The short answer
A merchant account is the account your card sales pass through before the money reaches your business bank account. You can’t take card payments without one somewhere in the chain.
Authorize.net, a payment gateway, says it plainly: “in order to accept credit cards, you must have a merchant account” (Authorize.net).
The real question for a small business isn’t “do I need one?” It’s “do I need my own, or can I sell under someone else’s?” Square and Stripe let you do the second.
What a merchant account is
Authorize.net calls it “a special kind of bank account” that lets you accept card payments. It says “The bank where you have your merchant account is called the acquirer, or merchant acquiring bank” (Authorize.net).
Here’s what happens with each sale:
- Your customer pays by card.
- The payment is approved by their bank, the card issuer.
- The money moves through the card network to your acquirer, into your merchant account.
- It’s paid out to your regular business bank account.
Authorize.net says that last step “typically takes a couple of days.” Many providers now pay out faster. Square, for example, pays out free the next business day for payments taken before 5 PM PT.
Two ways to get one
1. Your own merchant account
A bank or processor opens an account in your business’s name. You go through an application, and the provider decides whether to approve you.
This is the traditional route. It’s also the route for high risk merchant accounts, where mainstream providers have said no.
2. Selling under a payment facilitator
A payment facilitator, or payfac, holds one big account with the banks and signs up lots of small businesses under it. Stripe says payfacs “maintain a master merchant account and let submerchants use this account,” and that “Stripe operates as a payfac, allowing businesses to accept payments without setting up a traditional merchant account” (Stripe).
Providers that say so on their own pages:
- Square: “Square is a payment facilitator that allows you to accept Cards from customers.” It adds, “We are not a bank” (Square Payment Terms).
- Stripe: describes itself as a payfac, as quoted above.
- Toast: “Toast is not a payment card processor, but it is a payment facilitator that partners with processors” (Toast).
Merchant account vs payment facilitator: what changes for you
| Your own merchant account | Payment facilitator | |
|---|---|---|
| Whose account | One set up for your business | You sell under the provider’s account |
| Who to call with a problem | Your processor or bank | The payfac |
This table describes the two models in general. Each provider’s terms differ, so check the one you’re looking at.
The catch with payfacs: your money sits under their rules. Square’s terms say it may hold funds by “temporarily suspending or delaying payouts of Proceeds to you,” and may keep a reserve it judges enough “to cover potential losses to Square” (Square Payment Terms). Read the hold and reserve section of any provider’s terms before you sign.
The catch with your own merchant account: more paperwork and more fees to read. Quotes vary, and statements often split the cost into many lines. Our processing fees guide explains each one.
Merchant account vs payment gateway
They’re different things, and some providers sell them separately.
- A gateway sends the payment from your website, app or terminal into the card system. Authorize.net says “A payment gateway lets your business accept payments made via your eCommerce website or mobile app.”
- The merchant account is where the money lands.
Authorize.net’s own pricing shows the split (Authorize.net):
- Gateway Only: $25 a month, 10¢ per transaction, plus a 10¢ daily batch fee. It connects to a merchant account you already have.
- All-in-One: $25 a month and 2.9% + 30¢ per transaction. Authorize.net says this plan “includes both.”
With Square and Stripe, the gateway and the account come bundled. You don’t buy them separately.
Which one should you choose?
Start with how you sell, not with the account type:
- Small, uneven or new sales: a payfac with a flat rate and no monthly fee is the simplest start. Square Free and Stripe list no monthly fee to take payments.
- Steady volume, lots of cards each month: price interchange-plus too. Helcim publishes a markup of 0.40% + 8¢ per in-person sale for businesses processing up to $50,000 a month. Stax charges 8¢ per in-person sale plus a subscription from $99 a month.
- A higher-risk industry: see high risk merchant accounts.
Then compare the real cost, not the label. Our comparison of payment processors puts every provider’s rate, monthly fee and catch side by side.
Keep reading
- Compare payment processors: the full side-by-side.
- Honest Fees home: start with the quiz or the calculator.
- What is a payment processor?: who does what in a card payment.
- What is a chargeback?: what happens when a customer disputes a sale.
Common questions
What is a merchant account?
It's a special kind of account that lets your business accept card payments and holds the money before it moves to your regular bank account. Authorize.net describes it as a special kind of bank account and calls the bank where you hold it the acquirer. Some providers set one up in your name. Others let you sell under their own account.
Do I need a merchant account to accept credit cards?
You need one somewhere in the chain, but not always your own. Authorize.net says you must have a merchant account to accept credit cards. Payment facilitators like Square and Stripe let you sell without setting one up yourself: Stripe says businesses can accept payments without setting up a traditional merchant account.
What is a payment facilitator?
A payment facilitator, or payfac, signs up many small businesses under its own account with the banks. Stripe says payfacs maintain a master merchant account and let submerchants use it. Square's US terms say Square is a payment facilitator and is not a bank. Toast says it is a payment facilitator that partners with processors.
Is a merchant account the same as a payment gateway?
No. A gateway is the technology that sends a payment from your website, app or terminal into the card system. The merchant account is where the money lands. Authorize.net sells them separately: its Gateway Only plan connects to a merchant account you already have, and its All-in-One plan includes both.