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Merchant Account: What It Is, How It Works

What is a Merchant Account?

A merchant account serves as a specialised business bank account enabling companies to handle electronic payment card transactions. To obtain a merchant account, a business collaborates with a merchant acquiring bank, which manages all electronic payment communication.

For online businesses, establishing merchant account relationships is crucial. These relationships entail additional costs, which some brick-and-mortar establishments might avoid by solely accepting cash deposits in a standard business account. Essentially, merchant accounts function as a subset of commercial bank accounts.

Key points:

  • Merchant accounts are dedicated bank accounts for business transactions, facilitating payment acceptance and processing.
  • They enable businesses to accept various forms of electronic payments, such as credit cards.
  • While merchant account services often incur additional fees, they also offer a range of valuable services.

How Merchant Accounts Work

Merchant accounts serve as a pivotal operational element for the majority of merchants. When merchants seek the most suitable business bank for a merchant account, they consider various options, with transaction costs holding significant weight in their decision-making process. These accounts are furnished by merchant acquirers, entities that collaborate with merchants to facilitate electronic payments.

In the scenario where a physical store can only honour cash transactions and have no digital payments platform, there may not be a pressing need to establish a merchant account. Instead, relying on a basic deposit account at any bank might suffice.

Contrarily, online businesses operate within a different realm, mandating the establishment of merchant account partnerships as an integral part of their operations. This necessity arises due to the exclusive reliance on electronic payments as the mode of purchase for customers.

Merchant Acquiring Bank Services

If a merchant intends to provide electronic payment choices for their products or services, it’s essential to set up a merchant account with a bank that offers business banking services. These banks hold a crucial position in the electronic payment flow, ensuring the smooth and prompt processing and settlement of payment transactions. For added security, your preferred merchant account provider may have anti-cyber fraud systems and secure payment portals in play to protect your accounts.

The collaboration between merchant acquiring banks and businesses involves a comprehensive merchant account agreement. This agreement meticulously outlines all the terms and conditions governing the relationship between the parties involved.

Some may think that opening merchant accounts with a bank automatically equates it into a merchant bank per se. However, in 2012, the APRA clarified that the term “merchant bank” created public confusion as some unregulated short-term money market businesses used that label to describe their operations.

Transaction Processing

During an electronic payment transaction, a business transmits card communications through an electronic terminal to the merchant acquiring bank. Subsequently, the merchant acquiring bank reaches out to the designated card processor, which then contacts the card issuer. The card issuer verifies the transaction by conducting multiple validations, including checks for fund availability and security measures.

Upon successful authentication, the approval signal travels back through the network processor to the merchant acquiring bank. After receiving authorisation, the merchant acquiring bank proceeds to initiate the transaction and commence the process of settling funds into the merchant’s account.

This entire communication cycle transpires within a few minutes and incurs various charges for the merchant, deducted directly from the merchant account. The merchant acquiring bank levies a per-transaction fee on the merchant, while the network processor also imposes a per-transaction fee. These fees typically vary between 0.5 per cent to five per cent the transaction amount, the bank may also impose additional fees to cover operations charges.

Moreover, merchant acquiring banks impose monthly fees on merchants, along with potential charges for specific circumstances. The monthly fee serves as compensation to the merchant acquiring bank, covering specific risks associated with electronic payment card transactions and facilitating the settlement of transaction funds. 

Merchant Account Requirements 

To initiate the process of opening a merchant account, it’s essential to operate a registered business. Some banks might additionally mandate a business checking account with their institution.

Often, the following information is necessary:

  • Business name
  • ABN (Australian Business Number) and TFN (Tax File Number)
  • Contact details

You might also be prompted to furnish specific business particulars, including details about your products or services, alongside personal information such as your name and Centrelink number. As part of the approval process for a merchant account, merchant acquiring banks engage in underwriting procedures, often involving a credit assessment.

The acquiring bank might request supplementary documentation verifying your business registration and potentially financial data like transaction histories or tax filings.


How are merchant accounts different from payment processors?

A merchant account functions to receive funds from customers during online transactions, while a payment processor is a company that aids in processing credit and debit card payments.

How do I get a merchant account?

Initially, pinpoint the merchant acquiring bank you prefer to collaborate with, whether it’s your current business bank or a different institution. Assemble your business documentation and complete the account application, ensuring you provide all required paperwork. Subsequently, the bank will initiate its underwriting process, and upon completion, you’ll receive notification regarding the approval status of your account.

Understanding the nuances of merchant accounts is pivotal for businesses navigating the digital payment landscape. As the cornerstone of secure and efficient transaction processing, a well-managed merchant account not only facilitates seamless payments but also establishes trust and reliability with customers.


By acquiring a merchant account for your business, you open the door to accepting credit and debit card payments, offering customers a convenient payment avenue. These accounts are crucial for online operations, where cash transactions are unfeasible. While obtaining approval from a merchant-acquiring bank and setting up the account may take time, the benefits are significant: streamlining business operations, broadening payment choices, and enhancing security compared to cash or checks.

DISCLAIMER: This article is for informational purposes only and is not meant to supersede official business advice. BARTERCARD is not affiliated with any Australian bank offering merchant services.


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