A merchant account is a specialized bank account that allows businesses to accept credit and debit card payments. It holds funds temporarily after authorization until they’re settled into your main business account. Merchant accounts are issued by acquiring banks or payment processors and come with specific terms, fees, and underwriting requirements. This account acts as the connector between card transactions and your business income.
Getting the right merchant account setup is foundational to running a reliable payment operation. AltoPay helps ensure your merchant account matches your industry, risk profile, and volume expectations. Tracking account performance — like approval rates, reserves, and dispute ratios — gives you visibility into how your acquirer views your business. A properly configured merchant account supports both daily operations and long-term growth.
A deep dive into merchant accounts
You can’t process credit and debit card transactions without a merchant account, so it’s important to understand how they work.
Here’s a more detailed explanation of these valuable business assets.
How do merchant accounts work?
When a customer makes a purchase at your business, there are several different entities that have to work together to move the money from your customer’s bank account to your business bank account.
- The cardholder’s issuing bank
- Your website and website hosting provider
- Your point of sale (POS) system or payment gateway
- Your customer relationship management (CRM) or order management system
- The card brand or card scheme (Mastercard, Visa, etc.)
- The processor or acquirer providing your merchant account
- The bank providing your business bank account
A simplified explanation of the process looks like this.
What is the difference between a traditional merchant account and a high-risk merchant account?
When you apply for a merchant account, the processor or acquirer will conduct an in-depth investigation into your business. This investigation is called underwriting. The underwriting process helps the acquirer or processor determine the degree of risk your business poses.
Based on the merchant account provider’s investigation, your application will either be approved or rejected. If it is approved, you will be offered either a traditional (low-risk) merchant account or a high-risk merchant account.
Traditional merchant account
Because risk is subjective, there is no set definition for a traditional merchant account. The easiest explanation is: a merchant account that is not expected to exceed the acquirer or processor’s acceptable risk tolerance.
Basically, you’ll receive a traditional merchant account if your industry, products, sales methods, location, and customers pose little risk to the acquirer or processor.
High-risk merchant account
Likewise, classification for a high-risk merchant account is somewhat subjective. However, it can loosely be defined as an account that could cause financial loss, legal liability, reptuational harm, or regulatory scrutiny.
The following characteristics typically factor into a high-risk classification:
- Little to no processing history
- High or erratic transaction amounts
- Low credit score (for business owners in the U.S.)
- High chargeback or fraud ratios
- A previously closed merchant account
- High-risk industry classification (MCC) by the card brands
High-risk merchant accounts usually come with higher processing fees than traditional accounts and often require a reserve. This preemptively helps the acquirer or processor cover any financial losses.
NOTE
If you don’t have a high-risk MCC, your merchant account classification can change over time. Your current status isn’t permanent. As your business’s risk levels change, your merchant account requirements may change too.
Failing to manage risk effectively could cause your business to switch from a traditional status to high-risk. On the other hand, a high-risk merchant can be reclassified after taking steps to mitigate fraud and chargebacks.
How much are merchant account fees?
Merchant accounts usually come with several different fees.
Some are one-off fees or set fees — like a set-up fee or statement fee.
Others are per-transaction, like interchange fees, scheme fees, and acquirer fees.
Check our guide about processing fees to learn more.
How do you get a merchant account?
Here is a general overview of the application process.
- Create a business plan.
- Apply for a business license or register with your local governing body.
- Open a business bank account.
- Figure out what kind of processing your business needs (recurring billing, alternative payment methods, etc.).
- Gather the necessary documents (owner’s passports, tax information, previous processing statements, etc.).
- Research which merchant account providers serve your industry and business type.
- Apply to reputable merchant account providers.
- Complete underwriting requirements.
- Review the merchant service agreement when your application is approved.
How can I protect my merchant account?
Merchant accounts are valuable business assets. They can be difficult to obtain and easy to lose.
Make sure you are taking the necessary steps to protect your accounts from closure.
- Adhere to your merchant account requirements and all local or national laws.
- Provide high-quality goods and services — no counterfeit items or scams.
- Prevent payment fraud and unauthorized transactions.
- Provide transparent policies and abide by them.
- Serve your customers well.
Are you looking for a merchant account?
AltoPay is a leading provider of merchant accounts for online businesses. Click here to learn more about the merchant accounts we provide.
