What is a Merchant Account? How does it work?

With the digital revolution in full swing, consumers are relying more on cashless methods to pay for goods and services. Hence, today, it is rare for people to carry their wallets stacked with cash. Instead, they are increasingly using Debit and Credit Cards as their go-to payment methods.

But businesses that do not accept these will slowly lose out on a chunk of their consumers if they do not change. This is where a Merchant Account is a boon.

What is it?

While card payments are essential for businesses to stay afloat, they cannot accept Debit and Credit Card payments by themselves. To do this, they need to first open a Merchant Account. It is a Business Bank Account that lets businesses process Debit and Credit Card payments by acting as an intermediary. Such accounts work as an intermediary between the card being swiped by consumers and the money being deposited into the Business Account.

This also lets businesses receive payment for each transaction immediately than waiting for the consumer’s Credit Card bills to be paid.

How does it work?

The following are the basic steps associated with a Merchant Account:

First, the consumers shops at your store and swipes their Debit or Credit Card to pay their bill at the payment terminal.

The card processor then sends the transaction details to your Merchant Account.

Next, the provider of your Merchant Account forwards the details of the transaction to the card issuer of the consumer. It also confirms whether there are sufficient funds to card forward the transaction.

Consequently, the card issuer either approves or denies the transaction and the data is sent back to the payment terminal.

Once the funds are confirmed, the Merchant Account provider fronts the funds for such a transaction to your business.

Advantages

As a retailer you can enjoy the following invaluable benefits when you open a Merchant Account with your preferred provider:

Most consumers prefer Debit or Credit Cards over carrying cash nowadays. Hence, they are more likely to make their purchases with these than pay for such goods and services in cash. So, businesses that can accept and process several Debit and Credit Cards may witness increased sales and improved revenue flows.

Consumers enjoy flexibility, and hence, it offers them several options to pay for their purchases, which increases consumer satisfaction.

It improves cash flow for businesses as the authorisation process takes only a few seconds and the money gets credited in one or two business days.

It also helps businesses take their shop online and accept various payment modes.

Arjit Chalmela is a finance student who loves to write in his free time. He has spent considerable time researching the foreign exchange rate.