A business that wants to accept credit and debit cards needs a merchant account. It is a special bank account that holds card payments temporarily before they are deposited into the business's regular account. Without it, a business can only accept cash, checks, or peer-to-peer transfers. The merchant account is the bridge between the customer's card and the business's bank account.

The account is usually opened through a payment processor, which handles the technical side of card transactions. The processor authorizes the card, captures the funds, and settles them into the merchant account. The merchant pays a fee for each transaction, typically 1.5 to 3.5 percent plus a small fixed amount. The fee depends on the card type, the transaction size, and whether the card is present. Card-not-present transactions, like online purchases, cost more because fraud risk is higher.

Merchant accounts carry risk. If a customer disputes a charge and the merchant cannot prove the sale, the payment is reversed. If too many chargebacks occur, the processor may freeze the account or terminate the relationship. That is why processors review a business's industry, history, and financials before approving an account. High-risk businesses, like travel, gambling, and subscription services, pay higher fees.

Alternatives exist. Payment service providers like Stripe, Square, and PayPal offer merchant accounts bundled with their platforms, with simpler setup and faster access to funds. They cost more per transaction but require less paperwork. For small businesses, the trade-off is often worth it.