What is the difference between a merchant account and a payment account?

When it comes to establishing a new company, there are numerous processes to complete, from registering your company to obtaining business licenses and, of course, opening bank accounts. It goes without saying that you'll need a bank account in order to accept payments from customers; however, many new business owners are unfamiliar with the variety of banking products available. In fact, accepting online card payments from customers requires opening up not just a payment account but also a merchant account, and these could even be with different banks.

The term "business account" is a broad definition that includes a variety of distinct banking services required by businesses and sole traders. Simply defined, they are any accounts used to conduct commercial transactions, including those for costs, investments, or loans.

A merchant account, on the other hand, is more narrow in scope and is used to receive online card payments from clients. Continue reading to learn more about payment accounts vs merchant accounts and why they're both crucial for your company.

Payment accounts

A payment account is a account set up specifically for business transactions. It's required by law for any limited companies, but it's not necessary for sole traders. A payment account is just as much yours to manage as a personal one. You have complete control over your money, and you can withdraw or deposit funds as needed. You may make payments from this account at any time. It provides cash and cheque processing, debit cards, and an overdraft to aid with your financial transactions in the same way that a personal account does.

Merchant accounts

You may be wondering about merchant accounts vs payment accounts after reading this page. A merchant account is another kind of account that businesses must have, although it serves a different purpose than a business or personal account.

The merchant account enables businesses to accept online credit or debit card payments directly through their websites. In this process, the customer’s card details are sent to the provider of your merchant account called 'Acquirer', who then transmits the payment request to the customer's card provider called Issuer. The Issuer checks the eligibility of the customer's card to execute the payment and if there are sufficient funds the payment request is approved. If the payment request is accepted, then funds are sent to the merchant account after a few days, and various small fees are deducted in the process.

So, why can't money from card payments be directly deposited into the company bank account? It does eventually arrive in your company's bank account after all, and the merchant account is simply a pass-through. In other words, it is a holding account that safeguards money while the card transaction is completed.

One of the most significant distinctions between a merchant account and a payment account is that you have no control over the money in your merchant account. Rather, your Acquirer controls them. This implies that you can't pay in or withdraw cash from a merchant account, and you can't transfer funds manually between accounts.

Merchant accounts vs payment accounts

What are the main differences between merchant accounts and other types of business accounts? Merchant accounts are required for any company that wants to run an online presence and must be used in conjunction with a commercial bank account. The bank will charge routine fees for usage, much like regular commercial bank accounts.

The most significant difference is that merchant accounts do not give you direct control over the money in them. You will not be able to move, withdraw, or deposit any money into or out of your merchant account.

If you're not sure whether to get a merchant account, consider how you want to conduct your business. A merchant account is not necessary for those who prefer to do their business entirely offline. However, by doing so, you may be missing out on sales these days, since more and more people are buying online.

We can help

We at CatalystPay thrive to enable businesses to go online by providing both merchant accounts and payment accounts. Contact us today to find out how we can help your business go to the next level.