WHAT IS A MERCHANT? Types, Accounts And Services


As a small business owner, you are surely aware that in order to take credit or debit card payments, you must either have a merchant account or collaborate with a third-party payment processing partner who does. However, there is more than one type of merchant. With so much jargon in the business world, it can be a little perplexing, especially if you’re just starting out. As a result, we’ll use this article to describe what a merchant is, the four basic types of merchants, and briefly discuss merchant accounts and services. To begin, let us define what a merchant is.

What is a Merchant?

A merchant is a person or a business that sells products or services. The merchant will make a profit by selling things and assisting customers throughout their purchasing experience. Merchants can work as retailers or wholesalers, and any source can sell to another. As a result, the term “merchant” has become a catch-all for anyone selling anything for profit.

Merchants have traditionally been concerned with business or trading products. Merchants in the 16th century were local traders such as bakers, shopkeepers, and importers or exporters of products. The worth of merchants has shifted over time. Merchants held a high social status in ancient Greece, Rome, and the Middle East due to their line of business. Merchants are now common in society and are defined as people that operate only for profit, income, and cash flow.

Types of Merchants

Wholesalers and retailers are the two most common types of merchants. Aside from them, emerging types of merchants, such as e-commerce merchants, have developed and gained a foothold in the market. Here’s how each of these businesses works.

#1. E-commerce Merchants

An e-commerce or online merchant is someone who sells goods or services over the internet. There is a significant distinction between an online seller and an online merchant. Online sellers just buy things and sell them for a profit, whereas online merchants have more responsibility. The e-commerce merchant is in charge of not just his inventory but also the complete financial procedure. They also create the brand identity and manage product advertising.

Because of the many credit checks and undertakings required before applying for a payment method, e-commerce is not without danger. Stolen credits and eCommerce fraud are two issues that retailers must consider before opening a store.

E-commerce merchants provide goods and services over the internet through websites or marketplaces such as Amazon and eBay. Third-party sales channels such as Shopify and WooCommerce are also excellent places to start if you want to sell online.

#2. Retail Merchants

A retail merchant, also known as a retailer, purchases items from a wholesaler and resells them for a profit to the end user. They essentially serve as go-betweens for the manufacturer and the buyer. Manufacturers provide ideas and create high-quality products, while retailers help to streamline the selling process and reach more customers.

Manufacturing and marketing are both difficult to master, yet both are required if you want to make a profit. Retailers are very skilled in marketing, customer service, and sales. Retailers make a profit after purchasing a product at a lower cost from a wholesaler. The wholesale price is always lower than the retail price, and the difference is regarded as the cost of marketing and advertising.

Retailers, for the most part, are resellers that source high-end products to sell to a certain market. Retailers will repackage a product and sell it under their own label for branding purposes.

#3. Wholesaler

A wholesaler or wholesale merchant typically acquires items in bulk and resells them in small quantities to retailers. Because they buy items from manufacturers and resell them to retailers, wholesalers are both resellers and merchants. Wholesalers serve as a conduit between the producer and the retailer.

Wholesale merchants typically ship from a big storage facility, such as a warehouse. Nowadays, wholesalers frequently serve as brokers without personally dealing with the stock. Dropshipping is a term used to describe this type of arrangement. In any market, wholesalers are at the enterprise level. In the B2B model, suppliers to wholesale merchants handle each transaction to make sales. Skilled wholesalers optimize the value chain, allowing retailers to achieve pricing and quality benefits.

#4. Affiliate Merchants

An affiliate merchant is a corporation that wants to increase sales and traffic to its website by placing adverts and links on a network of affiliates. A merchant can employ their own affiliate program or work with an affiliate network. Affiliate networks charge a membership fee to each merchant account and collect commissions on every sale. As a result, running your own in-house affiliate program is cost-effective.

Examples of Merchants in the Real World

Many businesses today act as both retailers and manufacturers. Apple, for example, is both a manufacturer and a retailer of its products. Companies such as Best Buy are the world’s largest retailers, purchasing products at wholesale prices from manufacturers such as LG. Other firms, like Samsung, sell their products to wholesalers and distributors, who then sell to a network of business customers.

