How to Open a Merchant Account

Being able to accept bank cards and digital payments is a basic need for most businesses today. Customers want flexibility in how they pay, and offering that makes a big difference in how well your business runs. That said, getting everything in place to handle these payments is a bit confusing at first.

It’s an extra step, but one that pays off. A merchant account helps you get paid faster and gives your customers a better checkout experience. So, this guide will break down how to set up a merchant account step by step.

What Is a Merchant Account?

A merchant is used to accept card payments, whether online or in person. It’s not the same as your main bank account because you won’t use it to pay expenses or handle payroll. Instead, it acts as a holding space for funds after a customer makes a payment.

How a Merchant Account Works

A merchant account works alongside two key parts of the payment system:

• Payment gateway – The customer-facing tool that collects and encrypts card details before sending them off for processing.
• Payment processor – The behind-the-scenes service that checks with banks and moves the money to your merchant account.

Here’s how it all comes together:

1. The customer starts the transaction.
2. The payment gateway sends the information to the processor.
3. The processor checks with the customer’s bank to confirm the availability of funds.
4. If all’s clear, the money is sent to your merchant account.
5. The payment sits briefly in your merchant account before moving to your main one.

Key Players Involved

There are several key parties that work together behind the scenes to make payment processing possible.

Acquiring Banks

These are the banks that provide merchant accounts and handle the final step of moving funds into your business account after a sale is approved.

Payment Processors

They manage the flow of payment data between your business, the card networks, and the banks to ensure transactions go through correctly.

Payment Gateways

This technology captures and encrypts customer card details during online payments and then passes them to the processor.

Who Needs a Merchant Account?

Before learning how to get a merchant account, let’s take a moment to look at who benefits from having one.

Types of Businesses That Require One

Many businesses rely on merchant accounts to accept card payments, including:

• E-commerce stores selling products through websites or apps
• Subscription services that bill customers regularly
• Service providers, such as salons, consultants, or repair shops
• Physical retailers and restaurants processing in-person payments
• Freelancers and independent contractors accepting client payments
• Event organisers selling tickets online or at venues
• Health and wellness providers like gyms, therapists, or clinics
• Travel agencies and tour operators managing bookings and payments
• Nonprofits and charities collecting donations via card payments

Online vs. Brick-and-Mortar Needs

When it comes to accepting payments, online businesses and brick-and-mortar stores have different needs:

Despite these differences, what really matters is choosing a provider that offers secure, efficient processing. A good provider will handle the technical details so you can focus on running your business.

Benefits of Having a Merchant Account

A merchant account makes it easier to handle payments and lets your customers pay the way they want. However, what does it mean for your business? Let’s go over the main benefits of setting up a merchant account.

Enhanced Sales Opportunities

Accept card payments to remove obstacles at checkout and help more customers complete their purchases.

Increased Payment Security

Built-in protections keep card details safe and build trust with your customers.

Better Cash Flow Management

Funds reach your account faster, and you gain better visibility over your payments.

Support for Multiple Payment Methods

Accept credit and debit cards, contactless payments, and more to meet your customers’ preferences.

How to Open a Merchant Account in the UK

Here’s how to create a merchant account and what to expect along the way.

Step 1: Register Your Business

Your business must be legally registered in the UK—this could be as a sole trader, partnership, or limited company. Registration proves your business is legitimate and is needed by providers to review your application.

Step 2: Open a Business Bank Account

This is necessary to receive funds from your merchant account. Banks tend to offer business accounts with different features, so choose one that fits your company's size and expected transaction volume.

Step 3: Compare Merchant Account Providers

Compare your options (transaction fees, monthly charges, contract terms, customer support) and look for providers that are experienced with businesses like yours.

Step 4: Choose the Right Payment Model

You’ll need to decide which type of merchant account works best. We’ll go into more detail about the different types later, but for now, just know that providers offer several options.

Step 5: Prepare Your Website and Legal Documentation

If you’re selling online, your website should include essential legal pages, which tell providers you’re transparent with customers.

Step 6: Gather and Submit the Required Documents

Prepare business documentation to verify your identity and financial stability.

Step 7: Submit Your Merchant Account Application

You can apply online or by contacting the provider directly. If you want to avoid delays, make sure to fill out all the forms and upload your documents properly.

Step 8: Go Through the Underwriting Process

During underwriting, the provider will evaluate your business model, financial health, and potential risks. There may be credit checks and additional questions.

Step 9: Get Approved and Sign the Agreement

Once approved, review the merchant agreement. Pay attention to fees, contract length, termination terms, and any limitations. Once you sign this agreement, your account setup will be finalised.

Step 10: Integrate the Merchant Account with Your Payment System

Connect your merchant account to your e-commerce platform, payment solution, or point-of-sale system.

Step 11: Test the Payment Flow

Before going live, run test transactions to see if everything works correctly. Testing helps catch any issues with payment processing so you can fix them before real customers pay.

Documents Required to Open a Merchant Account

Before you can create a merchant account, you’ll need to gather some important documents.

