Merchant Account? The Complete Guideline

If you’re running a business in the UK, you’ve probably heard the term “merchant account” thrown around. But what exactly is it, and why does it matter? More importantly, how can it help your business grow?

In this guide, I’ll break down everything you need to know about merchant accounts specifically tailored for UK businesses. By the end, you’ll understand how they work, why they’re essential, and how to choose the right one for your needs.

Let’s dive in.

What is a Merchant Account?

A merchant account is a type of bank account that allows businesses to accept payments via credit or debit cards. Think of it as a middleman between your business, your customer’s bank, and the card networks (like Visa or Mastercard).

Here’s the kicker: without a merchant account, you can’t accept card payments. And in the UK, where card payments account for over 75% of all transactions, that’s a big problem.

But it’s not just about accepting payments. A merchant account also ensures your transactions are secure, your funds are processed quickly, and your business looks professional to customers

How Does a Merchant Account Work?

Let’s break it down step by step so you can see exactly how a merchant account functions in the real world.

Step 1: The Customer Makes a Payment

It all starts when a customer decides to buy your product or service. Whether they’re swiping a card in your store, clicking “Buy Now” on your website, or reading out their card details over the phone, the process kicks off the same way.

This is where the magic begins. The customer’s payment details—like their card number, expiration date, and security code—are captured and sent to a payment processor.

Step 2: Payment Authorization

The payment processor acts as the middleman, communicating with the customer’s bank (also known as the issuing bank) to verify the transaction.

This step is crucial because it ensures two things:

1. The customer has enough funds to cover the purchase.
2. The card is valid and hasn’t been reported as lost or stolen.

If everything checks out, the transaction is approved. If not, it’s declined, and the customer will need to use another payment method.

Step 3: Funds are Held in the Merchant Account

Once the transaction is approved, the funds don’t go straight into your business bank account. Instead, they’re temporarily held in your merchant account.

Think of this as a holding zone where the money sits while all the paperwork gets sorted out. This step ensures that the funds are secure and ready to be transferred to you.

Step 4: Settlement

After a short period—usually 1 to 3 business days—the funds are transferred from your merchant account to your business bank account. This process is called settlement, and it’s the final step in the payment journey.

Why This Matters for Your Business

Why does this matter for your business? A merchant account isn’t just a tool it’s a game-changer. It ensures fast, seamless transactions that meet customer expectations, especially in the UK, where contactless payments dominate. Faster settlements mean quicker access to your money, which is crucial for steady cash flow. Plus, it keeps transactions secure and compliant, protecting both you and your customers. In short, it’s essential for growth and trust.

Why UK Businesses Need a Merchant Account

The UK is one of the most card-friendly countries in the world. According to UK Finance, a staggering 98% of the UK population owns a debit card, and contactless payments have become the norm. In fact, over 85% of all card transactions in the UK are now contactless.

If your business isn’t set up to accept card payments, you’re not just missing out you’re leaving money on the table. 

Here’s why a merchant account is an absolute must for UK businesses.

1. Customer Expectations: Cards are King

UK shoppers don’t just prefer card payments—they expect them. Whether it’s tapping their phone at a coffee shop or entering their card details online, customers want convenience. If you don’t offer card payment options, they’ll simply take their business elsewhere.

In a world where 75% of all retail transactions in the UK are made with cards, not accepting them is like turning away three out of every four customers.

2. Online Sales: The E-Commerce Boom

E-commerce in the UK is booming. In 2023 alone, online sales accounted for over £120 billion, and that number is only growing. If you’re selling online, a merchant account is non-negotiable.

It allows you to accept payments on your website, making it easy for customers to buy from you anytime, anywhere. Without it, you’re shutting the door on a massive revenue stream.

3. Credibility: Building Trust with Customers

Accepting card payments isn’t just about convenience—it’s about credibility. When customers see that you accept cards, it signals that your business is professional and trustworthy.

