Merchant Account vs. Business Bank Account

What is a Business Bank Account?

Firstly, let’s dig deeper into each account separately to fully comprehend the usage and practicality of each account to know which account would be suitable for specific needs purposes

Definition and Purpose

A business bank account is a standard financial account that conducts various items related to handling numerous business transactions such as managing income, expenses, and others. A business bank account is crucial for managing finances. It allows companies and industries to deposit revenue, handle payroll and expenses, withdraw funds, and many more.

Features of a Business Bank Account

The most tangible and efficacious feature of a business bank account is that it holds funds, and handles payroll but does not process card transactions directly. This feature might be helpful for business owners who regularly need to check writing capabilities and get access to financial services. Another great feature of business bank accounts is that they act as global accounts where users can hold, send, and receive funds in global currencies.

Requirements to Open a Business Bank Account

To open a business bank account, you need to gather the right registration documents which include also submitting an Employer Identification Number (EIN) or Tax Identification Number (TIN). Another requirement entails obtaining proof of business address and personal identification of owners to clarify the location, deeds, and business activities. This is extremely helpful if you wish to reap the benefits of a multi currency account and conduct international transfers successfully.

What is a Merchant Account?

Definition and Purpose

A merchant account is a type of business account that allows businesses to accept credit and debit card payments as well as to act as an intermediary between the customer’s payment and the business bank account. Bear in mind that merchant cards solely process card payments, unlike business ones that can manage a variety of things.

How a Merchant Account Works

A merchant account works by users making a card payment, thus temporarily holding funds on it, then the customer has the payment transaction verified by a legislated processor before those funds get transferred to the business bank account. This procedure usually includes transaction fees and processing costs.

Requirements to Open a Merchant Account

To open a merchant account, you need to give all your business bank account details, then give out official registration and business licensing information, and provide credit history with financial statements.

Key Differences Between a Merchant Account and a Business Bank Account

Functionality

The business bank account is mainly used for managing general business finances, including deposits, withdrawals, and expenses, making it utterly functional and flexible. On the other hand, a merchant account is solely used for processing electronic card transactions.

Transaction Processing

Clients that have a business bank account can receive deposits from different sources, including checks, wire transfers, and cash which is not the case with a merchant account. Here users have to have their card transactions primarily processed and upon check-up and hold, then they have their funds transferred to a business account.

Fees and Costs

With a business account, fees are much lower, and perhaps only potential charges for maintenance and overdrafts. This is not the case with merchant accounts that always include transaction fees, processing fees, chargeback fees, and potential monthly costs.

Risk and Approval Process

Business accounts impose fewer risk assessments, it’s easier to open and maintain. However, merchant accounts last longer and require an excessive and more in-depth approval process due to the risk of chargebacks and fraud.

Do You Need Both Accounts?

Wondering about the best solution for a merchant account vs a bank account? This will depend on your needs, if the business conducts a variety of transactions, you would need both. Also, the merchant account enables card payment acceptance, while the business bank account manages overall finances, so having both accounts would be far more useful than having only one.

Choosing the Right Account for Your Business

Factors to Consider

Payment methods: Check whether your business is pursuant to accepting credit and debit card payments.

Transaction volume: Conduct a thorough evaluation of how frequently your business will process electronic payments, and need such.

Fees and costs: Opt to compare account fees, transaction costs, and service charges and see what suits you the best.

Integration: Ensure the bank’s system is adequately compatible with accounting software, payment gateways, and point-of-sale (POS) systems.

FAQs

What is the main difference between a merchant account and a business bank account?

A merchant account is specifically used for processing electronic card payments, while a business bank account manages general business finances.

Can a business operate without a merchant account?

Yes, if the business only accepts cash, checks, or bank transfers, a merchant account is not required.

How long does it take for funds to transfer from a merchant account to a business bank account?

Typically, transfers take 1-2 business days, but it can vary depending on the payment processor.

Do all businesses need a merchant account?

Only businesses that accept credit or debit card payments require a merchant account.

References (APA Style)

UG Payments: UG Payments. (n.d.). Merchant account vs. business bank account. UG Payments. https://ugpayments.ch/blog/merchant-account-vs-business-bank-account/

FSB (Federation of Small Businesses): Federation of Small Businesses. (n.d.). How to choose a business bank account. Federation of Small Businesses. https://www.fsb.org.uk/resources/article/how-to-choose-a-business-bank-account-MCB6QO2J54BREFDNCRJ4OXR5I5YU

NIST (National Institute of Standards and Technology): National Institute of Standards and Technology. (2020). Security and privacy controls for information systems and organizations (Special Publication No. 800-53 Revision 5). https://nvlpubs.nist.gov/nistpubs/SpecialPublications/NIST.SP.800-53r5.pdf