Merchant accounts are unique accounts which are set up specifically for each merchant, and no matter where you go to open up a merchant account, you will be assigned a merchant ID.
A merchant ID allows your business to be identified by the banks and credit card institutions, in order to accept credit card payments on behalf of your business, regardless of which type of services or products you are offering.
Traditionally, in order to be given permission to accept credit card payments, you needed to be granted merchant status strictly through the acquiring bank itself, but independent sales organizations (ISOs) can help you obtain a merchant ID as well.
Every single major bank has what is known as an acquiring bank, which is basically the financial institution backing the money. Each one of these acquiring banks is capable of issuing a merchant ID which allows you to begin accepting credit cards in your business, and this bank authorizes or declines each individual customer transaction.
The ISO, on the other hand, manages the account and collects any payments on your behalf, as well as puts the money directly into your bank account, while working directly with the acquiring bank. There are always costs involved, but they are generally minimal, often depending on the type of business you are setting up.
For example, if you have a physical retail location, there will likely be set up charges as well as monthly or annual fees, in conjunction with the monthly rental of a terminal that allows you to process card details. In some cases they might insist on a dedicated telephone line for the terminal, although this depends on the bank you use.
You will also be charged a percentage of each transaction that they process through your merchant ID, and you must have a minimum monthly volume of business or in some cases you must provide either a bond or deposit as a security measure against potential loss.
In order to obtain a merchant ID you must first satisfy the bank’s request of proof to show that you are worthy of their trust, and in most cases you will have to provide at least two years of audited accounts, and demonstrate an extremely thorough track record of success in order for your application to be accepted.
Even if you are given approval for a merchant ID account to accept credit card payments at a physical location, if you are setting up a website to accept credit card payments there are a number of other hoops that you may have to jump through to deal with the banks.
This is one of the reasons why ISO companies are so popular with merchants, and why over 80% of accounts opened around the world are done through an ISO, because they specifically negotiate with the banks to get you the best terms, and reduce the number of tasks required prior to starting a business.