What is a Merchant Account and Why Do Businesses Need It? 

Introduction

Many businesses hear the term merchant account for the first time when they try to accept card payments. The term sounds technical, which leads to confusion and wrong assumptions. Some founders think it is the same as a bank account, while others believe it is optional.

In reality, a merchant account plays a central role in how card payments work. Understanding it early helps businesses avoid payment issues, delays, and rejected transactions later.

What Is a Merchant Account?

A merchant account is a special type of account that allows a business to accept debit and credit card payments. It temporarily holds funds from card transactions before the money is transferred to the business bank account.

Unlike a bank account, a merchant account does not store money long term. Its main role is to process card payments safely and route funds correctly.

How a Merchant Account Works in a Payment Transaction?

When a customer pays by card, several steps happen in the background.

• The customer enters card details or taps their card

• The payment is sent for authorization

• The transaction amount moves into the merchant account

• After settlement, funds are transferred to the business bank account

This process ensures that payments are verified, tracked, and settled correctly.

Why Businesses Need a Merchant Account  ?

Businesses need a merchant account because card payments involve more risk than cash or bank transfers. Card networks require an extra layer of control to manage disputes and fraud.

A merchant account helps businesses:

• Accept debit and credit card payments

• Process refunds smoothly

• Handle chargebacks and disputes

• Support online and in-person payments

Without a merchant account, businesses cannot process card payments directly.

Merchant Account vs Business Bank Account  

Many businesses confuse these two accounts. They serve different purposes.

A merchant account works alongside a bank account, not instead of it.

Merchant Account vs Payment Gateway  

Another common confusion is between merchant accounts and payment gateways. Both are needed, but they do different jobs.

In simple terms, the gateway sends the payment, and the merchant account processes it.

Who Needs a Merchant Account?  

Most businesses that accept card payments need a merchant account.

• Ecommerce stores

• Service providers accepting card payments

• Subscription and recurring billing businesses

• Retail stores using POS systems

Even small businesses need a merchant account if they want to accept cards reliably.

When a Business Might Not Need a Merchant Account  ?

Some businesses do not need a merchant account directly.

If a business uses third-party platforms like marketplaces or hosted payment services, the platform may handle the merchant account on its behalf. In such cases, the business uses the platform’s payment system instead of its own.

However, this often comes with less control over payments and payouts.

Common Myths About Merchant Accounts  

There are several misconceptions around merchant accounts.

• Only large businesses need them

• Merchant accounts are the same as bank accounts

• Approval is instant and automatic

• All businesses get approved easily

In reality, merchant account approval depends on business clarity and risk profile.

What We See Businesses Misunderstand About Merchant Accounts  ?

At Ebizfiling, We often see businesses treat merchant accounts as a technical formality. In practice, providers assess how a business operates, what it sells, and how it manages payments. Businesses that understand this approach the process with better preparation and fewer issues.

Conclusion  

A merchant account is a core part of accepting card payments. It bridges the gap between card networks and business bank accounts. When businesses understand what a merchant account is and why it matters, they make better payment decisions and avoid unnecessary confusion as they grow.

Frequently Asked Questions