Basic Business Documentation

To confirm your business is legally registered and authorised to operate, you’ll typically need:

• A business registration certificate or incorporation documents
• Business licence or permits relevant to your industry
• Identification details of business owners or directors (e.g., passports, driving licences)

Financial and Bank Statements

Most providers ask for 3 to 6 months of recent bank statements to understand your business’s financial stability. These provide insight into your transaction history and cash flow and allow the provider to assess risk. They also help them set appropriate processing limits.

Website Readiness Requirements

If you’re accepting payments online, your website should include:

• Clear contact information (phone number, email, physical address)
• Detailed product or service descriptions
• Essential legal pages, such as Privacy Policy, Terms & Conditions, and Refund Policy

KYC and AML Compliance Materials

Know Your Customer and Anti-Money Laundering checks require you to provide identification and proof of business activities. KYC and AML are in place to prevent fraud and illegal transactions.

Types of Merchant Accounts

Merchant accounts come in different forms:

Aggregated Merchant Account

Several businesses share a single account managed by a provider. It’s quicker to set up and great for startups or businesses with lower sales volume. However, fees tend to be higher, and you have less control over the account.

Dedicated Merchant Account

This account is used exclusively by one business—this gives full control over transactions and usually involves lower processing fees. It’s best for growing businesses with consistent sales, but it takes longer to set up and requires more paperwork.

High-Risk Merchant Account

Made for businesses in sectors considered high-risk, such as travel, gaming, or adult services. These accounts face extra scrutiny during approval and have higher fees and stricter terms to manage potential fraud or chargebacks.

International Merchant Account

Made for businesses selling to customers around the world. This supports multiple currencies and helps manage the complexities of cross-border payments, including different regulations and currency conversions.

Merchant Account Costs and Fees

The most common fees you can expect:

• Setup fees – A one-time charge for opening the account, ranging from £50 to £200. Not always required.
• Monthly fees – Regular charge for account maintenance and support, £10-£30.
• Transaction fees – Charged per sale, often a percentage plus a fixed amount (e.g., 1.5% + 20p per transaction).

There can be extra fees for things like chargebacks, batch processing, early termination, or add-on services. Be sure to look them up in the contract before moving forward with your merchant account opening.

Security and Compliance Considerations

UK businesses must follow specific rules and standards to protect customer data and make sure transactions are safe.

Below are some of the key requirements, but note that the full list varies depending on your industry and how your company operates.

PCI DSS Compliance

The Payment Card Industry Data Security Standard is a set of security requirements to protect cardholder information. Non-compliance can lead to heavy fines, increased transaction fees, or even the loss of the ability to process card payments.

3D Secure Authentication

3D Secure requires customers to verify their identity during checkout, usually via a password or a one-time code. This reduces the risk of fraud and chargebacks by confirming the buyer is authorised to use the card.

Chargeback Protection Tools

Chargebacks happen when customers dispute a transaction. Protection tools help businesses detect suspicious activity early, provide evidence to challenge false claims and manage the financial impact.

GDPR Considerations for UK Businesses

The General Data Protection Regulation requires businesses to handle personal data responsibly. This means collecting only what’s needed, keeping it secure, getting clear consent, and allowing customers to access or delete their data. Following the GDPR avoids penalties and builds trust with your customers.

FAQ

What is a merchant account, and how does it work?

It is a special bank account that allows your business to accept credit and debit card payments. When a customer pays by card, the money goes there before it’s transferred to your regular business account.

Do I need a merchant account to accept credit card payments?

Yes, if you want to accept bank card payments directly. However, some payment services offer alternative solutions that don’t require a traditional merchant account.

Can I open a merchant account if I’m a sole trader?

Yes. You’ll need to provide proof of your business and identity during the application. Many providers offer plans tailored to sole traders’ needs.

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

A merchant account holds the funds from card payments before they reach your bank. A payment gateway is a technology that transfers payment information between your customer, your website, and the payment processor. Both work together to complete a card transaction.

How much does a merchant account cost?

Costs depend on the provider and your business type and typically include setup and transaction fees and monthly charges. Some providers charge a percentage of each sale plus a fixed amount per transaction.

How long does it take to open a merchant account?

It takes anywhere from a few days to a few weeks. The process depends on how quickly you submit the required documents and how thorough the provider’s approval process is. Some providers offer a faster merchant account setup for certain business types.

Is it possible to get a merchant account with bad credit?

It can be more challenging, but it’s still possible. Some providers specialise in working with businesses that have credit issues, often at higher fees.

Can I get a merchant account without a website?

Yes. Many businesses accept payments in person, over the phone, or via invoices and still use merchant accounts. Just let your provider know how you plan to take payments during the application.

What is a high-risk merchant account?

This is designed for businesses that the payment industry considers to have a higher chance of chargebacks or fraud. This includes industries like travel, gaming, or adult entertainment. There may be higher fees and stricter terms.

What’s the easiest way to open a merchant account in the UK?

Start by researching providers that match your business type and offer simple online applications. Many providers have streamlined processes with clear guidance on required documents.

Do all merchant account providers support mobile payments?

Not all, but many do, especially those focused on small businesses or retail. If mobile payments are important for your company, check this feature before signing up. Some even offer card readers and apps that let you take payments anywhere.