Definition
A merchant account is a specialised type of bank account that allows a business to accept credit and debit card payments from customers. It acts as an intermediary holding account where funds from card transactions are deposited by the payment processor before being settled into the business’s regular bank account.
How Merchant Accounts Work
When a customer pays by card, the payment processor authorises the transaction, collects the funds from the customer’s bank (via the card network), deducts its processing fees, and deposits the remainder into the merchant account. The settlement period, the time between the transaction and the funds arriving in the merchant account, is typically one to two business days in Australia.
Acquiring Banks and Payment Service Providers
Merchant accounts are provided by acquiring banks or payment service providers. Not every business that accepts card payments operates its own dedicated merchant account. Payment service providers (PSPs) such as Square, Stripe, and PayPal aggregate many small merchants under a single acquiring relationship, making it easier to set up than a traditional merchant account.
Merchant Account Fees
Merchant account fees typically include a per-transaction fee (a percentage of the transaction value, often between 0.5% and 2% for Australian businesses depending on volume and card type), a monthly service fee, and potentially a setup fee. Some providers offer flat-rate pricing where every transaction is charged at the same percentage regardless of card type.
Reserve Requirements and High-Risk Merchants
For businesses experiencing rapid growth, high chargeback rates, or operating in industries classified as higher risk by banks (such as travel, gaming, or certain subscription models), obtaining and maintaining a merchant account can be more complex. Acquiring banks may impose reserve requirements, where a portion of revenue is held in reserve against future chargebacks, before releasing full settlement.