Merchant accounts are important in the 21st century as card payments supersede cash transactions. This can lead to many small businesses, in particular, facing some important decisions relating to merchant account contracts and their affordability and advantages. Fully grasping these issues is therefore key.
What are Merchant Accounts?
Put simply, merchant accounts are bank accounts that enable businesses to process card payments, whether they be online, mobile or face to face transactions. It works separately from your business and personal accounts and specialises in only card transactions.
How do They Work?
Once a payment has been entered, either through a card reader or online transaction, the payment is sent through a payment gateway to your merchant account. Each payment is checked to see if the card is stolen or the account has sufficient funds. If all is well, the funds are transferred into your business account. This typically takes a few days, depending on the card used, the type of account you have and the specific provider you have a contract with.
How are They Tailored for Small Businesses?
Because small businesses provide a higher risk to the account provider, fees can be higher and restrictions placed, but the best suppliers also provide flexible contracts that are able to grow with a small business. There is little point in committing to a lengthy contract if it restricts growth.
The best suppliers also provide a high level of support and advice. This is partly because it is in their interest for your business to reach its potential. More transactions means higher profits for them, too.
Pros and Cons
A merchant account for a small business is a big decision. Small businesses have to consider every expense carefully as even a small alteration in their outgoings can be consequential for the business. Merchant accounts therefore tailor their services to allay these fears and offer bespoke packages for small businesses.
The first and most obvious advantage is the ability to accept payments from customers without cash. As most transactions are paid with cards these days, this is vital for most businesses.
With the popularity of card payments, and because the technology has been around for some time, there is also a credibility problem for some businesses that only deal in cash. A whole generation has known nothing else and this demographic is only going to grow.
Security is another area whereby card payments are beneficial. Credit card fraud has fallen dramatically over the last few decades, while handling large amounts of cash remains a risk.
You can also expand your businesses into other areas, with online payments opening up the possibility of trading globally. As small businesses rarely have the expertise in this area, Merchant account providers can help you set up payment gateways and software and also advise on security measures.
The main concern for small businesses relates to fees. Transaction fees can add up and if your business is not well established; these can be quite high. This can be combated in a few ways. Some cards are more expensive to process, such as American Express, and some small businesses refuse to accept them as a result.
You can also pass on the costs to your customers, but higher prices will have an effect on your custom. The common solution is a minimum value transaction, such as £10, making it more cost efficient if your contract requires a set fee per transaction.
Set up fees may also be a consideration, but the main outlay is purchasing a card reader, or several if necessary. This can be managed by hiring instead of purchasing the relevant devices, but another monthly cost may be off-putting for some.
Top 8 Small Business Merchant Account Providers
There are many merchant account providers available to small businesses, each with their own pros and cons, depending on your specific needs. Some of the most highly regarded include:
One of the largest providers in the UK, Sage offer competitive rates and accept all major credit cards. Their 24/7 telephone support line garners positive reviews from their customers and gives those without experience in card payments peace of mind.
Elavon provide merchant accounts that are tailored to suit various sizes of business across a variety of sectors, meaning small businesses can always find an account that suits their needs in the short term and can grow with them in the future.
Often described as more of a partner than an account provider, Barclays provide a high level of support for all merchant account types, including mobile, online and standard card payments.
One of the services Payleven provides that makes them so popular with small businesses is their no fixed rate or contractual obligation accounts. This allows small businesses to access card payments without committing to what are often costly and restricting contracts.
Based in Ireland, but providing services in the UK, AIB are an award winning, innovative and highly experienced provider of merchant accounts. In 2014 AIB processed over €30bn of payments, making them one of the most widely used merchant account services in the entire continent.
It was once calculated that First Data process almost 2,500 payments per second worldwide. Android and iPhone mobile pay capable, they are at the cutting edge of card payment technology, making them one of the most important providers for small businesses requiring new payments methods, such as nightclubs.
Another merchant account provider that offers bespoke packages to small businesses, Realex work with some of the largest eCommerce businesses in Europe, including Virgin Atlantic and Aer Lingus, making them one of the most highly regarded providers on the continent.
Adyen are known to be one of the most innovative card payment processing providers in the world. Providing a platform for mobile phone payments, Paypal and all major credit cards, they are well suited to small businesses that require international payment processing with a view to future changes in payment technology popularity.