Why Do You Need A Merchant Account?
Whether you are a new business or you’ve been trading for a while – the ability to accept credit and debit card payments is vital to your business. In order to accept these payments, whether face-to-face, over the telephone or online, you will require a merchant account.
In 2015, there were 34.7 million card payments made every single day and this is projected to grow continuously over the next 10 years. With this in mind, having a merchant account for your business is essential.
This article will explain what a merchant account is and how it works.
- What Is A Merchant Account?
- Methods of Processing Transactions
- Merchant Account Providers in the UK
- How To Get A Merchant Account
- Merchant Account Costs, Rates And Fees
- Next Steps: Compare The UK’s Best Merchant Accounts
What Is A Merchant Account?
A merchant account is a specific bank account that lets your business accept card payments. It acts as a holding pen for money before it is moved into your actual business bank account. Merchant accounts are typically provided by “Acquiring Banks”, but they may also be obtained as part of a package from a Payment Service Provider (PSP).
Having and utilising a merchant account can provide security for your customers and your business. They ensure safer credit and debit card transactions, while checking that there are sufficient funds available within the customer’s account before authorising payment.
Once a transaction has been processed, the funds will be paid into your merchant account. These are usually transferred automatically to your business bank account, minus any transaction fees, around 2-7 days later.
The following graphic explains the flow of money when using a merchant account:
There are two types of merchant account available to businesses: Dedicated and Aggregate.
Dedicated Merchant Accounts
A dedicated merchant account gives you more control over your money because it is set up specifically for your business. It also allows you to negotiate custom sales rates based on the types of products and volume you sell.
However, getting a dedicated merchant account can be a little tricky as your company will be required to go through a very detailed credit check and underwriting process. This time-consuming task will require you to hand over copies of your bank records and business information to the merchant acquiring bank.
Aggregated Merchant Accounts
Whereas a dedicated merchant account is set up specifically for a single business, an aggregate merchant account stores your funds in a shared pool along with a number of other companies.
Even though you still need to provide some information about yourself and your business, the process for getting an aggregated merchant account is much quicker and simpler than the one for a dedicated account.
The main downsides are that you won’t be able to negotiate rate and that you’ll have less control over how long it takes to process and receive your money.
Methods of Processing Card Transactions
Transactions must be processed in order for funds to be moved into your merchant account. Early methods of processing transactions involved sending credit card slips to the acquiring bank by mail. Today nearly all transaction processing is done electronically.
There are three things that a merchant needs in order to accept card transactions:
- A Merchant Account – into which transactions are paid.
- A Payment Gateway – which is an online service that securely transmits card information, subject to necessary fraud checks and verification of available funds, and debits the customer’s account for the required amount.
- A card terminal or online shopping cart – if you accept payments online you will need shopping cart software to capture the customer’s details and pass them to the payment gateway. If the transactions are face to face in a shop you will need a physical card reader. If the payment is taken over the telephone, you will need a virtual terminal.
In general, the first two options come as a complete package. Banks will offer a payment gateway with your merchant account, and most payment gateway providers will set up a merchant account for you with an acquiring bank.
Merchant Account Providers in the UK
BMA works with the UK’s leading payment processing companies to help you find the right merchant account for your business. Here’s our run-down of the top merchant acquiring banks and payment processing companies.
There are multiple banks in the UK which offer merchant accounts in the UK – they are:
- Bank of Ireland (through Elavon)
- Barclays (through Barclaycard Merchant Service)
- Clydesdale Bank
- HSBC (through Global Payments)
- NatWest (through WorldPay)
- Royal Bank of Scotland (through WorldPay)
- Santander (through Elavon)
- The Cooperative Bank
- Yorkshire Bank
Acquirers without a high-street banking presence are also available. They are:
Some banks, like Lloyds TSB Cardnet or RBS Streamline will offer an integrated payment gateway as part of their services. Others will offer a range of payment gateway providers for you to choose from. AIB, for instance, offers 19 payment service providers.
