Dedicated Merchant Account

What is a Dedicated Merchant Account?

A dedicated merchant account is a specialized payment processing solution exclusively created for an applicant merchant by an acquiring institution, such as a bank. This account grants merchants access to all features and benefits, including the capability to integrate new payment methods, unlike aggregated merchant accounts, which group multiple merchants.

A dedicated merchant account offers individual merchants greater transparency and control. They can switch filters on and off, providing them with enhanced payment processing management.

How Does a Dedicated Merchant Account Work?

A dedicated merchant account basically sits within the payment processing infrastructure that connects a business, its customer, a payment gateway or point of sale system, a payment processor, and an acquiring institution all together.

When a customer pays you by using his credit or debit card, then the transaction is submitted through your payment gateway, and is routed through appropriate processing network before the funds are actually settled according to the merchant processing agreement into your business bank account.

Unlike an aggregated payment arrangement, with a dedicated merchant account, you will be establishing a setup for your individual business. The merchant is assigned its own merchant identification number, that is the MID and it allows the acquiring and processing party to identify the transactions associated with your particular business.

The payment gateway and the merchant account, they perform different functions. A payment gateway securely transmits the payment information between your website or retail point of sales checkout environment and the payment processing infrastructure.

While the merchant account basically forms part of an underlying acquiring relationship that allows your business to receive card payment proceeds. Depending on the provider and the processing arrangement, these services may be supplied together or by different companies. The exact transaction flow depends on the payment method, gateway, processor, acquiring institution, business model, and the geographic market.

Merchants must, therefore, review the complete processing arrangement rather than just evaluating a merchant account offer solely on its advertised transaction rate.

At QuadraPay, we recommend the growing businesses to understand the structure carefully because it is important as it involves more than simply accepting card payments.

The merchant account, payment gateway, acquiring relationship, risk control, settlement terms, and checkout procedures, they all work together to determine how a business receives and manages credit and debit card payments.

Dedicated Merchant Account vs. Payment Aggregator

Businesses can generally access card payment acceptance through different structures. The two most common approaches are an individual underwritten dedicated merchant account and an aggregated payment model that is offered by payment service providers or payment facilitator.

With a dedicated merchant account, the business is carefully evaluated individually, and it receives a processing relationship associated specifically with that particular merchant. The acquiring institution and the processing partners assess the company’s industry, ownership, transaction profile, expected volume, financial position, and other risk factors before the account is approved.

An aggregated model generally allows multiple businesses to access payment acceptance through a larger provider’s processing infrastructure. This can make the onboarding process faster and simple and such setup are generally beneficial for startups and small business merchants that require straightforward payment solution. However, the trade-off is that of pricing, account configuration, and risk control, because they can be standardized.

With a dedicated MID, merchants get greater scope of control. They get individual commercial terms, processing arrangement, and such accounts are particularly beneficial for businesses that have got established processing history or some kind of complex requirements.

However, it is important to understand that approval of such accounts involves more extensive underwriting and this is because the acquiring relationship is being established specifically for that merchant.

The difference does not mean that one model is automatically better than the other one. A small business that processes relatively small volume and is focused on fast onboarding may generally find an aggregated provider as a convenient option.

A growing company with significant transaction volume and specialized payment processing requirements or such businesses that need more individual acquiring relationship may have stronger reasons to consider a dedicated merchant account for their business operations.

Businesses must compare the two structures based on transaction volume, the industry in which they operate in, the risk profile, payment methods that they are going to use, customer geography, settlement requirement, pricing, and long-term growth plans, and not only choose the solution based on the speed of initial approval.

Dedicated Merchant Account vs. Aggregated Processing

Who Should Consider A Dedicated Merchant Account?

A dedicated merchant account can be very useful for businesses that have moved beyond basic payment acceptance and now require a processing arrangement that is designed around their specific operating model.

The decision is usually more relevant when the transaction volume, average ticket size, international sales, recurring payments, demand increase. It also depends on the industry requirements and operational complexity of the merchant’s business.

Established businesses that have consistent processing history may benefit from having their processing relationship evaluated according to their own financial and transaction profile, rather than being grouped into a generalized merchant category where multiple small-volume merchants are also utilizing the same solution.

A documented processing history can also help the acquiring institution with more information when they are assessing the expected transaction volume and merchant risk.

Growing businesses may also consider a dedicated merchant account when the payment processing becomes a significant part of their daily operations. Higher transaction volume can sometimes make pricing, settlement schedule, chargeback management, fraud control, and account stability extremely important.

E-commerce businesses that have international customers or those merchants that accept recurring billing, they should evaluate dedicated merchant accounts. Along with that, merchants that have got higher value transactions or those that accept multiple payment methods may also have complex requirements that cannot generally be fulfilled through a basic payment processing account. In such situations, merchants should check with direct acquiring institutions if they can be approved for a much stronger payment processing setup.

