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Your Complete Guide to Finding An Online Merchant Account

First, you'll have to understand the relationships between an online merchant account and other factors necessary for an online business.

Chris Chambers
2 years, 7 months ago

E-commerce is witnessing a boom of sorts in several industries. This has made entrepreneurs and established businesses migrate online and take their share of the market spoils. However, in order to take your business online, you'll likely need to accept online payments. And this is impossible without an online merchant account. 

As simple as it may sound, getting the right online merchant account isn't a walk in the park. This is primarily because not all online merchant services are the same; hence, you choose an internet merchant account for credit card processing. Your eCommerce business needs to consider several factors.

First, you'll have to understand the relationships between an online merchant account and other factors necessary for a successful online business. Some of the critical factors for eCommerce, such as shopping carts, payment gateways, and payment processors, are crucial for smooth shopping experiences for your online customers. 

Often, you may find some internet merchant services that offer several of these services in the same package. Nevertheless, you still need to distinguish these elements individually. The technical terms or jargon can be confusing - but don't worry; this article will help you understand all there is to know. 

What is an Online Merchant Account?

An online merchant account is a business account that receives funds from your customers after they complete a payment transaction using either a credit or debit card. After the verification of these payments, the funds move from your merchant account to your business account. 

It is essential to note the difference between your business account and the online merchant account where deposits are made before verifications. Even though the online merchant account may be in the name of your business, you have no real control over it. It only plays the role of the intermediary account. Therefore, you could say it's the middle man between your business bank account and your customer's money. 

But is there a need for an intermediary account? Surely, it should be easier to receive payments directly into your business account from credit cards. 

It might sound simple; however, online payment processing from credit cards doesn't work in this manner. Credit card transactions involve two other parties, which are the issuing banks and the acquiring banks. 

Issuing Banks - This is the bank that granted the customer's credit card. Hence, this is the bank primarily responsible for collecting your payments from your credit cardholder. 

Acquiring Bank - This is the bank responsible for requesting payments from the issuing bank and then forwarding this payment to your account. 

The entire process involves a lot of back and forward between these two banks, the online payment processing providers and the merchant. Therefore, you need an online merchant account that will serve as a type of line of credit or holding space for funds.

Third-Party Processors vs. Online Merchant Services 

online merchant account

As you search for a provider to process your payments from your customer's credit or debit cards, you have to choose between two main types of services. These two services are, namely, direct processors and third-party processors. 

Direct Processors - These are the providers of online merchant accounts like the type described in the previous section. 

Third-party processors - These are also known as aggregators; they are the Stripes, Paypal, and Squares of the payment processing industry. 

Generally, it's simpler to set up an account through an aggregator than getting an online merchant account through a direct processor. The reason behind this is that aggregators generally don't create a single merchant account for you. Rather, all the merchants under third-party processors are aggregated into a single but massive merchant account. 

What are the implications of these differences for merchants? Firstly, you get better stability from accounts provided by direct processors. Because of the extensive risk assessment and underwriting, every application goes through the issuing of an online merchant account. 

On the other hand, aggregators, who also offer mobile payment processing services, subject their applicants to minimal scrutiny before approving their applications. However, this means each and every activity associated with your transaction undergoes higher levels of scrutiny. Therefore, terminations are more common with third party processors. 

What is a Payment Gateway? 

Now that you understand what an online merchant account is, we can proceed to look at the payment gateway. 

A payment gateway is the means of connection between your online store or eCommerce store and payment processor. Therefore, they facilitate online transactions of your customers. 

Your payment gateway will make your online transactions possible through this following ways: 

  • Integrating your payment gateway with your eCommerce store enables the secure collection of customer payment details for every transaction. 
  • Your payment processor or acquiring bank receives this information through the payment gateway. 
  • The acquiring bank and payment processor then takes control of the remaining process. 
  • Next, these two players then approve or decline your message. 
  • Your gateway will then send the decline or approval message. 

Though this process seems lengthy, you don't have to think about it if you are dealing with a third-party processor. This is because aggregators usually include a payment gateway to their service. However, this isn't the case with a direct merchant account. You may or may not find a payment gateway already provided by your direct merchant service provider. 

If you are lucky to choose one that provides a payment gateway, you have to be ready to pay some additional fees. Nevertheless, some do not charge any additional fees for their gateway services. Ultimately, it's your responsibility to verify these details before you make a final decision. 

Online Merchant Accounts and PCI Compliance

What is PCI compliance? 

PCI compliance is a set of safety measures put in place by the Payment Card Industry (PCI) and sponsored by almost all the relevant credit card companies in existence. These measures are primarily meant to safeguard the information of consumers who use credit or debit cards for online or offline purchases. All businesses that deal with cards for transactions must comply with these standards such that they ensure the security of cardholder data during transmission and processing. 

merchant account

Failure to meet the standards set by the PCI could attract penalties in the form of fines of about $30 each month until you're no longer PCI non-compliant. Furthermore, your negligence you meet the PCI standard leads to a data breach; your business could face fines from $5000 to $500,000. 

This is something you want to avoid. And one sure step that helps prevent such occurrences is choosing the right online merchant account provider. If you are a small business, we recommend a level 4 PCI compliance. This is the level that businesses of a certain size must meet. It is essentially the minimum standard your business must meet. 

However, larger merchants or more established businesses like Amazon must meet a high standard of PCI compliance. Level 1 is the highest standard. Hence, the largest companies and companies that have a record of a data breach in the past must meet this standard. 

Therefore, you would want to verify if your payment processor provides hardware such as POS cash register and tablets that are PCI compliant. The same applies to the software that runs this hardware. 

The Cost of an Online Merchant Account

Different payment processors offer different pricing models. Hence, you want to ensure that you check out the following pricing plans. You can subsequently select a payment processor for your online merchant account. 

Usually, many businesses find that choosing flat-rate pricing from third-party processors like Paypal or Square is a more affordable option. 


It's understandable if you find all these a bit much to take in. But don't fear because we specialize in online merchant accounts, merchant cash advances, and all things related to payment processing. You can visit our blog to read more on this subject. Also, if you have any questions, don't hesitate to ask in the comments below.