Payment Gateway Providers
Popular payment gateways include:
In addition, there are also e-commerce services such as Paypal and Amazon Checkout.
PCI DSS Compliance
Whichever provider you use, your business will be required to adhere to, and be compliant with, Payment Card Industry Data Security Standards (PCI DSS). Most merchant account providers will help your businesses become compliant for a small annual fee – this is normally done via an online self-assessment questionnaire.
The number of transactions your business processes each year will determine which one of the four PCI DSS categories you fall into – find yours below.
|Level||Business Type||Example of Compliance Action|
|1||- Processing more than 6 million transactions per year|
- Any compromised merchant
|Yearly on-site assessment of security by a PCI DSS qualified inspector|
|2||- Processing 1-6 million transactions per year||Quarterly network scans for e-commerce businesses|
|3||- Processing 20,000-1 million e-commerce transactions a year||Upload a validated self-assessment questionnaire (SAQ) each year|
|4||- Processing less than 20,000 e-commerce transactions per year|
- Any other merchants processing up to 1 million transactions per year.
|Complete online profile, self-assessment and compliance validation annually|
How To Get A Merchant Account
Before committing to a merchant account, you should do your research and look at the offers available both on the highstreet and online. If you need a helping hand you can use BMA to compare merchant accounts and secure the best deals for your company.
Once you’ve decided on an account, you’ll need to complete and submit an application form. Providing you meet the necessary criteria, you’ll be able to access your account within the next 10 days. You will also receive your unique merchant account ID number on acceptance.
The amount of time needed to process your application can vary greatly by account provider. For example Elavon promise a turnaround of 24-48 hours, whereas RBS Streamline may take up to three weeks. The majority of providers will take between 5-10 days.
However, be aware that your wait time will be delayed if the merchant acquiring bank does not receive the correct documentation, or if your business is judged as high risk.
The acquiring bank will check your credit rating, if your are concerned that your credit history may be bad, you can read our guide to getting a merchant account with a bad credit rating.
Some providers, such as Lloyds TSB Cardnet, offer their services in a 12 month contract. Others, such as Sagepay, have no minimum contract but require 3 months cancellation notice. PaymentSense don’t require a minimum period for their merchant services, but have a 12 month contract on their card processing terminals.
Check with your provider to see what they can offer. Also bear in mind your own business considerations:
- Do you want to be tied into a fixed contract?
- If so, how long a contract do you / can you afford to be tied to?
- How long is the cancellation period?
- Can you afford to wait that long if something isn’t working out?
Our expert team is on hand to help you out and make the right choice. All you need to do is fill the form on top of this page and we’ll be in touch.
24 Hour Support
RBS Streamline, Sage Pay and PaymentSense all offer 24-hour UK based support. However, not all providers will do so. AIB’s support service is available Monday to Saturday from 8am-11pm and Sunday from 10am-4pm.
If your business is online, or routinely operates out of hours, then this is an important question to ask your prospective provider.
Tailored To Your Business
The features above should give you a better idea of the range of services offered by popular providers, and which service might be tailored most easily to your needs. Whichever providers you contact, a good sales team will go through your requirements with you and try to offer a quote that is the best fit for your business.
Merchant Account Costs, Rates And Fees
As with all business accounts and transactions, merchant accounts have their own set of fees. These can take the form of:
- An initial set-up fee
- Percentage of a transaction
- A monthly charge
- A simple transaction charge
- Occasionally a contract exit fee (but these are rare)
Some of these fees are decided by your provider, but most of the transaction and percentage fees are set by the interchange rates agreed upon by Visa, Discover and Mastercard. Interchange fees vary depending on how a card transaction is processed, e.g. a different fee for swiping a card than for using chip & pin.