A dedicated merchant account may also be worth considering when a business requires some kind of specialized acquiring support, and this can be because of its industry or transaction profile. Some industries receive additional scrutiny from acquiring institutions, and this can be because of chargeback exposure, regulatory requirement, customer dispute patterns, or delivery timelines.

However, a dedicated merchant account is not automatically necessary for every business. A small company with a simple payment requirement may find an aggregated merchant account to be more convenient.

The right structure depends on the merchant’s present business requirements and where the business is going and how the business is going to transform its payment acceptance operations in the future.

What Is A Merchant Identification Number, MID?

A merchant identification number, commonly referred as MID, is basically an identifier that is associated with a merchant’s payment processing relationship. It allows the acquiring and the processing infrastructure to clearly identify transactions that belong to a particular merchant.

A MID should not be confused with the company’s bank account number, tax identification number, or business registration number. These identifiers serve different purposes. The MID relates specifically to the merchant’s payment processing relationship with the acquiring institution, while the business bank account is used to receive and manage funds after the applicable settlement process is done.

For a business that is operating under a dedicated merchant account structure, the processing relationship is generally established specifically for that merchant, rather than treating the business as one of many sub-merchants that operate under a generalized, aggregated payment arrangement.

The MID can also become relevant when a business uses multiple payment channels. Depending on the acquiring arrangement, a merchant may have different processing configuration for e-commerce, card-present transactions, recurring billing, or other payment environments.

The exact structure will depend on the processor, acquiring institution, and the requirements of the business. Understanding the MID is extremely useful for business owners, because it helps in clarifying who is actually providing the merchant acquiring and processing relationship.

Before you sign any payment processing agreement, you should understand which company is providing the service, where the acquiring relationship is established, and how transactions are processed, and where the settlement funds are being sent.

What Does A Dedicated Merchant Account Cost?

There is no universal pricing for a dedicated merchant account. The total cost of payment processing depends on various factors, and these include the merchant’s industry, transaction volume, average ticket size, card mix, processing history, geographic market, risk profile, and the commercial terms that are offered by the acquiring and payment processing partners.

The most viable cost is usually the transaction processing fee. Depending on the pricing model, this can include a percentage of the transaction amount plus a fixed fee per transaction, or a combination of different components. Some merchants may be offered interchange plus pricing, while other businesses may only receive bundled or fixed rate structure.

Additional charges can also apply, and this depends on the processing arrangement. These may include gateway fees, monthly account fees, settlement fees, chargeback fees, termination or equipment cost, compliance-related fees, and other service charges.

Not every merchant will incur every type of fee and that is why every business owner should review the complete pricing schedule, rather than comparing only the headline transaction rate.

Risk-related terms can also sometimes affect the overall economics of an account. Depending on the merchant’s profile, an acquiring institution may require a fixed or rolling reserve. These are implemented as risk control arrangement. These terms should be reviewed carefully by merchants before they sign the agreement.

A lower advertised pricing rate does not necessarily mean a lower overall cost. That is why every business owner that is applying for a dedicated merchant account should carefully evaluate the term sheet, settlement term, reserve requirement, gateway cost, support arrangement, and any other applicable fee before saying yes to a provider.

A proper pricing quote should be based on the merchant’s actual business model and transaction profile, rather than a generic rate that is advertised to every business.

What Factors Determine Dedicated Merchant Account Pricing?

Dedicated merchant account pricing is generally influenced by the level of risk and operational cost that is associated with processing a merchant’s transaction. Payment service providers and acquiring institutions evaluate several characteristics before they establish the commercial terms for the merchant.

Monthly processing volume is definitely one of the most important factors. A business that processes a few thousand dollars per month may have a very different risk profile than a company that processes hundreds of thousands of dollars. However, higher volume does not automatically guarantee lower pricing because there are certain other characteristics of the business which may also affect the underwriting decision.

Average transaction size can also influence the risk profile of the merchant. A business that processes a larger number of small transactions presents a different transaction pattern from a business that processes fewer high-value payments.

The industry and the business model are equally important. Businesses that have longer fulfillment period, subscription billing, higher chargebacks, exposure, regulated products, or other specialized characteristics may receive different terms from the payment processors when compared to businesses that have simple card-present transaction acceptance requirement.

The processing history is another important consideration. Historical statements can help the underwriters easily understand actual sales volume, refund activity, chargeback risk, and the transaction pattern.

A consistent history can provide more information than purely projected processing volume. Other factors can include the percentage of international transactions, the location of customers, card-present versus card-not-present transactions, the kind of currencies processed, refund rates, chargeback performance, and the financial strength of the business as well as the ultimate beneficiary owners.

