eCommerce

Internet Merchant Account: What Is It & Does Your Business Need One?

A blue man reaches into a piggy bank while researching Internet merchant accounts

With the global eCommerce market projected to exceed $6.3 trillion in 2023, businesses cannot afford to bypass online sales.[1]Forbes. “38 E-Commerce Statistics Of 2023“. Accessed on August 3, 2023. However, to sell online, businesses must invest in the correct payment infrastructure, which includes an internet merchant account. These merchant accounts form the backbone of eCommerce payment systems. However, many retailers don’t understand how internet merchant accounts work and why they’re so important.

This guide explores internet merchant accounts and offers guidance on finding the best online merchant account provider, among other related topics. Read on if your business is ready to unlock the best tools for selling products and services online!

What Is an Internet Merchant Account?

An internet merchant account is a type of merchant account capable of processing and receiving online transactions. Merchant accounts are an essential component in the payment processing landscape. When a customer purchases a product or service from a merchant, the customer’s issuing bank transfers money to the merchant account.

Unlike traditional business bank accounts, merchant accounts are only tasked with holding money while funds clear during the settlement process. As such, a business does not have direct access to its merchant account; the account acts as a middleman during the transaction process. Once a transaction is settled, the funds are transferred from your merchant account to your business bank account, at which point you can access these funds.

Online Merchant Account vs. Traditional Merchant Account

An online merchant account functions similarly to a traditional merchant account. Internet merchant accounts collect payments from issuing banks and transfer funds to the merchant’s business bank account. However, online merchant accounts are also compatible with various digital tools, such as payment gateways, online shopping carts, and other digital payment tools to facilitate online transactions.

Meanwhile, some traditional merchant accounts aren’t equipped to offer online payment services. If you plan to open an online store, working with a merchant services provider with internet merchant account capabilities is critical.

What Is a Payment Gateway?

A payment gateway is a software application that captures, authenticates, encrypts, and communicates a customer’s payment details. It relays payment data securely between a business’s payment portal and the payment processor.

Customers who purchase a product via an online store input their card details into the payment gateway. The payment gateway then encrypts this data and authenticates it using a variety of advanced security tools. Next, the data is communicated to a payment processor, which confirms whether the payment should be accepted or denied. The payment gateway itself does not process the transaction, but it plays a critical role in ensuring the secure and timely approval of credit card payments.

Online Merchant Account Costs

While internet merchant accounts unlock the power of accepting online payments, they also charge commissions for their services. Let’s explore some of the standard online merchant account costs in more detail:

  • Setup Fees: Some online merchant account providers charge one-time fees for account origination. This may include some onboarding services to ensure your merchant account is running smoothly before your business begins accepting payments.
  • Monthly Service Fees: Some online merchant account providers charge monthly flat-rate fees for facilitating payments. (In some cases, this will only be charged if you don’t meet a minimum processing volume threshold.)
  • Payment Processing Fees: Payment processing fees are charged per transaction. These fees may vary depending on the card type, issuing bank, payment type, and pricing model.
  • Chargeback Fees: Chargeback fees occur when a customer lodges a payment dispute against your business.
  • Statement Fees: Some merchants charge statement fees to cover the cost of statement preparation. However, as statement preparation is now much more automated than in previous years, this fee is less common.
  • International Surcharges: Most merchant account providers charge extra for payments originating overseas.

Remember, not all online merchant account providers charge the fees listed above. For example, some don’t charge setup fees or monthly service fees.

Alternatively, many payment service providers (PSPs), such as Square, Stripe, and PayPal, offer flat-rate pricing. While a flat-rate pricing structure is appealing because it simplifies cost prediction, it allows payment providers to mark up prices significantly and often costs much more than standard merchant account fees over the long run.

Features of an Internet Merchant Account

Internet merchant accounts allow businesses to unlock a range of useful payment features. Below, let’s explore the four primary features made accessible to businesses through internet merchant accounts.

A laptop connecting to online payment processing

Accept online payments via a payment gateway

Internet merchant accounts integrate with payment gateways to facilitate effortless payment processing. This integration establishes a secure, encrypted communication channel between the payment processor and the customer, effectively mitigating the risk of chargebacks and potential cyber threats.

Dark blue credit card with an orange magstripe.

Accept multiple payment methods

Internet merchant accounts and payment gateways streamline the process of accepting various payment methods. For instance, numerous payment gateways handle transactions from major credit cards, digital wallets, and money transfer services. Offering your customers payment flexibility can enhance the likelihood of them choosing your business for their purchases. In fact, research suggests over 60% of consumers are more likely to shop at businesses offering their preferred payment method.[2]CIO. “Consumers Want More Payment Flexibility in Their Shopping Experience“. Accessed on August 3, 2023.

An online store's dashboard on a web browser

Integrate with shopping cart software

Online merchant accounts can integrate with shopping cart software, simplifying the user experience of customers using your online store. This integration allows customers to explore your store, add items to a cart without immediate checkout, remove items when necessary, apply coupon codes, and automatically compute pricing for tax and shipping.

Moreover, some software tracks when users abandon their carts and dispatches emails to them encouraging them to finalize their purchases. Given that over 69% of shoppers abandon their carts, these features can significantly increase revenue.[3]Hotjar. “23 cart abandonment stats you need to know to improve sales in 2023“. Accessed on August 3, 2023.

