What You Need to Know About Opening a Merchant Account
05 June, 2023
As a business owner, you need revenue to run your business, i.e., pay your employees, vendors etc. To do so, you need to collect money from your customers. Plus, with more and more consumers shifting towards online shopping, businesses must set up online payment collection systems. Here, we talk about what is meant by merchant payment and collections.
What is a Merchant Account?
Let us understand who a merchant is, before we talk more about Merchant Accounts. A merchant is someone who trades goods and services in significantly large quantities. As a merchant, you can benefit from signing up for a Merchant Account. A Merchant Account lets your business accept payments via debit cards, credit cards, contactless bank cards, Unified Payment Interface (UPI), digital wallets, QR codes, net banking, gift cards, etc. You can receive the payments from a brick-and-mortar store, an e-commerce website or a Point-of-Sales (POS) platform. A Merchant Account also allows you to pay your vendors and distributors. Along with payments and collections, you also enjoy a host of other benefits such as overdraft facility, instant loans, credit card facility, internet banking, etc.
How does a Merchant Account work?
Merchant Account works more or less like a Current Account in that you can make payments and get an overdraft facility. However, knowing how the payment collection aspect of a Merchant Account works is imperative. When a customer initiates payment for your product or service at a terminal, those transaction details get sent to your Merchant Account. Your bank, where the Merchant Account is held, will pass those details to the customer’s card provider. They will check whether the customer has sufficient funds in their account to fund the transaction. If the customer’s account does not have adequate funds, the card provider will deny the transaction and send the details back to the payment terminal. When the customer has the required funds, the transaction amount gets transferred from the customer’s bank to your Merchant Account. Remember, this transaction takes place within seconds.
How to apply for a Merchant Account?
To apply for a Merchant Account, you need an acquiring bank. Essentially, these banks process customer payments on your behalf. Once you find a suitable acquiring bank, you must submit the required documents, such as:
Certificate of Incorporation
Registration Certificate
Shop Establishment Act Certificate
Goods & Services Tax (GST) Certificate
Business Permanent Account Number (PAN)
Latest utility bills of your business location
ID and address proof of the authorised signatory (Aadhaar/Driving License/Passport/Voter ID/NREGA Card
The banks will conduct due diligence to check for any fraudulent activities, credit card issues, how long the business has been running in the market, if there is any history of bankruptcy, and so on.
Types of Merchant Accounts
Depending on the platform where you wish to do business, a Merchant Account can be of two types:
Retail: Brick-and-mortar retail establishments, such as general goods stores, grocery stores, pharmacies, clothes stores, restaurants, hotels, etc., can use a Retail Merchant Store. The bank will provide the card terminals where the cashier will swipe your credit, debit or gift card. Typically, banks will charge lower application and set-up fees in stores where the number of transactions is higher. You can also offer QR code scanning to allow customers to pay via BharatQR or UPI.
E-commerce: The number of online shoppers in India has been increasing rapidly. So, if your business is not accepting online payment, you might be losing a considerable number of customers. Your bank can set up a facility to accept online payments. Customers can input their credit card, debit card, and UPI address details by themselves and make payments towards your business.
Merchant Solutions with HDFC Bank
HDFC Bank offers convenient payments and collections solutions for MSMEs. You can enjoy hassle-free cash management, wireless and mobile Point-of-Sale collections, real-time fund transfers, cashless and cardless purchases, as well as balance & transaction viewing across multiple accounts. Faster collection solutions ensure that you pay your vendors and employees on time, allowing for seamless business operations.
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Click here to know more about the advantages of merchant account
*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. HDFC Bank SmartHub Vyapar is available to only Individual & Sole Proprietorship entity and for select Current Account variants only. For other entity types, please connect with the nearest branch.
