Guide to Merchant Accounts And Credit Card Processing

Merchant accounts work by transferring funds from the customer’s account to the merchant account. This process is initiated when the customer uses their debit or credit card to make a purchase, and the card terminal sends a request for authorisation to the payment processor.

The payment processor then sends the authorisation request to the customer’s bank or credit card company, which checks to see if the customer has enough funds or credit available for the purchase. If the authorisation is approved, the funds are then transferred from the customer’s account to the merchant’s account.

Once the transaction is completed, the payment processor deposits the funds into the merchant’s bank account, minus any processing fees. These fees can include interchange fees, which are charged by the card issuer, and processing fees, which are charged by the payment processor.

Interchange fees vary depending on the type of card used and the type of transaction, such as whether it was a debit or credit transaction. Processing fees, on the other hand, can be flat rates, a percentage of the transaction amount, or a combination of both.

It’s important to note that while merchant accounts allow businesses to accept payments through debit and credit cards, they are not the same as a regular bank account. Merchant accounts are specifically designed to handle electronic payments, and the funds held in a merchant account are not insured by the Financial Services Compensation Scheme (FSCS) like a traditional bank account.

To open a merchant account in the UK, businesses must go through an application and approval process with a merchant account provider. This process involves providing information about the business, such as its legal structure, processing volume, and credit history. Once approved, the merchant account provider sets up the account and provides the business with the necessary equipment, such as card terminals or payment gateways, to process electronic payments.

Accepting card payments, understanding what your business needs and how to find it can be a minefield. The industry is renowned for its complex terminology, as well as confusing quoting and pretty much impossible-to-understand monthly transaction statements.

It can be difficult to determine which company is responsible for separate parts of successful card transactions–with the relationship between third parties sometimes unclear.

Before we dive in, we’ll briefly explain the elements involved in accepting card payments and how they work.

• MERCHANT ACCOUNT–provided by an acquiring bank
• PAYMENT PROCESSOR
• PAYMENT GATEWAY–for online payments

Understandably, business owners can be uncertain of what’s what, as sometimes all three elements can be provided by the same company. More often than not, merchants choose to keep all of their card payment facilities under ‘one roof’ for ease, not knowing that some or part of the service is outsourced to third parties. This is why it’s worthwhile taking time to get to know what your business is paying for and why.

Companies that sell card payments fall into three categories – therefore depending on your requirements, it might be worth exploring different routes;

Merchant Acquirers – These banks own and enable merchant accounts to carry out processing, examples of these types of companies include; Global Payments, WorldPay, Elavon etc.

Independent Sales Organisations – Commonly referred to as ISOs. These guys have contracts with banks and offer merchant accounts via a selection of banks. It’s worthwhile asking how many banks the ISOs have to choose from, some have as little as one or two, others have hundreds!

Payment Facilitators – Can also be referred to as aggregators. They have the right to act as a bank themselves handling the card processing without the need for the business to have their own merchant account. Examples of payment aggregators include; PayPal, Izettle and Sumup.

So, how do you know which payment processor is best for your business?Here we’ll take a look at the top merchant account companies and give an overview of their offerings.

Now that you know what a merchant account is and how it works, it’s important to choose the right merchant account provider for your business. There are many providers in the UK, so it can be overwhelming to choose the right one.

Some factors to consider when choosing a merchant account provider are:

• Transaction fees: The fees charged by the provider for each transaction
• Setup fees: The fees charged by the provider for setting up the account
• Monthly fees: The fees charged by the provider for maintaining the account
• Payment processing options: The types of payments the provider can process (e.g., credit cards, debit cards, e-wallets)
• Customer support: The quality of support offered by the provider

Another important aspect of accepting debit and credit cards is choosing the right credit card processing company. These companies are responsible for processing the transactions made by your customers and ensuring that the funds are deposited into your merchant account.

Each company has its own unique features and pricing, so it’s important to research when comparing.

Some of the best credit card processing companies in the UK include:

If you’re considering switching merchant account providers, there are a few things to keep in mind. First, make sure you understand the terms of your current contract, including any cancellation fees or early termination fees. It’s also important to research potential new providers to ensure that they offer competitive rates and reliable service.

When you’re ready to make the switch, make sure to notify your current provider in writing and follow their procedures for closing the account. Then, work with your new provider to set up your new merchant account and transfer your existing payment processing equipment or purchase new equipment as needed.

It’s also a good idea to test your new account and equipment thoroughly before launching it to ensure that everything is working properly, and finally, make sure to update any relevant business documents or marketing materials to reflect your new payment processing information. With these tips in mind, switching merchant accounts can be a smooth and hassle-free process.

There are various reasons why your business can be deemed high risk by payments companies, which can make finding payment processing a little more complex. Let’s take a look…

• The industry type, i.e the goods and services you sell and the reputational risk that comes with it
• Credit history
• Chargeback ratios–most banks will not onboard businesses with a charge back rate higher than 2%
• Location of the business and its directors
• Locations of customers and website traffic if based offshore

You may be surprised to know that some high street and mainstream bankswill look at high risk merchant account applications, however, there is riskinvolved. It’s often better to obtain an account which allows high risk long-term–reducing the risk of account termination.

For more information, please visit our high risk merchant accounts page.

Payment gateway companies enable online transactions via ecommerce stores to take place, working with a merchant account. As a result, payment gateway providers often have referral agreements in place with acquiring banks.

This can be confusing as acquiring banks sometimes use third-party payment gateway providers white labelling the service. Examples of this include WorldPay which uses Pay360, and the Cardstream gateway which is used by various UK banks.

ISVs offer specialist software, and sometimes hardware to go with it. Therefore, often have referral agreements in place with payment gateway providers (sometimes earning a commission in doing so) An example; website hosting platforms have preferred gateway integrations; i.e. Magento and Shopify.

For more information, please visit our payment gateways page.