The difference between business and merchant accounts: what to choose

Many types of accounts cover pretty much everything that people look for – from checking and brokerage to savings. But what about the basics? That’s right, today we’re talking about business and merchant accounts!

You see, not all clients are sure if they need both of these accounts, and what their purpose is. That’s what we will talk about in this Genome article. 

What is a merchant account? Do you need one for a business?

A merchant bank account is a type of bank account that allows companies to accept electronic payment transactions for their goods and services. So, if you are a business that sells things online, you can’t operate without a merchant account – provide your clients with a credit card payment method and its alternatives. 

The same goes for physical stores – to let your customers use payment methods other than cash, a merchant bank account is in place.

The fees you pay for merchant account opening and maintenance differ among banks and Fintechs. Most commonly, you will have to pay much more if you have a high-risk business. Being high-risk means that a company either has a short/bad credit card processing history or is a part of an industry that is more prone to chargebacks than other sectors. Read more about chargebacks and how to prevent them in this article.

Why do you need a merchant account?

As mentioned before, you cannot accept online payments and electronic transactions without a merchant bank account. 

Getting a merchant account entails some steps for e-commerce companies. Their website should contain information on the payment methods they offer, clearly established policies, they must comply with Payment Card Industry Data Security Standard (PCI DSS) and PSD2 – the Revised Payment Services Directive (the latter is relevant to the EU and the UK merchants). You can learn more about starting an e-commerce business and setting up your website in this article.  

Side note: the PSD2 compliance deadline for the EU merchants expired on December 31, 2020. Companies from Great Britain need to be compliance-ready before September 14, 2021. 

But what about businesses that work in retail – do they need to have a merchant bank account? If their store works with electronic money transactions – yes, they do. Of course, there are cases when a physical shop only accepts payments in cash, like some small local stores. 

Still, we highly advise these stores to establish merchant accounts as well. More and more people start using cash alternatives when shopping, and the year 2020 influenced the retail and e-commerce spheres greatly. That’s why it is more rational to offer customers as many payment methods as possible, otherwise, you risk losing clients altogether.

Merchant account types

There are a few types of merchant bank accounts to meet the expectations of all business owners, both small ones and larger ones. Let’s have a look at each of them and find out why they are different:

Aggregate merchant account

This type of an account is shared by several merchants at once. These are the most popular options for small companies: you’re only charged when you actually make a sale, which is very convenient for businesses that are only starting the trade. 

The secret behind low fees is the connection between the main merchant and sub-merchants. Small businesses become sub-merchants (as with property sublease) and are grouped based on their industry. Each company receives its unique code and is then matched with similar businesses. 

No need to worry, your income is not shared with the other sub-merchants in the group or the whole account, just like your credit rate. On the contrary, the better the credit rate of your subgroup – the better is yours. 

The main advantage of an aggregate merchant bank account is, of course, low pricing. It’s an efficient solution for small companies that do not have high earnings yet and, therefore, cannot afford to pay heavy charges for their own merchant account. 

PayPal is probably the most famous merchant account provider to create an aggregate account with. The process is pretty fast and, as of now, thousands of people all over the world are using its services successfully. 

Dedicated merchant account

Another name for this type of merchant bank account is ISO (an account from an independent sales organization). With such merchant account services, you’re the only user of the account. Such accounts are called dedicated ones because each one is linked to a separate company. Consequently, you have some impact on the range of merchant account services you’re using, as well as fees. 

Merchant service providers of such accounts usually charge you for setup and monthly usage. That’s why only large businesses with a stable income can afford opening dedicated merchant accounts. 

When it comes to the requirements for opening such an account, some card processing companies establish certain revenue thresholds to be eligible. For example, for Visa, it’s £80 000 of annual income, while for MasterCard it’s ten times more. If your earnings are lower than these, you should settle for an aggregate merchant bank account. 

High-risk merchant account

Unlike the aforementioned types of merchant bank accounts, this one has nothing to do with your company’s revenue. Indeed, it’s the industry your business is operating in, that counts. For instance, the traveling sphere also belongs to high-risk industries because of the large number of cancellations. 

A high-risk merchant account can also be a good option if your credit is not perfect. However, in this case, you can be asked to present additional proof of your business activity. These can be a business plan (for newly established companies) or evidence of previous sales (if your company didn’t operate for some time). In addition, merchant service providers can even ask for financial statements from your personal bank account. 

Who needs to open a business bank account?

For any business owner, it’s beneficial to open such an account. Let’s look into how business accounts work in detail. Imagine that your company/small local shop/etc. is a person. They have the expenses and earnings, bills to pay, and payments to make. Additionally, your business is always connected with other people/companies. These can be your employees, suppliers, tenants, etc. It’s quite logical that your company, even the small one, would benefit greatly from a business bank account.

To put it simply, all transactions and financial operations related to your business activity should be done from or to your business account. It helps to separate personal and business expenses and, what’s more important, to track your company’s income/spendings more effectively.

Last but not least, the existence of a business bank account makes you more reliable and trustworthy as a responsible business owner in clients’ eyes. It means that you are handling your business carefully. Some clients do not feel comfortable with paying for the company’s services to the owner’s personal account. In the worst case, they will refuse to use your services to avoid any fraudsters and, thus, you can lose potential customers.

What is a business account for?

With all the talk about merchant bank accounts, you might be wondering – what are business bank accounts for then? The thing is you can’t get a merchant account without a business one. 

A business account is an account that is used for all business transactions. With it, you can make payments for corporate services, business trips, and vendors, pay your employees, and accept money for goods and services. 