In a competitive market like the UK, where consumers have endless options, building trust can be the difference between a one-time purchase and a loyal customer.

4. Cash Flow: Faster Access to Your Money

One of the biggest advantages of a merchant account is faster payment processing. Instead of waiting for cheques to clear or chasing invoice payments, you get access to your money within 1-3 business days.

For small businesses, this can be a game-changer. It means you can reinvest in your business, pay suppliers, or cover expenses without unnecessary delays.

Types of Merchant Accounts in the UK

Not all merchant accounts are created equal. The type you need depends on your business model, industry, and how you interact with your customers.

Let’s break it down so you can find the perfect fit for your business.

Retail Merchant Accounts: For Face-to-Face Transactions

If you run a brick-and-mortar business—like a shop, café, or restaurant—a retail merchant account is your go-to option.

These accounts are designed for in-person transactions, where customers swipe, insert, or tap their cards at a point-of-sale (POS) terminal.

Why are retail accounts so popular?

For starters, they typically come with lower fees. That’s because face-to-face transactions are considered less risky. When the card is physically present, the chance of fraud drops significantly.

Plus, with the rise of contactless payments in the UK where over 85% of card transactions are now contactless having a retail merchant account ensures you’re ready to meet customer expectations.

Internet/MOTO Merchant Accounts: For Online and Remote Payments

If your business operates online or takes payments over the phone or mail, you’ll need an Internet/MOTO (Mail Order/Telephone Order) merchant account.

These accounts are tailored for businesses that process card-not-present transactions, which are inherently riskier.

Why?

When customers enter their card details online or read them out over the phone, there’s no way to physically verify the card. This increases the risk of fraud, which is why Internet/MOTO accounts often come with slightly higher fees.

But here’s the thing: if you’re running an e-commerce store or a service-based business that relies on remote payments, this is a small price to pay for the convenience and reach it offers.

High-Risk Merchant Accounts: For Challenging Industries

Some industries are considered high-risk—think gambling, travel, adult entertainment, or even subscription-based services.

If your business falls into this category, you’ll need a high-risk merchant account.

These accounts are designed to handle the unique challenges of high-risk industries, such as higher chargeback rates or stricter regulations.

The downside?

High-risk merchant accounts often come with higher fees and stricter terms. But for businesses in these industries, they’re essential. Without one, you simply won’t be able to accept card payments.

Which One is Right for You?

Choosing the right merchant account depends on your business model and industry.

• Retail businesses should opt for retail merchant accounts to keep fees low and transactions seamless.
• Online businesses need Internet/MOTO accounts to handle card-not-present transactions.
• High-risk businesses require specialized accounts to navigate industry challenges.

The key is to assess your needs, compare providers, and choose an account that aligns with your goals.

Contact Paymentsave Support for Choose which merchant account is good fit for your business.

How to Get a Merchant Account in the UK

Setting up a merchant account in the UK doesn’t have to be complicated. In fact, it’s a straightforward process if you know what to expect.

Here’s a step-by-step guide to help you get started.

Step 1: Choose a Provider

The first step is to find a provider that fits your business needs. In the UK, you’ll find plenty of options, from well-known names like Barclaycard and Worldpay to specialized providers like Paymentsave.

Take your time to compare fees, features, and customer reviews. Look for a provider that offers transparent pricing, reliable customer support, and the right tools for your business, whether you’re running a retail store, an e-commerce site, or a high-risk business.

Step 2: Submit an Application

Once you’ve chosen a provider, the next step is to submit an application.

You’ll need to provide details about your business, including:

• Your business type and industry.
• Your estimated monthly transaction volume.
• Your business bank account information.

This information helps the provider understand your business and determine the level of risk involved.

Step 3: Undergo the Underwriting Process

After you submit your application, the provider will begin the underwriting process.

This is where they assess your business’s risk level, credit history, and financial stability. They’ll also verify the information you provided in your application.

