What Is A Merchant Account?

merchant account
What Is A Merchant Account?

A merchant account is a financial account, established by a small business owner, with a credit card processing company which is authorized to transact credit data for the bank networks, such as Visa, MasterCard and others. The processing company, via a business (aka merchant), works as a middle-man to processes the data from card transactions. 

When a credit card is swiped through a credit machine, for example, that transaction data is submitted to the payment processor that communicates to bank network. If the transaction is approved, the processor will fund the (business owner’s) merchant’s bank temporarily, while it completes the entire verification. If the transaction gets rejected, the merchant (business owner) will see those funds reversed. So, both the merchant and processor take on some risk for card sales.

How To Open A Merchant Account

Because a merchant account is created with a financial institution there is an application process and regulations that must be followed. For example, a small business owner who wishes to open a merchant account must submit a tax id and potentially tax returns or bank records. After 9/11 all merchant account users must submit a social security number and a tax id number.

If you are ready to open a merchant account…

Knowing How Much It Costs To Accept Credit Cards Can Be Difficult

Merchant account fees and charges are difficult to estimate in advance. One reason for the complexity is based on the different types of credit cards which can presented by customers which are created from banks. Plus, you have to be aware there are thousands of different banks across the country, different rewards programs, airline mile programs, cash back programs, hotel programs. In other words, there is no way for you to estimate the cost of credit since no one can predict which cards will be used when customers are paying. 

Plus, in addition to card differences, the most common cause of cost variations is based on the transaction types which create different risk levels.

The following is a list of pricing methods used when establishing your merchant account. Only one method can be used. However, it is possible to update the pricing method later. The pricing method is how your merchant account will pay for service.

Different Price Methods For A Merchant Account

  • Basis Point Method
  • Tiered Rate Method
  • Cash-Discount Method
  • Flat Rate Method

Using a Basis Point method is the easiest price setting method. We set the rate for all cards at 80 basis points or 0.008 (or 0.08%) above the wholesale cost. This means that if the wholesale rate, for example, for a Visa Rewards card (from ABC Bank hypothetically) is 0.0109/$1, your cost would end up being 0.0189 of the sale amount to accept and process that card.

This is an example to make sure all costs are covered for even the most expense cards, risk levels and potential fees.

An example card transaction for $100 using this example would cost $1.89. The authorization fee, which is extra, might be an additional $0.25. So the total cost for a $100 sale, not including any other fees, might be $1.89+$0.25=$1.915

Again, the primary goal of using the basis point method is to make sure all the fees are covered for any type of card or transaction.

Another way is by using the Tiered Rate method. The price you pay here is based on 3 risk levels: Qualified, Mid-Qualified and Non-Qualified. So, you are given 3 different rates.

For example: 0.0189, 0.0249 and 0.0369. These represent the 3 tier levels. I explain these levels more further below.

If you are ready to open a merchant account…

Another method is the Cash Discount Method (We call our system the EDGE Program) The cash discount method uses flat rate pricing similar to the Basis Point method. However, instead your business paying the processing fees, the card paying customer is charged a processing fee of 4%.

To make sure this method abides by Visa rules the EDGE Program creates 2 product prices. If the customer pays in cash, one type of receipt is generated showing the cash-discount price. If the customer pays with a card, the other receipt is generated which includes a 4% fee. Check out the following image example.

edge program receipt examples

Your responsibility as the business is to make sure all your products have a cash price and a non-cash price. This product promotion is similar to gas stations which have different prices when paying with cash or with credit.

The reason the rate is set higher at 4% is to cover ALL your merchant account costs, including PCI fees. As a result by using this method you  end up paying zero processing fees.

The other way to price your merchant account is using the Flat Rate method. The purpose of using a flat rate is primarily to avoid paying any monthly statement fees, additional merchant account fees and PCI compliance fees.

With our flat rate merchant account you pay 2.69% per transaction for qualified transactions and 3.49% for mid-qualified or non-qualified transactions and no additional fees. This type of merchant account is ideal for small business owners with less than $5,000 per month in sales and very few transactions.