What are Merchant Services?

The services and technologies that a business utilizes to receive and process payments are referred to as merchant services. This definition can be further broken down into the following points:

  • How merchant services function: The behind-the-scenes procedures required for a business to accept and accept payment.
  • The following tools are used: The gear and software that business owners may require to accept and process payments.
  • Providers of merchant services: Companies that offer these services to business owners
  • Pricing: How does pricing for merchant services operate, and what might the cost look like for small businesses?

Merchant Services Products

As previously said, most of your merchant processing will be determined by how you accept payments, the types of payments you accept, and the supplier you work with.
As a result, the next vital component of “merchant services” is the many tools that allow businesses to accept and process payments from their clients.

#1. Payment Gateways

A payment gateway is software that integrates with your website or e-commerce store to accept and process secure credit card payments online. In the method outlined above, the payment gateway essentially replaces a credit card terminal.

#2. Credit Cards Terminals

A credit card terminal, on the other hand, is a gadget that allows you to physically swipe, dip, or tap a credit card when accepting in-person payments. This gadget will connect to your merchant service provider and simplify the process of accepting, verifying, and receiving payment.
Credit card terminals range in size and style, from simple magstripe swipers to handheld terminals.

#3. POS (Point of Sale) Systems

A point of sale system typically consists of the software and hardware required to accept payments, but it also aids in the management of a company’s day-to-day sales and processes, such as processing sales, running reports, tracking inventory, managing employees, reconciling tips and commissions, accepting gift cards, and establishing loyalty programs.

Because point-of-sale systems typically include everything a business requires to handle its sale and payment operations, the terms “merchant services” and “point-of-sale” are frequently used interchangeably.

Merchant Services Providers

Merchant service providers, the companies that supply all of the financial and business services discussed thus far, are at the center of the merchant services industry. To assist you in selecting a payment processing company, let’s first distinguish between merchant account providers and payment service providers.

Merchant Accounts Services Providers

Merchant account providers, the more traditional of the two types of merchant service providers, supply businesses with merchant accounts. The bank account necessary to accept credit card payments is known as a merchant account. When you partner with a merchant account provider, you will receive this account through them and they will work with you to set it up.

A merchant account provider will also supply you with the tools you need to accept payments, such as a POS system, payment gateway, or mobile credit card terminal.
Merchant account providers often require a more lengthy application and setup process than payment service providers, but they can also offer some of the lowest merchant processing fees. The Payment Depot, Payline Data, Fattmerchant, and Dharma Merchant Services are some examples of merchant account providers.

Payment Services Providers

Payment service providers pool all of their clients’ monies into a single merchant account and disburse the funds from this account to each individual business bank account. The primary distinction between payment service providers and merchant account providers is that payment service providers do not give their customers individual merchant accounts.

A payment service provider, like a merchant account provider, can provide a number of tools—POS hardware and software, payment gateways, and more—that allow a business to accept and process payments. In general, setting up and using a payment service provider is significantly faster and easier.

Furthermore, these businesses often charge simple, flat-rate fees. However, because payment service companies consolidate all of their customers’ funds into one account, these benefits are frequently accompanied by account instability.
Stripe, PayPal, and Square are examples of well-known payment service providers.

How to Select Merchant Services for Your Company

Clearly, the term “merchant services” can be perplexing and intimidating—there are several processes, products, firms, and parties involved in merchant services for small businesses.
What factors should you consider when selecting a processing service for your business? Here are some considerations to keep in mind as you weigh your options:

  • You take payments in the following ways: Will your business only accept online payments, or will you also accept payments in person?
  • You accept the following types of payments: Will you accept credit cards, debit cards, and contactless payments?
  • You will require the following hardware or software: Do you require a comprehensive POS system or only a credit card terminal? Is all you need a payment gateway?
  • Is a special merchant account required for your business? Would you rather set up your account fast and conveniently online?
  • Structure of pricing: What is your preferred price structure? Aside from processing fees, what other expenses will you incur? How does your budget look?

Answering these questions allows you to better grasp what you require from your merchant processing services. With these requirements in place, you may compare several suppliers to discover which one can best meet your needs.

