What Is a Retail Merchant Account and Do I Need One?

A retail merchant account refers to a special type of bank account that enables retailers to accept credit and debit card payments. It’s different from a business bank account in that you don’t have direct access to the funds in your merchant account. Rather, the funds from card transactions are held there until they are settled to your business bank account.

There are different ways to get access to a retail merchant account for retail, some of which are more suitable for small businesses vs international brands. Understanding the options will help you choose the kind of retail merchant account that’s best for you.

Types of Merchant Accounts for Retailers

Every retailer needs a merchant account to accept credit cards in their in-person or e-commerce retail store—whether it’s an online clothing boutique, e-commerce beauty business, greengrocer’s shop, toy store or electronics superstore. However, there are different ways to connect with a merchant account depending on your processing volume and the services you need.

1. Dedicated Merchant Account Providers

A traditional or dedicated merchant account provider—like Unicorn Payment—opens an individual merchant account for each retailer (“merchant”) and issues him or her with a merchant identification number (MIN). In order to open the account, the provider will ask the retailer for his or her business licence and financial statements and complete an underwriting process, which typically takes a few days to a week.

Once the merchant account has been established, the merchant account provider—if it’s also an end-to-end payment processor—will provide the merchant with a secure global payment gateway and virtual terminal where customers can enter their card details. The processor will then handle the entire credit card transaction process until the funds are deposited in the merchant’s business bank account.

2. Merchant Aggregator

To simplify things for freelancers, hobbyists, micro-businesses and startups, merchant aggregators—like PayPal, Stripe, and Block (formerly Square)—have their own company merchant account and MIN and process multiple sub-merchants’ transactions through this shared account. No business licence or financial statements are required to process transactions through a merchant aggregator.

To accept credit and debit cards with a merchant aggregator, the retailer can invest in a point-of-sale hardware system that’s compatible with the credit card processing company’s system. For e-commerce sales, adding a payment button is typically all that’s required, with branded online checkouts available for an additional monthly fee.

3. Open a Merchant Account Directly with an Acquiring Bank

The third option—and the least popular with small businesses—is to approach an acquiring bank directly and ask to open a merchant account. If you choose this option, you’ll have to provide your own payment gateway, negotiate rates with each card network individually and take care of security, compliance and technical support in-house.

To simplify the process and lower their risk, most retailers work with a third-party merchant account provider or merchant aggregator rather than working directly with an acquiring bank. However, if your retail company is very large, creating your own custom payment processing system gives you the most flexibility in terms of payment options, transaction fees and branding.

Fees Involved in a Retail Merchant Account

Credit card processing isn’t free, simply because a card transaction is much more complex than giving and receiving cash. When a customer pays by debit or credit card:

1. The card information is encrypted and sent through a payment gateway to the payment processor.
2. The payment processor routes the request through the acquiring bank to the card networks, which check that the card is valid and not blocked or reported as stolen.
3. The request is then routed to the customer’s card issuing bank, which checks that there are sufficient funds in the customer’s account and the card is not expired, blocked or reported as stolen. The issuing bank may also perform an address verification service check if the merchant has enabled it.
4. The issuing bank returns an “approved” or “declined” message, which is routed back through the same pathway until it reaches the payment terminal and is shown to the merchant. At each step on the return journey, the merchant account deducts fees to be paid to the issuing bank, card network and credit card processing company. These are referred to as “interchange fees”, “assessment fees” and “credit card processor markup”, respectively.

Merchant Account Fees

In addition to the fees incurred in the transaction process, credit card processing companies charge a range of other fees. These fees can include (but are not limited to):

• An application fee
• A setup fee
• A monthly minimum fee
• An early termination fee
• A chargeback fee
• A merchant statement fee
• A cross-border transaction fee

When charging for transactions, there are three main pricing structures that a credit card processor can use.

• Interchange-plus pricing structure. The merchant is charged the exact interchange and assessment fees charged by the issuing bank and card networks for each transaction plus a consistent markup from the payment processing company.

• Tiered pricing structure. Transactions are arranged into risk-based “tiers” and the merchant pays the highest relevant fee for transactions falling into each tier.

• Fixed pricing structure. The payment processor charges a fixed rate for domestic transactions and a (slightly higher) fixed rate for cross-border transactions. This rate typically includes a percentage of the transaction amount plus a flat fee.

How to Choose a Merchant Account Provider for Retail

When comparing different retail merchant account providers, there are certain basics that every retailer should look for. After that, you might also want to consider advanced features to help you grow your business.

Basic Requirements

Every merchant account provider must:

• Be fully compliant with the payment card industry data security standards (PCI-DSS), which cover things like encryption and restricted access to data
• Have a secure sockets layer (SSL) certificate
• Use end-to-end encryption
• Be registered with the relevant chamber of commerce
• Have a proven track record of processing credit card payments securely
• Provide basic merchant services such as fraud mitigation and chargeback prevention tools
• Be transparent about their pricing structure and fees
• Have a highly responsive technical support team

Advanced Features

If you really want to develop your business, look for retail merchant account providers that offer:

• A wide range of payment methods, including those that your customers like to use (bank transfers, mail orders, telephone orders, mobile payments, e-wallets, text-to-pay, buy-now-pay-later and others)
• Detailed sales reports and financial analytics
• Customer relationship management (CRM) capabilities, including the accrual of loyalty points
• Recurring billing capabilities for memberships and subscriptions
• Multi-currency wallets and settlement in the currency of your choice

Special Types of Retail Merchant Accounts

• Offshore merchant accounts. Offshore merchant accounts often have higher processing limits and lower taxes than in-country merchant accounts. They are also a good option for merchants whose industries are not supported by in-country acquiring banks.

• International merchant accounts. These allow retail merchants to hold accounts with acquiring banks in several countries and manage all of their revenue from a single dashboard. These accounts can be a great choice for multinational enterprises with branches located around the world.

• High-risk merchant account. These are merchant accounts for retailers in industries that have higher-than-usual return and cancellation rates, higher chargeback rates or that operate in restricted industries. Examples include event ticket sellers, airlines, tobacco businesses and businesses located in “high-risk” countries.

• Mobile merchant account. Retail merchants who often sell at markets, in pop-up shops or from a truck (such as a food truck), might need to accept card payments on their phones. If this feature would be valuable for you, look for a credit card processing company that offers a virtual terminal and cloud-based payment processing.

How to Apply for a Retail Merchant Account

If you’ve decided to open a dedicated retail merchant account and start accepting card payments:

1. Do your due diligence to find a reputable merchant account provider that offers all of the features you need.
2. Gather the documents you need to open a merchant account, including your individual identification documents, business documents, tax identification details and financial statements.
3. Fill out the application form and give copies of your documents to the merchant account provider.
4. Wait for the underwriting process to be completed.
5. Sign the contract (after reading it thoroughly and having it reviewed by a legal professional, if your company has legal representation).
6. Work with the provider to install your secure payment gateway.
7. Let your customers know that you are now taking card payments!

Grow Your Sales with a Retail Merchant Account

A retail merchant account enables retailers to accept credit and debit payments, which could greatly expand your customer base and allow you to sell both in-person and online compared to dealing in cash. There are different ways to gain access to a merchant account, including dedicated merchant accounts, aggregate merchant accounts and partnering directly with an acquiring bank.

When choosing a merchant account provider for your retail store, look for a company that’s registered, reputable, experienced, offers all of the necessary security features and is transparent about its terms and pricing. Above all, keep in mind that while opening a retail merchant account takes a little work at the start and you will pay transaction fees in some form or another, the gains far outweigh the costs!