The qualified rate is higher than 1.89%. However, there is no contract and no monthly fees. This type of account can be accessed from your cellphone and our Payanywhere magnetic card reader or from a credit card machine.

So, which method would you prefer?

If you are ready to open a merchant account…

We also must set the Authorization Fee when using either the basis point or tiered methods, which covers bank communication fees. This is can range $0.35 down to $0.10 based on how much volume credit sales your account performs.

If you are opening a brand new merchant account with zero prior history, we usually use a $0.35 authorization fee, to make sure all potential fees sent from the bank networks get covered.

If you have past statements proving your business does $30,000.00+ per month in credit sales we can lower the authorization fee from the start. However, we need to review the past statements to estimate the risk level.

In addition, there is a monthly statement fee of $10 and a $12 PCI Compliance fee.
One of the rules to owning a merchant account is generating a minimum processing fees of $25.

The reason why there are minimum fees is because, the processing company is responsible for paying fees to the bank networks on every account opened, regardless if a business processes cards or not.

Overall, if you generate NO credit card sales during a month, expect to pay $35 for the month to cover the minimum fees. However, most small businesses generate anywhere from $5,000 to $50,000 per month in sales.

If you are ready to open a merchant account…

Most small businesses do not have an issue processing enough credit cards.

How A Credit Card Is Submitted Changes The Processing Cost

For example, a card could be swiped through a credit card terminal (which is considered the lowest level of risk) and is usually priced at the lowest rate, called the swiped rate.

Alternatively, a similar sale could increase the cost when a credit card is presented at the point of sale (the Sales Counter), but the card information is typed into the keypad. Because, for example the magnetic strip was not readable by the credit card machine. This creates a higher level of risk and will likely be charged at the keyed in rate.

In another situation, a card is not present at the point of sale. For example, a customer might call in an order and provide the card information over the phone or the internet. This creates another level of risk. This could be considered mid-qualified rate. Because it is a card-not-present transaction.

In addition, card details could be keyed-in and part of the card information might be key entered incorrectly, like for example the card renewal date or security code located in the back of the card. If any part of the information is entered incorrectly and yet the card is data is forced to pass through, that creates an even higher level of risk, which increases the cost of performing the transaction. This called the non-qualified rate.

If you are ready to open a merchant account…

What Is Interchange?

Interchange are all the rates the bank networks price their card fees at. Each bank network, such as, Visa, MasterCard, American Express, Discover…etc has different interchange Rates, which includes a list of all the card types and transactions.

Aside from these fees, there are many other small fees that MIGHT be assigned based on the risk of the transaction, the bank network the card came from, the bank networks handling the transaction, the card rewards program. In other words, there are other fees involved.

This is why, when we set the PROCESSING RATE and the AUTHORIZATION FEE. We set it high enough to cover all those potential fees.

Every merchant account carries a cost to the processing company that originates from the Bank Networks. This is why a monthly minimum is required.

Is There A Way To Pay No Credit Card Processing Fees?

Yes there is a way to have zero processing fee. As mentioned before, you have the option to use our EDGE cash discount program. The EDGE program, in short terms, allows you set 2 prices for your products and therefore generate 2 receipt types, based on either a CASH sale or a CREDIT sale.

With EDGE the CREDIT sale assesses your customers a 4% price to the products. If your customers want to save money, they can pay with CASH and receive the cash discount price.  This is called a cash discount program.

Basically, you are passing on the cost of having to accept credit back to your customers. What this does is allows you to avoid paying processing fees and therefore generate more upfront cash.

This Idea Isn’t New

Plenty of nationwide chain businesses pass on a credit processing fee at the point of sale. When most people order items from a television commercial, for example, almost all of them charge the processing fee to the buyer.


Do you want to pay for the processing fees? Or, do you want to pass on those fees? Either way, the first step is to establish the merchant account.

Click the button below to get started.

If you are ready to open a merchant account…

Merchant Services

Do you have a physical business location? Open a merchant account to accept Visa, Mastercard, Discover, American Express for your business or website. I can help you open a brand new account or try to lower your current merchant account rates.

