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What is a merchant account and how do you choose the right provider?

Businesses need a merchant account to accept payments. Discover how to find the right partner to set up a merchant account for your business.

16 October, 2023
 ·  6 minutes
Payment in store

When a customer pays via a payment method (like a debit or credit card) the funds don’t go directly into your business bank account. They need a place to sit until the transaction is approved. This is where your merchant account comes in; it’s essentially a holding pen for your funds.

The merchant account is provided by your acquiring bank or payment service provider. For example, with Adyen, you get one automatically when you start accepting payment with us. The question is, how do you choose the right provider to ensure you get paid as quickly and efficiently as possible?

In this article, we'll cover everything you need to know about merchant accounts, their role in the payment process, and how to find the right partner to set you up for success.

What is a merchant account?

A merchant account is a type of business account that lets you accept and process payments via payment methods such as credit and debit cards. Working as an intermediary between you and your customer’s bank accounts, your merchant account holds the funds until the transaction is approved. Once complete, the funds are transferred to your business bank account. How long that takes depends on your provider but can range from an instant payout to five business days.   

Note: if you’re an Adyen customer, this could be an Adyen account, which offers instant payout.

Merchant account vs payment gateway

There’s some confusion about whether you need a merchant account or a payment gateway. In short, you need both since they fulfil different functions: 

  • Your payment gateway is the front-end technology that lets you accept and process online payments. Note: A good gateway will go beyond cards to accept other popular payment methods based on the location of your customers (ie girocard in Germany; Alipay in China).

  • The merchant account is where your funds go once the gateway has processed the payment.

Do you need a merchant account?

You can’t operate without a merchant account for your business; it’s the only way to process card payments.

Where does a merchant account sit in the payments value chain?

The payments value chain consists of the following steps: 

  • After a payment is initiated, the customer’s payment information is sent to the payment gateway.

  • The payment gateway transforms the information in adherence to proprietary standards and shares it with the local payment processor.

  • The payment processor shares the information with the card payment network, which shares it with the customer's bank, which in turn, performs checks such as available funds.

  • Based on the outcome of the checks, the customer’s bank tells the card network whether the transaction is approved or declined.

  • The card network passes the message back to the payment processor, which passes it to the payment gateway. The gateway then communicates the response back to the business and customer to complete the purchase.

  • The transfer of funds goes from the customer’s bank account to the acquiring bank and then to the business’s bank account and is typically initiated before the end of the day.

There are several parties involved in the payments value chain: 

  • Gateway

  • Processor

  • Acquirer

  • Risk management 

  • Card schemes

  • Issuer

Adyen acts as a gateway, processor, risk manager, acquirer, and merchant account provider, which helps keep the process lean. You can learn more about payment processing in our article: Payment processor vs. gateway.

How many merchant accounts do you need?

The number of merchant accounts you’ll need depends on your business. For example, if you operate across different regions, you’ll need one per legal entity. Typically, this means one account per region. 

You’ll also need different merchant accounts for each of your sales channels. For example, you’ll need an online merchant account for your e-commerce sales and a POS merchant account for your in-person payments - again, in each region. It might sound complicated, but it makes your life easier since you’ll have separate money flows and reporting. This is particularly helpful if the business accounting for ecommerce and POS are separate. It also allows for different access settings (e.g., a store owner does not have access to e-commerce data and vice versa).

How to set up a merchant account

There are two primary ways to set up a merchant account:

  1. Apply to open a merchant account with an acquiring bank

  2. Set one up with your payment provider

How to apply for a merchant account with your acquiring bank

Setting up a merchant account with your acquiring bank includes benefits such as lower fees and personalised support. However, doing so can take time. Acquiring banks often conduct an underwriting process to minimise the risk and the application time can range from a few days to a few weeks.

To apply for a merchant account with your acquiring bank, you usually have to share information about your business. This includes your legal company name, company tax ID (in the US, this would be your Employer Identification Number or EIN), and business bank account details. The acquiring bank will then use this information to perform a risk assessment to confirm that you’re eligible.


  • Low fees for high sales volume

  • Personalised customer support

  • Offered to high-risk industries

How to set up a merchant account with your payment provider

Some payment providers let customers open merchant accounts without an underwriting process. This is generally a faster process since payment providers already have access to your data so it’s easier for them to assess the risk.


  • Fast application process

  • Simple flat-rate pricing structure

  • Flexible contracts

Merchant account fees

Your fees will differ depending on whether you choose an acquiring bank or use an aggregated merchant account from your payment provider. 

What are merchant account fees?

Merchant account fees are any fees charged to a business by the card schemes, acquirer, or payment processor. These include: 

  • Processing fee: The fee charged by your payment processor.

  • Markup: A fee paid for certain card payments or currency conversion between processing currency and settlement currency. The fee depends on the type of card payment or currency conversion rates.

  • Scheme Fees: A fee paid to the card scheme for card transactions. The fee amount is determined by the corresponding card scheme.

  • Interchange: A fee paid to the issuer for each payment transaction made via a card scheme. The interchange fee amount is determined by the corresponding card scheme. 

With an acquiring bank, the most common pricing model charges a percentage per transaction volume. Sometimes the acquiring bank also charges a setup or contract termination fee.

Payment providers often bundle processing fees into one fee. This price can include card scheme fees, interchange fees, and merchant account fees. It can also include costs for additional services like 3D Secure and fraud prevention.

How can Adyen help?

Setting up a business merchant account with Adyen is simple. Customers are automatically assigned an account once they start accepting payments with us. There’s no need for you to share your business information with several providers; one integration and one back-end lets you manage all payments across all regions and channels. 

Unlike legacy providers, you don’t need to open accounts with each payment provider, which helps to keep things simple. Plus, consolidating your payments to just one partner will streamline your processing, leading to higher authorisation rates, lower transaction costs, and faster funds settlement.

International expansion is also made easier since you’re automatically assigned new accounts as you scale to new regions, so you don’t have to fill out lengthy forms each time. 

Here are Adyen’s application requirements

Note: We also offer a different product called Accounts which is part of our Embedded Financial Product Suite. This is different from a merchant account.

Benefits of choosing Adyen

To summarise, by choosing Adyen for your business merchant account you’ll benefit from: 

  • Easy access to multiple accounts as needed for each channel or region

  • A single point from which to manage all your accounts

  • Fast and efficient payment processing thanks to Adyen’s end-to-end platform 

  • Higher authorisation rates, leading to more conversions 

  • Lower processing fees thanks to Adyen’s overall processing volumes

  • Rapid settlement

  • Access to a suite of optimisation tools and embedded financial products to grow your business

Before you get started

Before you get started setting up your merchant account, here’s a quick summary of what you need to know about merchant accounts:

  • A merchant account is an account that businesses need to process payments

  • It temporarily holds the funds before they move into your business bank account 

  • Unless your plan is only to accept cash payments, you need to have a merchant account for your business; it’s an integral part of the payment infrastructure 

  • There are two options for setting up a merchant account: through an acquiring bank or some payment providers

  • By setting up an account with Adyen, you get the best of both and can be up and running quickly

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