Retail Merchant Account

Jan 14, 2022

Merchants are grouped into different categories inside the payment processing industry, depending on how they deal with credit card information.  

One of these major categories is Retail

Some retail businesses have brick and mortar stores as well as an online presence. But they do the majority of their business when the payment card is present — either swiped, tapped, or dipped (chip inserted).

In this article, we’ll talk about retail merchant accounts. What are they? What do they do? What is required to get one? And are there any alternatives to retail merchant accounts?

What is a Retail Merchant Account?

A retail merchant account is a special type of bank account that acts as a holding tank. It allows the business owner to accept credit cards, debit cards, and other forms of payment.  

Even with the speed of modern technology, it still takes some time to navigate the maze of the payment card industry. Credit card information needs to be verified, then funds availability checked, then money is transferred.

Retailers need a way to conduct business efficiently that will give them access to money from their sales as fast as possible.

Enter the merchant account.

Retail merchant accounts can help your business grow and become more profitable. They also provide a layer of security, so no one other than you can directly access your business bank account.

Also known as Traditional Merchant Accounts (or TMA), these accounts are actually agreements between a credit card processing company, a bank, and you. They enable you to take payment cards presented at your business, and have money put into your bank account.

What Does a Retail Merchant Account Do?

A merchant account holds the money you make in sales. Once there, fees are removed before the funds are transferred to your business bank account.

Like we mentioned earlier, the retail merchant account functions more like a holding tank.

Business owners typically don’t have any control over their merchant accounts. The merchant account is a completely separate account that acts as a middleman between your customers’ payments and your business bank account.

Security Considerations

But wouldn’t it be simpler to have the customers’ money put directly into your business bank account, thereby saving a step in the whole process?

That sounds great, but it’s not the way the modern payment card industry works. When customers make payments, there are more parties involved than just the two of you.  

One of these parties is the issuing bank. This is the bank that issues the customer’s card, such as Wells Fargo or Bank of America.

The other significant party is the acquiring bank. This is the bank that holds the merchant account. It takes payments from the issuing bank and then releases them to the business owner.

Once the acquiring bank asks the issuing bank for the money, the issuing bank verifies those funds are present in the customer’s account. If they are, they’re transferred. If they’re not, the transaction is declined. 

So when a customer purchases something, their payment is put into your merchant account.  Only after this transaction is vetted by all parties involved does that money move to your business bank account. Once there, it becomes accessible to you.

Under usual circumstances, a business owner will never have control over their own merchant account. It simply acts as an intermediary between your customer’s payments and your regular business bank account.

What Is Required for a Merchant Account?

Prior to setting up your merchant account, you need to get your proverbial ducks in a row. You’ll need to get a business license, open your business bank account, and you’ll need to know about the underwriting process that all merchant account applicants go through.

The Business License

Most merchant account providers will want you to have a business license, which is a permit provided by a local governmental authority. This license makes it legal for an individual or a company to do business inside the jurisdiction of that authority.  

Although not all credit card processing companies require it, getting a business license is a great idea. If you intend to operate your business for a while, you will eventually need this license for reasons beyond only opening a merchant account.  

Depending on the state you live in, you may need to get more than one license. You may get a state-level license, only to find out you also need a city or even a county-level one.  

A good place to start finding out what licenses you must have is your state’s Secretary of State office. They are tasked with registering business entities (corporations, limited liability companies or LLCs, and partnerships). Start with this list of Secretary of State offices.

Secretary of State offices are also responsible for handling business mergers and acquisitions; and processing the articles of dissolution in the event you close down a business. Depending on which state you live in, information can be difficult to find.

We’ll talk about Underwriting in a little while. For now, know that the people that secure merchant accounts (the underwriters) will want to look at your business license (and keep a copy of it) in order to verify your business.

The Business Bank Account

Your business bank account is the account that keeps the money earned by your business.  Every business needs one of these, even if you’re a sole proprietorship.

These accounts can be opened quickly by going to your bank’s website, or by visiting a local branch. You’ll need to have a copy of your business license in hand (as above), and also an Employer Identification Number (or EIN). 

If you are a sole proprietor, you can use your Social Security Number for this purpose. If you plan on having more employees than just yourself, apply for an EIN on the IRS website.

This account is where all your business earnings will go. It’s also where your credit card processing fees and software costs are debited from. Therefore it’s important to keep a balance in this account.  

About the Underwriting Process

The process of vetting individuals and businesses to give them merchant accounts is known as underwriting.

This is the process a credit card processing company uses to assess the risk of doing business with you. At this stage, the underwriter gets to know your business. 

Because of underwriting, merchant account providers are able to offer better transaction rates than payment aggregators like PayPal, Stripe, and Square.

When you go through this process, you’ll be asked for a lot of information about your business.  This includes, but is not limited to:

  • The industry your business is in
  • The type of products or services you provide
  • Information about your typical sales (at least a month, if not a year)
  • Articles of incorporation for your business
  • A voided check from your regular bank account 
  • Any processing statements you generated

Credit checks are also quite common, and your personal credit and business credit are both checked.

Providing this information helps the merchant account provider understand the risk of doing business with you. It also helps them to offer you better rates.

And if you think your underwriter is nosy, it’s because the more money you want to transact (the bigger you want your holding tank to be), the more documentation you’ll have to give them. The more money that moves through your merchant account, the higher the risk. Their goal is to ensure that doing business with you is worth that risk.

Alternatives to Merchant Accounts

Like we said above, merchant accounts are necessary if you want to take credit cards or debit cards at your business. You don’t need a merchant account if you want to do business with checks, cash, or other alternative forms of payment.  

In fact, those forms of payment are routed through a different system, and we’ll talk about those in a different article.

If you don’t want to get a merchant account, though, or if you can’t, you can sign up with a payment aggregator.


The traditional merchant account is a 1-on-1 relationship. It’s between you, the business owner, and your merchant account provider.  

If the bank sees suspicious activity on your account, they’ll contact you first. Because they know your business, they know what “suspicious” looks like — anything outside of the norm you’ve established.

Another way to get access to a merchant account, though, without the hassle of establishing that relationship and going through the underwriting process, is to use a merchant account aggregator, like Stripe, Square, or PayPal.

Aggregators earned this name because they lump all their clients in need of payment processing into one big merchant account — they aggregate all the accounts into one.

Getting set up with an aggregator is usually quick, easy, and painless. But if they see any “suspicious activity” on your account, they won’t call you first. They’ll simply freeze your account, or even close it without any warning.

This is not to say that aggregators are a bad idea for some businesses. If you’re doing less than $5,000 a month in sales, they work great. But if you do more than that, you’ll want to start using a traditional merchant account, which typically offers much better rates.

Getting Your Own Merchant Account 

If you’re ready to start the process of getting a merchant account, let the experts at Easy Pay Direct help you!  

We help people with merchant accounts all day long, and we even specialize in high risk merchant accounts.  

Give us a call today!

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