What Is a Merchant Account?

Traditionally, a merchant account is a type of business bank account that connects with a payment processor, credit card issuer and your bank to let you receive electronic payments such as credit and debit cards. The merchant account receives money from credit card companies so it’s available to you immediately, instead of after the customer pays their credit card bill.

However, modern payment service providers combine the functions of merchant accounts with payment processing, so many small businesses don’t have to worry about setting up this type of account separate from signing up for a payment processor.The most common merchant account fee models for small businesses include flat-rate fees, interchange-plus fees and tiered rates. 

Understanding the pros and cons of each is key to finding the best merchant services provider for your particular needs;

Flat-Rate Fees

With flat-rate pricing, businesses pay one low rate based on the type of sale, with fees typically ranging from 2.5% plus 10 cents to 3.5% plus 30 cents per transaction. With flat-rate structures, in-person sales where the card is present have lower fees than online sales, but fees don’t vary based on card brands or rewards programs. Plus you don’t have add-on fees for PCI compliance or monthly statements.

Interchange-Plus Fees

Interchange-plus merchant services add a minimal markup percentage or fee to the base interchange rates set by the card associations, such as Visa, MasterCard and American Express.

Markup fees typically range from 0.10% plus 5 cents to 0.50% plus 25 cents per transaction, based on the sale type. Providers including Payment Depot and Stax use subscription-based pricing instead of percentage-based markups. This model pairs a monthly subscription fee with a minimal per-transaction fee, ranging from 5 cents to 15 cents per charge.

Tiered Fees

Tiered plans break card processing rates into three groups, which are called qualified, mid-qualified and non-qualified tiers. Each tier’s rates are based on a merchant’s overall processing volume, industry and typical transaction types, such as online or in-person sales.

Tiered rates can be tricky to understand, the monthly statements can be very detailed and many require lengthy contracts and charge early termination fees. High-volume sellers can save with contracted rates on tiered plans, but flat-rate and interchange-plus are typically better for startups and small businesses.

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