Internet Merchant Accounts Explained

TC Updated
Internet Merchant Accounts Explained

Why Do I Need An Internet Merchant Account (IMA)?

If you accept credit or debit cards as a payment form of any type, then you will need to have a merchant account with your bank or a third party provider into which you deposit your sales receipts.

This internet merchant account works purely as a “container” for funds to deposit into via card transaction and where applicable to process refunds. In essence, a merchant account is a line of credit extended by your bank which you never need to see.

All of the payments made into and out of your merchant account are batch processed every day and the remaining funds transferred into your regular business banking account. It typically takes three working days from the time the credit card payment is initiated by the customer, funds paid into your merchant account, cleared by the credit or debit card company and then settled into your bank account.

The higher the perceived risk of your business, for example taking mail order payments, then the longer the delay in clearing payments because the merchant account provider must be sure of receiving the funds before clearing them into your bank account.

Regular merchant accounts are relatively easy to obtain from your bank. If you qualify for a business bank account then as long as the account is in good order, then you'll likely be accepted for a merchant account.

You don't need to have your merchant account operated by your bank. Merchant accounts are an entirely separate entity from a business banking account, and there is nothing to stop you using a merchant account not provided by your business bank provider.

In traditional face to face retailing, there would be little or no advantage gained by having a merchant account at a different bank. The fee you pay is usually a fixed monthly fee, and the average price is between £15 and £20 per month for a services only merchant account.

Types Of Internet Merchant Account

A merchant account is useless without a means to receive payments into it, and this is where things get more complicated, and price comparison becomes more difficult.

Extending your merchant account by taking online payments exposes you to higher security risk and the possibility of fraud.

This is why it is harder to obtain a merchant account that processes online payments from a traditional high street bank and why specialist payment processors have evolved to step in and fill the gap.

Several high street banks have now sold or outsourced their entire credit card processing facilities:

Lloyd's Bank: Cardnet Merchant Services
Natwest: Streamline (Part of World pay)
HSBC: Global Payments

An internet merchant account comes with payment processing and gateway services for online use, and the costs are part of that service.

How Do I Get An Internet Merchant Account?

If you are an established business already taking credit card payments face to face, then you can apply for an IMA with your bank. You will need to supply a business plan and an estimate of turnover.

If you are a new business and particularly if you only plan to trade online, then you have a myriad of options. Many providers vie for your business, and they vary from those that offer basic accounts through those that give you everything you need in a complete payment solution.

The question as to what type of payment solution you need and the monthly cost depends on the type of transactions you want to process and the quantity.

For Example:

You run an eCommerce website that sells pictures that you paint yourself. You probably sell about four per month.

In this case, you don't need to go to the expense of obtaining an internet merchant account and incurring all the associated setup fees. You could use a payment gateway like Paypal which inserts a simple script on your page to provide the buy buttons. A more advanced solution would be to use the simple but effective basic Shopify service which for a small monthly fee will give you a facebook buy button to use. In neither case would you need an IMA because the risk is so low.

You run an online store that sells clothing and footwear.

You'll need to consider going for a solution that includes an IMA and a payment gateway. You'll be providing plenty of refunds for people who buy the wrong size jeans or shoes, and you'll also need to be able to manage this part of your business. In addition to functionality and ease of use for the customer (online eCommerce system), you'll also need access to your financial reports.


Which type of solution you choose depends on the setup cost, whether it integrates with your eCommerce solution and the transaction cost. For small ticket high volume items, the transaction cost can make a big difference to the bottom line.

An IMA is just one part of your eCommerce website design solution and getting a payment gateway to work alongside it is the next step in the journey.

In the next article, I'll explain what a payment gateway is, how it interacts with your internet merchant account and how to minimise eCommerce transaction charges.