Do I really need a merchant account?

The quick answer is yes, you need a merchant account if you are going to accept credit card payments from your customers. A merchant account is the way banks lend credit to approved businesses to accept credit cards. In the end, using credit cards is using borrowed money from the bank. There is no way around this. However…

It is possible to “share” a merchant account with a bunch of other businesses. This is called an aggregated account and it is what you get when you sign up for Paypal and other similar companies. You end up getting a Paypal account that shares a merchant account across businesses. The funds from your customers that use a credit card go into Paypal’s “aggregated” merchant account, then Paypal takes care of distributing the funds into your bank account. This account is not controlled by you, pay attention to the contract terms and any changes made to them because providers can change rules when they want.

There is a time a place for both merchant accounts and aggregated accounts. For early stage businesses that have very little revenue and are not certain if it your business will grow, it might not be worth the extra effort to get a merchant account. Start with an aggregated account and once you hit somewhere around $40,000 per year (~$3,500 per month), sign up for a merchant account. That will give you more certainty, control, and growth options.

Benefits of a merchant account

  • Funds go directly into your bank account
  • Fees generally negotiable, therefore less expensive
  • Builds credit history for your business

Benefits of an Aggregated Account

  • Fast to sign up for. Typically less than 24 hours.
  • Simple pricing. Typically fixed percentage pricing for all credit cards.

See a full description of a merchant account and learn more about it. If you are in Canada, you can also review a short guide on top payment processing companies in Canada.