Merchant Account vs Bank Account – Explained

If you are just starting your business the dilemma merchant account vs bank account would have crossed your mind. Figuring out ways for processing credit card payments, paying bills or depositing cash can be a confusing and time-consuming process. Many financial institutions offer two types of accounts, each with different characteristics, a merchant account for accepting credit card payments and bank account for storing your funds.

Merchant account vs Bank account

Let us get into a bit more depth of a merchant account vs bank account. In order to receive payments from customers, you need to have a merchant account and a bank account. A merchant account is purely a transitional account for receiving payments via debit and credit cards, while the bank account will be used to receive the funds you collect from your customers.

So, some differences between a merchant account and a bank account…

Merchant account

Merchant accounts are contracts between a credit card processing company and a retailer. These types of accounts serve as an intermediary between the acquiring bank and the retailer. Merchant accounts allow retailers to accept payments via debit and credit cards. Merchant account vendors charge a fee per transaction to accept payments on behalf of the retailer. The fee is charged for processing the sale and also for the transfer of funds. Their task is to validate the credit or debit card prior to accepting a payment, either online or through a POS. The amount is deducted from the cardholder’s account, through the merchant account and eventually, transferred into a bank account.

Bank account

A bank account is much more of a common term. Through a bank account, you can accept payments, send payments and store funds. Generally speaking, a bank account is there to handle any payments related to the day-to-day operations of a company. Bank accounts are important both for traditional and online companies. They can be local or international, can support a single currency per account, and can be of various types. We will not go through the specific details of the differences between a virtual account, current or savings. Whether you, as a retailer, accept payments online or not, a bank account is required. Any form of alternative payments will eventually end up in a bank account. From a bank account, utility bills are paid, payrolls are deducted and it is what your yearly finances are based on.

When talking about the main differences between these two types of accounts, merchant accounts are allowing just once type of transaction. That means that merchant accounts only accept payments, while the bank accounts allow you to both pay and receive payments. Also, merchant accounts accept only debit and credit card transactions, while bank accounts allow both credit card and cash transactions. Another difference between the two is that the merchant accounts are holding payments only on a temporary basis for a specified settlement period, but payments on bank accounts are permanent, or so we hope 😊

In conclusion, most businesses today would require both kind of accounts, and if you are an online retailer, then both accounts are definitely a must have! So remember, merchant accounts are different from traditional bank accounts. All business are required to have a bank account, while merchant accounts are only required for those businesses that wish to accept debit and credit card payments.

After reading Merchant account vs Bank account, you should consider the below links to a few other articles you will find suitable:

Merchant account: What to know before creating one

Accepting Online Payments for Startup companies – Why Create a Merchant Account (this will be an interesting read if you are a startup)