There are two main sets of rates for merchant accounts, which are explained in the table below.
|Pricing Rate||What Is It?||Rates|
|3-Tier||A simple and popular pricing method that groups transactions into 3 different groups or tiers. Each tier has its own rate based on existing criteria.|
Tier criteria can vary from provider to provider so it can be hard to compare rates across providers.
|First Tier: Qualified Rate - % rate merchants are charged for processing a ‘standard’ transaction. Usually the cheapest rate to be charged when accepting a credit card. Defined by the way a merchant most commonly accepts credit cards.|
|Second Tier: Mid-qualified Rate - % rate a merchant is charged if accepting a credit card that doesn’t meet Tier 1 criteria, e.g. it is typed in rather than swiped, or is a rewards/business card. Rates can be as high as 40% on reward cards.|
|Third Tier: Non-qualified Rate - Highest % rate charged to a merchant. Any card not falling into Tier 1 or 2 will fall in Tier 3. Non-qualified rates incur the highest charges for merchants.|
|6-Tier||A competitive interchange rate that offers rates for PIN-based debit cards far below comparable rates for credit cards.||The 6-Tier classification is exactly the same as above, but allows three tiers for cards with a PIN and three tiers for cards without a PIN, giving a total of six tiers.|
There are several fees associated with merchant accounts. The following table examples the main merchant account fees.
|Type of Merchant Account Fee||What Is It?|
|Statement||A general overhead fee related to the amount of processing done by a merchant each month and the fees this has incurred.|
|Monthly minimum||Ensures merchants pay a fee each month covering the provider’s costs to maintain the account. If a merchant’s fees don’t meet the monthly minimum, they will be charged the difference to make it up.|
|Batch||Can be charged when a merchant settles their terminal, e.g. sends the completed transactions to the acquiring bank. Higher rates are incurred if transactions aren’t settled within 24 hours.|
|Customer service||Charged by some providers to cover customer service costs. Variously referred to as a ‘customer support / merchant support / support fee’.|
|Annual||Yearly fee that can be charged by the provider to cover the costs of maintaining the merchant account. These can also be quarterly.|
|Early termination||Charged by come providers if a merchant ends a contract early. This fee may include the remaining statement/monthly minimum fee balance as well as a ‘lost profit’ fee.|
|Chargeback||This determines how risky a company is considered. In a merchant account, the provider is responsible for all transactions performed by a merchant. If the merchant operates in a grey or illegal manner, then this can expose the acquiring bank to huge losses. The chargeback fee will usually by £15-£30 plus the transaction cost and processed amount.|
UK Merchant Account Fees
It is impossible to recommend a single provider over any other when it comes to fees. This is because it depends on the type of income your business receives.
For new users of merchant accounts, think about what kind of transactions you will be taking. For example, if it’s mainly credit cards, then opt for a lower percentage per-card transaction account. However, for existing businesses, it should be easier to assess which type of account will be most beneficial to your business.
As a rough guide, fees on credit card transactions are taken as a percentage which could range from 1.0% – 3.4% and debit cards are charged at a flat rate of 20p or more.
If your business processes a lot of small transactions then you would want to negotiate a higher percentage fee and a lower flat rate or monthly charge. If you sell a smaller number of high cost items, then you would want to push for the opposite. Barclaycard offer a rate of 1.5% on all transactions with a £10 monthly fee.
PaymentSense offer a capped service with a rate of 1.5% on credit cards and 22p on debit cards for a £10 monthly fee providing transactions are below £50,000 pa.
Nochex has no monthly fee and credit card transactions rates of 2.9-3.2% and 20p per debit card.
E-commerce facilities such as Paypal or Amazon Checkout will charge a fee of between 1.4%-3.4% (depending on volume) plus a flat rate of 20p on every card transaction. This can be more expensive than merchant service providers, but both are recognised brands and popular payment methods with customers.
Next Steps: Compare The UK’s Best Merchant Accounts
Trawling the internet or visiting banks all takes time and energy. Regardless of the type of account you feel most suitable, it can often become confusing as to which provider will offer the best deal.
Once you fill in our form, we’ll be in touch to discuss your requirements in more detail before matching you to the UK merchant service providers best able to support your business. We won’t charge you a penny and you could even save money on the cost of a new merchant account.