The Merchant Account

A Merchant Account is an account that a merchant opens when he or she needs an account into which the sales and transactions through cards( credit & debit) gets processed. Unlike a savings or a current account, this Merchant Account is meant only for card transactions and it allows for everyday card transactions to be accounted for, through it. It is into this account that the net value of daily sales, on approval, minus the processing fee is deposited into, within 48 t0 72 hours. Without a merchant account,  credit card transactions in a retail environment, technically, will not be possible.


Merchant Account

The Card processing Method-

The Credit Card processing system involves more than just the swipe machine that we get to see at the retailer’s counter. To understand a typical Credit Card processing cycle we must first look at the structure of the processing method. There are fundamentally four parties to this arrangement. The customer’s bank, the merchant’s bank, the Interchange  and the Processor. Each of these parties agree to participate in the card processing system either expressly or by virtue of their usage of the card. For example when the card user uses the card there is a tacit agreement to follow all the rules that form a part of this set up. The participating banks too have to agree to the rules and regulations laid down by the participating cards and the PCI data security standards.


How a standard Merchant Account works?

A typical card swipe happens something like this.

When a card is presented for a transaction at the merchants, the merchant swipes the card to get the info of the customer and this info is sent across to the processor. The processor then quickly sends across the necessary details to the Interchange( be it Visa or Master). From the Interchange, depending on the nature of the card, a request  is  sent across to the correct card issuing bank, seeking authorization. When the bank after checking for available funds, responds with an authorization, it gets  passed on from the Interchange, to the  processor. The processor in turn gives the merchant an approval.

This cycle is repeated with every transaction and at the end of the day, the closing batch is sent across to the processor. Once the closing batch is processed, after a span of one day the Processor deposits funds in the Merchant’s bank…and the merchant gets paid in his Merchant Account.


The fee involved in this system are of three types: Interchange fee, Dues& Assessment and Processing costs. While the Interchange fee and Dues and Assessment remain the same for everyone, the Processing costs bring about the differences. Master and Visa publish Interchange fee list every six months, which is fixed but the Processing fee depend a lot on the merchants.


This is how a standard Merchant Account works.