For most businesses, this process is quick and straightforward. However, if you’re in a high-risk industry, it may take longer, and you may need to provide additional documentation.

Step 4: Agree to Terms and Fees

Once your application is approved, the provider will present you with a contract.

This is where you need to pay close attention. Review the terms and fees carefully, and don’t be afraid to ask questions.

Look out for hidden fees, such as:

• PCI compliance charges.
• Early termination fees.
• Monthly minimums.

Make sure you understand exactly what you’re signing up for before you agree to anything.

Step 5: Set Up Payment Processing

The final step is to integrate your merchant account with your payment systems.

If you’re running a retail business, this means connecting it to your point-of-sale (POS) system. For online businesses, you’ll need to integrate it with your website or payment gateway.

Your provider should offer guidance and support during this process. Once everything is set up, you’ll be ready to start accepting card payments.

Costs of a Merchant Account in the UK

Let’s talk numbers. Merchant accounts come with fees, and understanding them is key to avoiding surprises.

Here’s what you can expect:

• Transaction Fees: Typically 1.5%–3% per sale.
• Monthly Fees: Around £10–£30 for account maintenance.
• Setup Fees: Some providers charge a one-time fee to get started.
• Chargeback Fees: If a customer disputes a transaction, you could pay £10–£20.
• PCI Compliance Fees: Usually £5–£10 per month to keep transactions secure.

Pro Tip: Contact Paymentsave for best rates in the UK marketplace.

How to Choose the Right Merchant Account for Your UK Business

Choosing the right merchant account can feel overwhelming. With so many providers and options out there, how do you know which one is the best fit for your business?

Don’t worry I’ve got you covered. Here’s a step-by-step guide to help you find the perfect merchant account for your UK business.

Step 1: Assess Your Needs

Before you start comparing providers, take a step back and ask yourself:

• How many transactions do I process monthly?
• Do I need in-person, online, or both types of payment processing?
• What’s my average transaction value?

Understanding your needs will help you narrow down your options and avoid paying for features you don’t need.

Step 2: Compare Providers

Once you know what you’re looking for, it’s time to compare providers.

Look for UK-based companies with a strong reputation, like Barclaycard, Worldpay, or Paymentsave. Check reviews, ask for recommendations from other business owners, and make a shortlist of providers that seem like a good fit.

Step 3: Check for Hidden Fees

Here’s where things get tricky.

Some providers lure you in with low transaction fees but hit you with hidden charges later. These can include:

• PCI compliance fees.
• Early termination fees.
• Monthly minimums.

Always read the fine print and ask for a full breakdown of fees before signing up.

Step 4: Test Customer Support

When something goes wrong—and let’s face it, it sometimes does—you’ll want a provider with reliable customer support.

Before committing, contact the provider’s support team with a few questions. See how quickly they respond and how helpful they are. This will give you a good idea of what to expect if you ever need help.

Step 5: Ensure Security and Compliance

Security is non-negotiable.

Make sure your provider meets PCI DSS (Payment Card Industry Data Security Standard) requirements and offers robust fraud prevention tools. This not only protects your business but also builds trust with your customers.

Conclusion

A merchant account is more than just a tool, it’s a vital component for any UK business looking to thrive in today’s card-driven economy. From meeting customer expectations and boosting online sales to improving cash flow and building credibility, the benefits are undeniable.

Whether you’re running a retail store, an e-commerce platform, or a high-risk business, there’s a merchant account tailored to your needs. By understanding the types of accounts available, the costs involved, and how to choose the right provider, you can make an informed decision that sets your business up for success.

If you’re ready to take the next step, Paymentsave is here to help. As a trusted UK-based provider, Paymentsave offers transparent pricing, reliable customer support, and tailored solutions to fit your business model. Whether you’re just starting out or looking to switch providers, Paymentsave makes it easy to get started with a merchant account that works for you.

Don’t let payment processing hold your business back. Contact Paymentsave today and find the perfect merchant account to grow your business and keep your customers happy.