transaction to your customer's card provider. 

     

    The card provider then sends this information to the customer's bank account to confirm there are sufficient funds available.  

  • 3

    The payment is confirmed

    The transaction goes through and you see 'payment approved' flash up on your card reader. 

  • 4

    You get paid

    The customer's money leaves their account but, before it enters yours, it waits in the merchant account until everything is cleared.  

     

    This can be anywhere between 1-7 days and is known as a settlement period. 

     

    When the settlement period is over, your merchant account provider pays you the transaction amount, minus their fees. 

FAQs

There are three main types of merchant accounts that you could qualify for. 

  • Aggregated merchant accounts 
  • Dedicated merchant account 
  • High-risk merchant account 

You will also need to get an internet merchant account if you wish to take online payments. 

In some cases such as if you have bad credit and looking for a merchant account or if you operate within a certain industry then you will have no other choice than a high-risk merchant account. 

These include:

  • Travel 
  • Online healthcare 
  • Gambling 
  • Subscription-based

An offshore merchant account allows you to take payments globally as well as from your country of registration. 

So if you're UK-based but want to take payments from someone in literally any other country, you will require an offshore merchant account. 

Qualify To Reduce Your Payment
Processing
Fees?

You could save your business £1000s

Do you currently accept card payments?
Complete our short form, it only takes a minute!
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Our Partners
  • Barclays Bank PLC
  • Fiserv (Europe) Limited
  • Handepay Limited
  • Inspire Payment Services Limited
  • ResQ Limited
  • Seymour Direct Limited
  • SumUp Payments Limited
  • Take Payments Limited
  • The Redwood Group and Associates Limited
  • WorldPay (UK) Limited
  • YUMAPOS UK LTD
Our Products
  • Business Accountancy
  • Business Epos Systems
  • Business Telephone Systems
  • Commercial Waste Collection
  • Digital Marketing
  • Fleet Tracking
  • Invoice Finance
  • Merchant Accounts
  • Website Design
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