Thus, a merchant bank account is usually considered a type of business bank account that represents an agreement between a company, its bank, and a payment processor for processing electronic transactions. 

As a rule, a merchant account only exists to accept payments – you can’t withdraw earned money from it, but these funds are later transferred to your business account, which you can now use. It takes from a couple of days to a week to transfer money from merchant to business bank account, the time depends on the bank you work with. 

What are the benefits of a business bank account?

If you need to accept payments on your website or in your store through non-cash methods, you are required to have both business and merchant bank accounts.

In other cases, just use a business account for salary payouts and other expenses. But why not use a personal account for that? There are several reasons:

• You don’t want to mix your finances with corporate ones, at one point you risk running short with one of these things;
• Another reason you don’t want to mix personal and company money is taxes. Dealing with taxes is already exhausting, so why make the process even more complicated by figuring out which were your business and personal expenses;
• If you will need the help of lenders and investors, they will look into the way you do business, and mixing your finances will not seem reliable;
• The payment processor you work with can drop you if they find out you use a personal account for corporate activities.

Check out this article for more information about business accounts.

Now, let’s get directly to the pros of having and using a business bank account for your company:

• A clear distinction between personal and business finances;
• You can pay for your company’s rent/supplies/other expenditures directly from your business account and keep track of all these transactions, as well as receive statements;
• A merchant account cannot be opened without a business bank account. Moreover, funds from a merchant bank account can only be deposited into the business account. Such connection ensures smooth and fast fund movement;
• You have a full track of your company’s financial activities. It’s especially beneficial if you ever need to present any proof of your business activity or, for example, apply for a loan for your company if it’s ever needed.

Business vs merchant account: pros and cons

Frankly speaking, it’s impossible to decide if a business bank account is better than a merchant one because these are two different services that go hand in hand. Both of them have their flaws, but if you want your customers to be able to pay online for your products and services, you need a merchant and business account for sure. 

With global digitalization that was facilitated by the COVID-19 lockdowns, people prefer to shop and pay online. Plus, purchasing goods and services from different countries all over the world is one of the defining factors in modern global e-commerce. If you do not offer online payment options for your clients, you may lose them. Nevertheless, if you, for instance, own a small local store that only accepts cash, you do not really need a merchant account. 

Business account

The main benefit of a business bank account is splitting your business and personal finances. This includes both revenue and spendings. Furthermore, you can only use funds from your merchant bank account once they are deposited in your business account. One of the cons is that with some banks or financial providers, it can be pretty difficult and time-consuming to open a business bank account. 

Merchant account

This account allows you to accept credit and debit card payments, as well as other types of online transactions (for instance, via Google/Apple Pay) both via the Internet and in-store. It also helps to deposit your income in your business account faster. 

Among the disadvantages of the merchant bank account are setup and monthly fees (these vary with different providers). If you have a physical store, you’d also need to purchase a payment terminal also known as POS terminal (Point of Service). However, you can find considerably cheap merchant service providers or use an aggregate merchant account. 

Open business and merchant accounts* within Genome

Whether you want an account for corporate expenses or a way to offer clients contactless payments, or even both, Genome has all you need. That’s right, with us you can open business and merchant accounts* online, without long lines and big piles of documentation. 

Genome’s business account is perfect for running your company’s banking operations online the way you prefer, it offers instant payouts and international money transfers. Track all your funds and transactions from the office or in the privacy of your home. 

Not only that but soon our physical debit and virtual cards will be available for all your corporate needs. Pre-order the cards here.

For a detailed tutorial please check out our blog on how to open a business IBAN account with Genome.

Internet merchant account opening* is as easy with secure KYB and verification processes. You will start accepting payments for your goods and services 72 hours after onboarding. You can open as many MIDs (Merchant Identification Numbers) as you require, and offer your clients multiple alternative payment methods to go with. 

You can also get Genome’s merchant account* if you use these platforms: Shopify, PrestaShop, OpenCart, OXID, WooCommerce, Magento, and Drupal. All you need is to install one free plugin for this integration. 

All the money you will get from purchases is easy to track, and the transactions are secure with built-in anti-fraud tools from Covery. 

For a detailed tutorial please check out our blog on how to open a merchant account* with Genome. 

*Please note that Genome’s merchant services have been temporarily unavailable since September 2024.

FAQ

How do merchant accounts work?

A merchant bank account is a service that allows processing credit/debit cards and online payments from your clients. Basically, it takes the money from every sale, takes a fee, and deposits the rest in your account. Within a few days (usually up to 3, but the period differs among financial institutions), the funds should arrive at your business bank account. 

Which merchant account is the best?

There is no such thing as the best merchant account. The best one would be the one that fits your needs. That is why there are the next three types of merchant bank accounts to choose from: 

• Aggregate (you’re using a merchant account along with other businesses and pay low fees; works best for small businesses). 

• Dedicated or ISO (you’re the only user of this account and all the features are tailored up to your requirements; it has higher fees, so will be a match for larger companies with stable income). 

• High-risk (accounts for business owners in high-risk industries). 

What type of account is a business account?

This is a regular bank account for your business needs. It does not differ much from regular personal accounts: you can make transfers, card payments, exchange funds, etc. With some banks and financial providers, a few people can have access to such a business bank account (if they are employees, for example). 

What do I need to open a business account?

Requirements vary from bank to bank. Usually, it’s much faster and cheaper to open a business account with a fintech company than with a high-end bank. Among the most common requirements are personal and company documents and details such as (passport/ID card), business license, ownership agreements, etc. Remember that for each particular business, the demands may differ. For example, if you’ve just created a company, the list of required documents can be smaller, but the financial provider can ask for statements from your personal account.