Accepting card payments is essential for modern businesses, but the terminology can be confusing. Many business owners find themselves asking, "What's the difference between merchant accounts and merchant services?" This guide breaks down the key distinctions, helping you navigate the world of payment processing and choose the best solutions for your business.
Merchant Accounts: Your Foundation for Card Payments
A merchant account is a specialized bank account that allows your business to accept credit and debit card payments. Think of it as a temporary holding place for funds from card transactions. When a customer pays with a card, the money is first deposited into your merchant account. After the transaction is verified and processed (which usually takes a short period), the funds are then transferred to your regular business bank account.
Merchant accounts are fundamental for any business that wants to accept card payments—whether in person, online, or over the phone. While there's a slight delay before the money reaches your main account, this setup is essential for accepting various payment methods and expanding your customer base.
Merchant Services: Enhancing Your Payment Processing
Merchant services are a suite of tools and support functions that enhance your ability to accept and manage card payments. Merchant service providers offer a range of solutions that can be tailored to your specific business needs. These services go beyond simply processing transactions and can include:
Point-of-Sale (POS) Systems: Hardware and software to manage sales, inventory, and customer interactions.
Fraud Prevention Tools: Protecting your business from fraudulent transactions.
Payment Gateways: Enabling online payment processing.
Integration with Accounting Software: Streamlining your financial management.
Mobile Payment Solutions: Accepting payments via mobile wallets and tap-to-pay technology.
Think of merchant services as the "extras" that make accepting card payments more efficient, secure, and integrated with your overall business operations. They provide the support and technology you need to optimize your payment processing.
Merchant Account vs. Merchant Services: Key Differences
Here's a simple breakdown of the core differences:
Function: A merchant account is the account where funds are temporarily held. Merchant services are the tools and support that improve how you process those funds.
Scope: The merchant account is the basic infrastructure for accepting payments. Merchant services are a wider range of features and support that enhance that basic functionality.
Providers: Merchant accounts are typically set up through banks or financial institutions. Merchant services are provided by specialized companies (merchant service providers) that partner with these financial institutions.
How They Work Together: A Partnership for Success
Merchant accounts and merchant services work hand-in-hand. The merchant account is the foundation, while merchant services are the enhancements that make payment processing seamless and efficient. You need a merchant account to accept card payments, and merchant services help you manage those payments effectively.
Opening a Merchant Account: The First Step
To get started, you'll need to apply for a merchant account through a merchant service provider. Be prepared to provide documentation such as your business license, EIN, financial statements, and a voided business check. The application process typically involves detailing your business type, expected transaction volume, and average transaction size.
While most businesses are approved quickly, some industries (often considered "high-risk") may face additional scrutiny. If your business falls into a high-risk category, you may need to work with a specialized high-risk merchant service provider.
By understanding the difference between merchant accounts and merchant services, you can make informed decisions about your payment processing and choose the right solutions to support your business growth.