What Is a Merchant Account?

Who's involved
How a card payment reaches your bank account

A merchant account is the account a business uses to accept card payments. In the US, the Office of the Comptroller of the Currency (OCC) defines it as "A bank account opened by a merchant through a bank or other financial institution that is a member of a major card network." Card sales are settled through it, the bank that provides it charges a fee on those sales, and the money then reaches your business bank account. You can open one directly with a bank, or accept cards through a payment facilitator that holds the relationship with the bank for you.

Billed publishes this page. The definitions below are quoted from the OCC's Comptroller's Handbook booklet Merchant Processing (Version 1.0, August 2014), opened on October 30, 2026. The booklet is written for US bank examiners, so the terms are US terms. Fees and terms vary by provider, so check your own agreement.

Who's involved

Your business (the merchant): sells goods or services and accepts the card.
The acquiring bank: the OCC glossary says "A bank that contracts with merchants for the settlement of payment card transactions is an acquiring bank."
Independent sales organizations: the OCC describes an ISO as "An organization that provides merchant processing functions on behalf of the acquirer." The company that signs you up may be an ISO working for a bank, rather than the bank itself.
The card-issuing bank: the customer's bank, which approves or declines the payment.
The bank card association: the card network, such as Visa or Mastercard, whose rules the banks follow.

How a card payment reaches your bank account

The OCC handbook describes three stages:

Authorization: "An issuing bank’s approval of a card transaction in a specific amount."
Clearing: "Clearing is the process of delivering final transaction data from acquirers to issuers for posting to the cardholder’s account."
Settlement: "Settlement is the process of transmitting sales information to the card-issuing bank for collection and reimbursement of funds to the merchant."

The handbook adds that a merchant may "maintain a settlement account with the acquiring bank or settle via automated clearing house (ACH) transactions between the acquiring bank and the merchant’s bank." For more on ACH, see what is an ACH payment. For how the whole flow works, see what is payment processing.

Your own merchant account or a payment facilitator

You can accept cards in two ways:

Your own merchant account, opened through an acquiring bank or a company working for one.
Through a payment facilitator, which signs you up as one of its sub-merchants. The OCC glossary gives the definition as Mastercard's: "a payment facilitator is a merchant that is registered by an acquirer to facilitate transactions on behalf of sub-merchants." It adds: "The acquirer is responsible for the actions of the payment facilitator and the sub-merchants." Visa uses the term payment service provider, which the OCC describes as "an organization that contracts with an acquirer to provide payment services to sponsored merchants."

Which suits you depends on your volume, the fees each option charges and how quickly you need to start. Ask each provider how they set up your account, what they charge and when you'll be paid.

Fees: the discount rate and interchange

Discount rate: the OCC glossary defines it as "The fee, as a percent of sales volume, an acquirer charges a merchant for processing sales transactions." The handbook notes that "The discount is generally charged monthly to the merchant."
Interchange fee: "A fee paid by one bank to another to cover handling costs and credit risk in a bank card transaction." The acquiring bank pays it to the card-issuing bank. On changes to the discount rate, the handbook says "The most typical change is passing along new interchange rates set by the bank card associations."

To lower what you pay, see how to reduce payment processing fees.

Holdbacks and reserves

An acquiring bank can hold back part of your sales to cover future refunds or disputes. The OCC glossary defines a holdback as "A percentage of the merchant’s sales deposits that the acquirer holds back to serve as a reserve against future exposure or to cover existing charge-backs." It defines a charge-back as "Generated when a cardholder disputes a transaction or when the merchant does not follow proper procedures."

If your provider holds back part of your sales, plan for it in your cash flow, because that money arrives later.

Worked example: one month of card sales

The business and figures here are a sample, and the discount rate and holdback percentage are invented for this example. They aren't real or recommended rates.

A design studio takes $10,000.00 in card payments in a month. Its agreement sets an invented discount rate of 2.75%, charged monthly, and an invented holdback of 5% of sales.

Holdback: $10,000.00 × 5% = $500.00, held by the acquirer.
Deposited during the month: $10,000.00 − $500.00 = $9,500.00.
Monthly discount fee: $10,000.00 × 2.75% = $275.00, charged at the end of the month.
Received after the fee: $9,500.00 − $275.00 = $9,225.00.
Check: $9,225.00 received + $500.00 held + $275.00 in fees = $10,000.00.

The $500.00 isn't lost; it's held under the terms of the agreement and released when those terms allow.

Where Billed fits

Billed's accept payments page says "Billed integrates with Stripe to enable online payments on invoices." Billed's invoice software page says: "Connect your Stripe account and every invoice you send gets a pay button, so clients can pay by card. Connect PayPal to add a PayPal option as well." For payments outside those, the accept payments page says you can "Keep track of all the payments from offline sources like checks, cash etc."

Billed's accept payments, invoice software, features, integrations and recurring invoices pages don't describe Billed providing merchant accounts. They describe connecting your own Stripe or PayPal account. To match card payments to invoices, see how to send an invoice, how to follow up on unpaid invoices and what is accounts receivable.

When this guide isn't for you

This guide is for small businesses in the US that accept card payments. If you're a bank, process very large volumes, or operate outside the US, the rules and options are different. For more on taking payments, see how to accept credit card payments, the guide to mobile payments, FedNow vs RTP vs ACH and payment processing statistics.

Frequently Asked Questions

What is a merchant account in simple terms?

It's the account a business uses to accept card payments. The OCC defines it as a bank account that a merchant opens at a bank or other financial institution belonging to a major card network.

Do I need my own merchant account to accept cards?

Not necessarily. You can open your own merchant account through an acquiring bank, or accept cards as a sub-merchant of a payment facilitator, which an acquiring bank registers to handle transactions for its sub-merchants. Ask each provider how your account is set up and what it costs.

What is a discount rate?

The OCC defines it as "The fee, as a percent of sales volume, an acquirer charges a merchant for processing sales transactions." In the sample on this page, an invented 2.75% rate on $10,000.00 of sales is a $275.00 fee.

What is a holdback or reserve?

The OCC defines a holdback as a share of the merchant's sales deposits kept back by the acquirer as a reserve for future exposure or to cover charge-backs already made. The money is released under the terms of your agreement.

Does Billed provide a merchant account?

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