A blue phone with an orange 24 next to it

Access dedicated merchant support

Lastly, internet merchant account providers offer dedicated merchant support, ensuring you have around-the-clock access to technical customer service staff. Unlike payment service providers, which have a reputation for subpar customer service, online merchant account providers provide dedicated account managers to help business owners optimize their payment tools. Your account manager will assist in identifying payment features and integrations suitable for your industry and specific business requirements.

How to Find the Best Online Merchant Account Provider for Your Business

Before you begin your internet merchant account journey, we’ll delve into some additional tips to help you identify the best online merchant account provider for your business:

Check merchants reviews

Always check what other merchants are saying about your prospective account providers. Consumer watchdog groups, such as Consumer Affairs and the Better Business Bureau, provide a space for customers to review businesses. Always double-check merchant reviews before signing any agreements.

Compare multiple providers

Do not finalize with a provider until you’ve compared its rates with other providers. Analyzing multiple quotes is the most reliable method for securing the payment features and rates your business needs.

Consider high-risk merchant accounts

You may struggle to gain approval for an account if your business operates in a high-risk industry—such as CBD, vaping, bail bonds, or other regulated sectors. Many financial companies avoid high-risk merchants due to the added exposure to financial losses and reputational risks. However, providers of high-risk merchant services have filled this gap by combining the advantages of traditional merchant accounts with an array of superior features for businesses in high-risk sectors. For instance, a high-risk merchant account typically provides enhanced security features, higher chargeback thresholds, and industry-specific tools.

How to Get an Internet Merchant Account

Once you’ve decided your business needs an internet merchant account, the process of obtaining one is quite simple. Below are five basic steps to opening an online merchant account.

1. Identify your payment needs

Begin by gaining a deep understanding of your business’s payment needs. This will enable you to select top payment providers that cater to your specific requirements. For instance, if your business is considered high-risk, you might need a provider offering enhanced security features such as two-factor authentication (2FA).

2. Create a shortlist of internet merchant account providers

Create a shortlist of internet merchant account providers offering the necessary features. A comprehensive shortlist helps to prevent settling for a subpar service.

3. Request payment processing quotes

With your shortlist ready, start seeking payment processing quotes from these providers. Some providers openly share their pricing on their websites, but many offer customized pricing based on revenue and other factors. It’s recommended you request a quote directly.

Also, remember to inquire about any extra charges beyond the standard processing fees—it’s crucial to understand potential chargeback fees, international fees, return fees, and other costs.

4. Submit documentation and apply for an account

Once you find an online payment solution offering an affordable quote, it’s time to apply for an account. Keep in mind that merchant accounts require substantial underwriting, so immediate approval should not be expected. However, having the necessary documentation ready prior to submitting your application can help minimize delays. The following are the documents typically required by most internet merchant account providers:

  • Valid ID
  • A voided check or bank letter
  • Three months of bank statements
  • Your business’s marketing materials

5. Begin accepting internet payments

Once your business receives approval for an online merchant account, it’s time to begin accepting payments online. Work with your account manager to set up your payment gateway, integrate custom tools, and take full advantage of all the benefits an online merchant account offers businesses.


two business owners next to a calculator as they research the most affordable online merchant account for their business

Choose a dependable online merchant account provider who gets you the best rate!


FAQs About Virtual Merchant Accounts

What’s the difference between an online merchant account and a payment gateway?

Online merchant accounts and payment gateways work together to facilitate convenient transactions for merchants and their customers. A payment gateway authenticates, encrypts, and communicates payment data for the payment processor. Meanwhile, the merchant account is where the processor holds transaction funds until settlement. eCommerce businesses require both an online merchant account and a payment gateway to provide a smooth shopping experience for their customers.

Do I need an internet merchant account?

An internet merchant account is essential if your business sells products or services online. While payment service providers (PSPs) may be attractive options for small businesses beginning their online sales journey, they don’t offer the scalability available with an online merchant account. Online merchant accounts offer lower payment processing fees, dedicated support, improved payment dependability, and various other benefits.

Is PayPal an internet merchant account?

No, despite offering online payment services, PayPal does not provide internet merchant accounts to its users. Instead, PayPal aggregates multiple merchants onto a single merchant account.

PayPal also provides peer-to-peer money transfers to users. While this means merchants don’t have to undergo an extensive underwriting process, it also means they don’t receive exclusive access to merchant accounts or merchant identification numbers (MIDs).

Do peer-to-peer money transfer services like Venmo offer online merchant accounts?

No, most peer-to-peer money transfer services like Venmo don’t provide access to dedicated merchant accounts. Instead, many of these payment service providers are account aggregators—they group multiple merchants onto a single merchant account to save time and money. While this results in fewer hurdles in the sign-up process, it has distinct disadvantages: reduced control over payment infrastructure, higher costs, and unexpected account closures.

Article Sources

  1. Forbes. “38 E-Commerce Statistics Of 2023“. Accessed on August 3, 2023.
  2. CIO. “Consumers Want More Payment Flexibility in Their Shopping Experience“. Accessed on August 3, 2023.
  3. Hotjar. “23 cart abandonment stats you need to know to improve sales in 2023“. Accessed on August 3, 2023.


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