How a merchant account works
The acquirer opens the account after underwriting the business: who owns it, what it sells, its expected volumes and its risk of chargebacks. Each approved card payment is cleared through the card scheme, the acquirer receives the money from the issuers and credits what it owes the merchant.
On an agreed schedule, daily or a few days in arrears, the acquirer pays out the balance less its fees, refunds and chargebacks. The acquirer may also hold back a reserve against future disputes.
Dedicated or aggregated merchant accounts
A dedicated merchant account is a direct agreement between the merchant and the acquirer, with the merchant's own ID and its own pricing. Under a payment facilitator the business is a sub-merchant: the facilitator holds the agreement with the acquirer and signs businesses up beneath it, often within minutes.
The aggregated route is faster and asks for less paperwork. The dedicated route gives negotiated rates and a direct relationship with the acquirer.
Why a merchant account is a regulated service
In the EU, PSD2 lists acquiring as a payment service and defines it as contracting with a payee to accept and process payment transactions, which results in a transfer of funds to the payee (Article 4(44)). The firm behind a merchant account is therefore a bank, a payment institution or an e-money institution, or acts for one.
Merchant account, payment gateway or bank account?
- Payment gateway
- The technical connection that carries payment data from the checkout to the acquirer. A gateway moves messages, and a merchant account is where the acquirer's duty to pay sits.
- Business bank account
- Where payouts land. The merchant can spend from its bank account and cannot spend from its merchant account.
Where a merchant account shows up in a platform
Modules that do the work
- Merchant onboardingBusiness sign-up, verification and underwriting, from application to first payment.
- Card acquiringCard acceptance on the phone, in store and online, through the acquirer you choose.
- PayoutsMoney out to bank accounts, cards and wallets, on the rail that fits each payment.
- LedgerThe double-entry book of record behind every balance, fee and transfer.
Platforms that need it
Guides that go deeper
- How to become a PSP or a payment facilitatorGateway, acquirer, payment facilitator or payment institution: where the licence line falls, how the card schemes register payment facilitators, what merchant KYB demands, and the UK and UAE rules.
- EMI or payment institution licence in the EU, and the agent routeWhat an e-money institution and a payment institution may do in the EU, the capital each needs, safeguarding, passporting, and launching as an agent first.
Where it is written
The laws and standards this page's facts come from.
General information, not legal advice: what applies to you depends on your services and your market.