A merchant account is a financial instrument that allows web users to make secure electronic transactions. In layman’s terms, merchant accounts allow buyers to use credit/debit cards and electronic check payments on the Web.

The majority of online businesses utilize them in some capacity or another, they are essential for e-commerce, allowing users to buy from digital storefronts. Merchant accounts are offered by financial institutions, credit card processing companies, and independent sales organizations that allow business owners to direct their customers’ payments into their bank account.

Merchant accounts are also referred to as e-commerce accounts, which is the primary reason why many people get them confused for one another. However, merchant accounts are only used for domestic transactions, whereas e-commerce merchant accounts are used for international ones.

How Do Merchant Accounts Work?

Although there are many different ways that online businesses can collect payments, all of them have one thing in common: the use of a merchant account. A business owner will establish their own merchant account through an independent sales organization, credit card processing company or bank. This account is used to connect the business’ online store to various payment gateways so that transactions can be processed directly.

Several common gateway connections include Authorize.Net, PayPal and eWay Direct. Each one of these gateways allow users to process different types of credit/debit cards along with other forms of payment (e.g., e-checks).

A business owner will then use these gateways to process their customers’ orders and transactions, as well as view real-time transaction data that can be used to better understand the sales history of a particular online store.

After all orders and transactions have been processed, funds are deposited directly into the merchant account. The merchant account statement will then be used to determine how much money was made and what fees/charges were applied during that time period.

How Does a Merchant Account Work?

Simply put, merchants utilize professional sales organizations, credit card processing companies or banks to find solutions that are best suited for their business’ needs.

There are three common methods used for merchant accounts: independent sales organizations (ISO), credit card processing companies and banks. All of these options provide different services to merchants, while also having some amount of overlap with one another.

Independent Sales Organizations

Sales organizations act as intermediaries between the business owner and payment gateways/processors. They are generally larger organizations that are made up of many seller clients, with each one handling different aspects of online transactions.

Credit Card Processors

Credit card processors are the ones responsible for all transaction processing. They are used to handle customer payment information, as well as any refunds/disputes that may arise during the process. These types of companies will often work with a variety of different sales organizations and merchant accounts in order to provide their clients with the best possible service.


There are four popular banking options available: credit unions, community banks, regional banks and national banks. The main difference between these financial institutions is where they choose to operate (e.g., state or country). They also feature different interest rates and fees, which is why it’s important for merchants to explore their options before choosing one.

Credit card processing companies provide business owners with all of the necessary tools in order to start taking payments from customers directly. This includes support, security measures and a variety of other services that are designed to make things easier on merchants.

There are many things that business owners should take into consideration before choosing a merchant account, including their industry type, processing needs and security requirements. It’s also important to understand the different types of fees/charges that will be applied during the process, as well as any potential processing contracts that may need to be signed for this service (e.g., a 2 year contract).

It’s also important to note that merchant account providers may be able to provide business owners with additional services (e.g., accounting, payroll). Considering these factors ahead of time will give business owners the best chance at finding a solution that works for their particular needs.

A merchant account is used by businesses to process credit and debit card transactions. If you run an online store, it’s best to sign up for a merchant account because these types of accounts make it easy to accept payments from customers directly.

A “credit card processing company” can provide businesses with the tools they need in order to take online credit/debit card transactions. Business owners have the option of working with companies that offer all necessary services or they can choose to work with an ISO if they prefer. There are also four banking options that are typically used by merchants: credit unions, community banks, regional banks and national banks.