What Is a Merchant Account?
A merchant account is a type of bank account that enables a business to accept card payments. When a customer pays by card, the funds are temporarily held in the merchant account while the transaction is processed and verified. Once settled, typically one to three business days later, the funds are transferred to your regular business current account.
The merchant account sits between the card networks (Visa and Mastercard) and your bank. It is the mechanism that makes card acceptance possible.
Not every business has a dedicated merchant account in the traditional sense. Payment service providers like Stripe, Square, and SumUp use aggregated merchant accounts, pooled accounts shared across thousands of merchants, which simplifies setup but comes with different characteristics. For a full explanation of the distinction, see our guide to merchant accounts vs payment service providers.
Do You Need a Merchant Account?
Any UK business that wants to accept Visa and Mastercard payments needs either:
A dedicated merchant account provided by an acquiring bank (Worldpay, Barclaycard, Elavon, Lloyds Cardnet, and others). Setup involves underwriting, a credit check, and takes several days to a few weeks.
An aggregated merchant account through a payment service provider (Stripe, Square, SumUp, PayPal). Setup is faster, sometimes same day, but the account is shared across many merchants.
The right choice depends on your monthly volume, business type, sector, and how much flexibility you need. Both options are explored below.
Dedicated Merchant Account vs Payment Service Provider
| Dedicated Merchant Account | |
|---|
| | |
| Yes: credit and business check | |
| Negotiated, usually lower at volume | |
| Typically 12 to 36 months | Often monthly or pay-as-you-go |
| | Funds can be held if flagged |
| Established businesses, higher volume | New businesses, low volume, simple setup |
For most businesses processing more than £5,000 per month consistently, a dedicated merchant account with a negotiated rate will be cheaper than a PSP flat rate over time.
What Does a Merchant Account Cost?
Merchant account fees typically include several components:
Transaction fees: a percentage of each card payment. The largest single cost. Varies by card type, pricing model (blended or interchange-plus), and the rate negotiated with your provider.
Monthly account fee: a fixed monthly charge for maintaining the account. Typically £10 to £35.
Authorisation fees: a small per-transaction charge (1p to 3p) for each payment authorisation request.
PCI compliance fee: a monthly charge covering your annual security assessment. Typically £5 to £35.
Minimum monthly service charge: a floor on monthly transaction fees. If you process less than a certain volume, you pay the minimum rather than your actual fees.
Terminal rental: if you rent your card machine rather than buying it. Typically £15 to £35 per terminal per month.
For a full breakdown of every charge and what a fair rate looks like, see our guide to merchant account fees explained.
How to Open a Merchant Account
Opening a dedicated merchant account involves an application and underwriting process:
Choose a provider or use a free comparison service to identify the best rates for your business type and volume
Submit your application including business details, bank account information, and estimated monthly turnover
Underwriting review: the provider assesses your business risk, which may include a credit check and review of your trading history
Agreement and setup: once approved, you sign the merchant agreement and receive your terminal or gateway credentials
Go live: testing and activation typically takes a few days
For a step-by-step guide, see our article on how to open a merchant account in the UK.
Choosing the Right Merchant Account
The right merchant account depends on several factors:
Your monthly volume. Higher volume gives you more negotiating power and access to better rates. Below £3,000 to £5,000 per month, a PSP may work out cheaper once minimum monthly fees are considered.
Your sector. Some sectors, travel, gambling, high-risk goods, face stricter underwriting and higher rates. See our guide to high-risk merchant accounts if your sector falls into this category.
How you take payments. In-person only, online only, or both. Different setups require different terminal and gateway configurations, and rates vary between card-present and card-not-present transactions.
Your card mix. If most of your customers pay by UK consumer debit card, interchange-plus pricing will usually save money. If you have a high proportion of business or international card customers, the calculation is more nuanced.
Contract flexibility. If your business is newer or trading patterns are uncertain, a shorter contract or rolling monthly arrangement may be worth paying a small premium for.
For guidance on which account type suits specific business types and sectors, see our guide to the best merchant accounts for small business UK.