How is the service I provide different from those other credit card processing companies? The difference between the merchant account I recommend versus others is based on quality and experience. I work with more than one merchant service company and will only recommend the one that best fits your business. Why? Because, different companies have better pricing and service based on what they specialize in. So, knowing which company has better rates and service is one of my secrets. With over 12 years of experience my clients save more money.

For Example:

#1 – Choosing the right credit card machine or POS system makes a big impact on your merchant account transaction fees. The equipment you choose can add additional costs that can be avoided, if you have the right advice. Already have credit card equipment? No problem. Let’s work with what you have. However, if I can help you save more money per transaction I’ll advise you and let you decide.

#2 – Different credit card processing companies have different per transaction fees, and it’s possible to avoid those fees, if the agent you work with gives you those price breaks… even when using the same parent company. I share all possible price breaks with all of my clients. After all, the better price I give you the longer you will stick with around, right?

#3 – Most merchant account representatives claim credit card machine programming is a complex process. I, on the other hand, show my clients how to program a credit card machine within 10 minutes, without charging up to $300 extra for programming. When it comes to adding a merchant account to a POS system, yes, it can be a little more complex based on the software you choose. However, I always give my clients a fair wholesale price or show how to program a credit card machine for free.

Is A Merchant Service Right For Your Business?

Truthfully, not everyone benefits from accepting credit cards. It depends on how much sales volume you presently have or expect. If your store sales volume is below $5,000 per month, it might not be a good idea to get a merchant account just yet. Businesses that immediately benefit, even when brand new, are Restaurants with Bars or hospitality companies. Professional offices such as Lawyers, Bail-Bonds, Doctors, Hospitals, Veterinarian Clinics and Pharmacies are excellent users too. Less and less people carry large amounts of cash today than in years past.

If you operate any of the above types of business contact me. 

What Other Merchant Account Options Exist?

If your business has very few sales, but large sale amounts, consider opening a virtual terminal and MOTO merchant account to process credit cards through a laptop, pad or cellphone. My company can provide you with a virtual credit card machine that lets you to personally enter customer credit card information or swipe a credit cards, and even print out receipts.

virtual terminal is perfect for low volume sales, yet higher average tickets. Companies that are good candidates are residential or commercial construction and remodeling companies, tile, floor, tape and float, air conditioning/heating hvac, electricians, landscaping, water well drilling, diesel and aircraft mechanics, fence and deck builders…pretty much any business that does very few sales but has a pretty high sale amount.

If you sell online you will need an Internet merchant account and an Internet gateway. Once this is open hand the merchant account key information to your web designer and they will know how to connect this information to your shopping cart and begin creating payment buttons. Still, I do recommend that your average sales volume should be projected at $3,000 per month minimum.


  • When you should choose a Paypal merchant account, 2checkout, Authorize.net, USA ePay over a regular merchant account.
  • When you should choose Square.com card payment services over a regular merchant account.

What You Need To Open A Merchant Account In The U.S.

At minimum, to open a merchant account you need a U.S. physical address, U.S. checking account, contact phone number, social security number and sometimes supporting financial information if your average per sale amount is unusually high, in the $5,000 to $20,000 rage. Financial documents are usually not necessary if you have a regular business with a ticket price up to $1500 per sale. The turn-around time to get a merchant account is around 24 hours.

How Much A Merchant Account Costs

The reason for getting a merchant account is to help you let customers pay for products using the forms of payment available to them. Since less people carry cash it’s almost required to have a credit card terminal or POS point of sale system in your business with the ability to swipe credit and debit cards.

The minimum monthly cost to have a merchant account is around $49 minimum. Overall, the more credit cards and debit bank cards you accept the higher the total fees you will pay. Therefore a business that generates $50,0000 or $100,000 per month in sales usually pays much more than $100 per month. Good thing processing fees are tax deductible.

A merchant account and all fees are 100% tax deductible. However, paying the least amount in fees will create bigger profits and cash in your bank. This is where I can help. I’ll show you the most affordable rates available for your type of business, including how to avoid some credit card processing fees completely. For help in getting setup to accept credit cards give me a call.

Ready? Call me at  Central Time.