What is a Merchant Account?

An account with a business bank is known as a merchant account. A merchant account enables a business to take payments in a number of different methods, including electronic payments like credit or debit cards. To open a business bank account, you will require a business license.
You can begin accepting credit and debit card payments from customers once a payment processor has established a merchant account for your business. To do so, you’ll normally need some hardware, which you can get from your credit card processing partner. In some situations, the payment processor may even provide you with a complimentary credit card reader to assist you in getting started.

Steps For Creating a Merchant Account

Businesses must apply for and be accepted for a merchant account with a merchant-acquiring bank in order to open one. Merchant banks assess a range of criteria throughout the approval process, including the length of time the business has been in operation, a history of bankruptcy, past credit concerns, and any previous merchant accounts. Merchant vendors may also investigate the vulnerability of your business to credit card theft. If a business is judged high risk, the vendor may initially charge higher transaction fees.

Merchant Accounts Pricing Structures

When looking for a vendor, the most important element to consider is the pricing structure. Vendors often utilize one of three price models: flat-rate pricing, interchange pricing, or tiered pricing.

#1. Flat Rate Pricing.

This is the most basic and often used pricing model among mobile credit card processors. A predetermined percentage of every credit card or debit card transaction is charged to you. If your business has a low sales volume or small-ticket items, this price structure may be the best for you.

#2. Interchange Pricing

This concept is made up of two parts: an “interchange” and a “plus.” The interchange rate is determined by the credit card company. The second rate is the profit margin set by the credit card processor. A common interchange-plus pricing structure, for example, looks like 2.2% + $0.22 per transaction. Because of its transparency, this model is regarded the most equitable price structure, but it will make your statements harder to read.

#3. Tiered Pricing Structure.

This approach divides transactions into three categories: qualified, mid-qualified, and non-qualified. Unsurprisingly, qualified transactions get the best rates, while non-qualifying transactions get the worst prices. Regrettably, this is the most prevalent pricing model accessible. While it may simplify your monthly statements, the transaction charge will most likely be greater than you expected because the provider will offer the lowest available rate and most transactions will not qualify.

Merchant Accounts Fees

The fees associated with a merchant account vary depending on the provider. To determine what fees your business will likely incur, make sure to carefully read the contract.

The first price you are likely to face is a setup fee. It is often a one-time cost necessary to open a new merchant account. A monthly fee (also known as a statement fee) for the preparation of your monthly statement, a gateway fee for remote or online transactions, a monthly minimum fee for accounts that fall below a monthly minimum, an annual fee for maintaining the account, and a customer service fee for support may be charged by your merchant account.

These additional fees can increase your cost-per-transaction to far over 3%, so when looking for merchant accounts, make sure you factor them in.

Merchant Accounts: Alternatives

Accepting credit cards without a merchant account is achievable with one of the following options:

  • PayPal: PayPal charges a fee per transaction to process credit card, debit card, and bank transfer payments for online businesses. You would create a business PayPal account and then be given coding to add a PayPal button to your website.
  • Processing in small quantities: Several companies, including Intuit’s QuickBooks payment system, PayPal Here, and Square, provide low-volume credit card processing for small and mobile enterprises.

The basic line is that if you wish to accept debit and credit cards from your customers, you must first have a merchant or alternative account. Most clients nowadays expect to pay with a credit or debit card; many do not carry cash on a regular basis. Refusing to open an account in order to accept these payment methods may irritate your customers. Finally, refusing to accept credit cards can affect your bottom line.


There is no better type of merchant than another. Each has distinct strengths and roles to play in the economy.

It’s critical to understand what’s possible while beginning a business and learning about what’s available. Furthermore, with the rise of eCommerce, more individuals are choosing out of physical stores due to the high cost. As you can see, understanding the differences between merchant types can help you steer your business in the most profitable direction.

While each merchant type has a place, it’s crucial to consider your company’s aims before determining what form of business you want to be. You’ve also seen the significance of a merchant account and how meticulous you should be when choosing a merchant services provider. You are now prepared to launch your business after reading this article.


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