What is a merchant account?

A merchant account is a special type of bank account that receives funds that have been authorised by a payment gateway. It holds onto these funds for a defined period of time before transferring them to a business bank account in batches. This way, your business account is not receiving hundreds (or thousands) of individual deposits each day.

Merchant accounts vs. payment gateways

A payment gateway facilitates online transactions between a merchant and their customers, and processes such payments. A merchant account is a holding place for the buyer’s money, where it waits to be deposited into the seller’s business bank account.

There are two types of merchant account:

1. Dedicated account

A dedicated merchant account is one that belongs only to you. To get a dedicated merchant account, you will need to sign a legally binding agreement with the issuing bank, and undergo an in-depth credit check.

Payment processing companies take a risk every time they process a credit card transaction on your behalf as they bear the costs of credit issues and chargebacks.

So, it’s a complicated business and you will have to jump through a considerable number of hoops to satisfy everyone involved that you are not a risk to the underwriters.

Do I need a dedicated merchant account?

It comes down to the size of your business and the volume of sales you are projecting. If you only expect to process 50 credit card transactions a month, it might not be worth the process (as well as the fees).

However if you do project decent volumes of credit card transactions a month, a dedicated account could be a good bet. It would give you a lot more control over your money than an aggregator account (see below), in particular the speed at which you can access funds.

One more thing: You will sometimes see a merchant account bundled in with a payment gateway’s payment processing services. Those using this approach will typically charge transaction fees based on the volume of transactions processed each month on a sliding scale. Windcave’s fees are an example of this in New Zealand.

Find out more about payment processing fees here

2. Aggregator account

Think of an aggregator merchant account as a shared resource for a range of companies utilising the service. Rather than the bank processing payments on your behalf (and taking the risk), the aggregator does it instead. A well-known example of an aggregator is PayPal.

Aggregator accounts are often very appealing to smaller companies and startups as they are far easier and faster to set up than dedicated accounts. That said, you have far less control over your money, particularly with regards to how long pay-outs can take (often five working days, if not more).

Also, the simplicity aggregator accounts typically offer come at a cost – although many of the aggregators also streamline their fees (PayPal’s fees, for instance, are a flat per-transaction rate with no monthly charges).

Do I need an aggregator account?

If you only process a few hundred transactions a month, you might want to consider this option. It is lightweight, easy to set up and get running, and while not necessarily cheaper, the fee structures are certainly simpler.

What fees do merchant accounts charge in New Zealand?

Like all services, there is a fee for establishing and using a merchant account. The fees will vary from one bank/provider to another, but watch out for these in particular.

TIP – Remember, with a direct bank transfer payment system like POLi, you don’t need a merchant account. So, if the merchant account fees don’t fit your business or you just want to offer your customers an alternative payment option, consider POLi. Check out our very competitive pricing here.

Annual fees

Most providers charge an annual maintenance fee. These range anywhere from $79-$400.

Monthly fees

Some merchant account fees are monthly fees. The statement fee is one such example. Another would be the monthly minimum fee, which is the minimum amount a merchant will be charged irrespective of the actual processing charges.

Early termination fees

Some providers may charge a fee if a merchant terminates an account before the end of the contract term.

Merchant service fees (MSF)

MSFs are paid to the credit card scheme providers for using their credit facility. Sometimes this fee is rolled into general transaction or account maintenance fees, but it is worth checking.

Other fees

There are a host of other fees that could be charged to a merchant via their merchant account. These include customer service, batch payments, chargebacks and transaction fees.

So, now you know the difference between the two types of merchant account.

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