The Application Process for a Dedicated Merchant Account:

The application process for a dedicated merchant account typically involves filling out an application form and providing Know Your Customer (KYC) documents. As a dedicated solution carries a higher risk, the requirements for KYC documents may be more extensive compared to other types of merchant accounts. To expedite the approval process, QuadraPay advises applicants to submit all relevant KYC documents requested by the acquiring bank.

What Documents Are Required To Get The Approval Of A Dedicated Merchant Account?

The documentation that is required for a dedicated merchant account depends on the acquiring institution, location of the merchant, industry in which the merchant operates, ownership structure, transaction profile, and the risk level.

Businesses should expect the acquiring or processing partner to verify both the company and the individuals who control it.

General business documents includes company registration information, ownership details, government-issued identification for business owners and directors, tax identification information, and business banking details.

Depending on the application, an acquirer may also request financial information or evidences that demonstrate the company’s ability to support its expected processing activity.

Businesses with an existing processing history may be asked to provide recent processing statements. These statements can help an underwriter compare historical transaction volume, average ticket size, refund and chargeback activities with the projections included in the new application.

An online business may need to provide information about its website, products or service pricing, fulfillment process, and customer support procedure. Along with that, it should also provide website policies such as terms and conditions, privacy information, shipping or delivery information, refund policy, cancellation terms.

Additional documents may also be requested when the business has got international ownership or a complex corporate structure. Sometimes businesses operating in high-risk sectors may be asked to provide document specific to the merchant line of business or product or service being sold. By providing accurate and consistent information, business owners can expect faster response from the underwriting team.

The Underwriting Process for a Dedicated Merchant Account:

Due to the increased risk associated with a dedicated merchant account, the underwriting process may be stricter and take a few days. Underwriters assess various factors, including merchant creditworthiness, reputation, past businesses, political exposure, industry type, and credit risk, among others. Additionally, the compliance team may request additional documents from the merchant to ensure a thorough evaluation.

What Does A Merchant Account Underwriter Look For?

A merchant account underwriter evaluates whether the proposed processing relationship is appropriate for the acquiring institution’s risk parameters or not. The objective is not simply to determine whether a business is genuine, but the assessment also considers factors such as expected transaction activity, and whether it can be supported with the acquiring institution’s risk framework.

One important consideration is the clarity of the business model. Every underwriter wants to understand what the merchant sells, who is the customer, how the customer pays, how the products or services are delivered, and when the merchant recognizes the revenue.

Expected processing volume is also compared with the underlying business. If a newly established company commits a very high monthly card volume without any supporting information, then the payment service provider may request additional documentation before finalizing the appropriate processing terms.

Historical processing performance can also provide extremely valuable evidence. When available, processing statements allow the underwriters to evaluate actual sales volume, average transaction size, refund, and chargeback activity.

The merchant’s website and customer-facing disclosures may also be reviewed. Clear product descriptions, images, pricing, contact information, refund policy, terms and conditions, delivery policies can all demonstrate that the merchant is giving appropriate information to the customer before the completion of any transaction.

Ownership and the management information is another part of the assessment. Underwriters at acquiring institutions, they conduct identity and business checks on relevant individuals and entities that are associated with the merchant.

Ultimately, underwriting is basically a risk assessment process rather than a simple approval checklist. A strong application is one where the business model, documentation, financial information, and expected transaction activity are consistent and can be independently supported without any flaws.

The Setup Time Frame for a Dedicated Merchant Account

As the approval process for a dedicated merchant account carries more complexity and risk, it may take longer compared to other types of merchant accounts. The compliance team may also request the merchant to make modifications to their website to comply with the requirements of Card Schemes and Acquiring banks. In some cases, merchants from high-risk industries may not qualify for a dedicated merchant account. They may need to explore offshore payment processors as an alternative.

Settlement Terms and Other Features of a Dedicated Merchant Account

A key benefit of a dedicated merchant account is faster settlements to the merchant’s business bank account. However, to mitigate risk, processing companies may sometimes delay settlements on a case-by-case basis. The terms related to arrears, if any, are mentioned in the merchant account agreement or term sheet provided by the processing company.

Business owners can negotiate transaction rates with processors to get better rates. Rates may vary depending on the industry, sales volume, average ticket size, and merchants’ processing history. Some merchants may even qualify for Interchange ++ pricing. In contrast, others may have to accept fixed pricing, depending on their negotiation and processing history.

Advantages of a Dedicated Merchant Account

• Enhanced Control: With a dedicated merchant account, business owners have more control over their payment processing solution. They can better manage account performance and take measures to maintain a low chargeback ratio, reducing risk and improving overall payment processing efficiency.
• Dedicated Customer Support: Merchants with a dedicated account usually have access to better customer support from the acquiring bank or payment processor, and this ensures that any account-related issues or concerns can be promptly addressed, providing merchants with peace of mind and reliable support when needed.
• Flexibility and Customization: Unlike aggregated merchant accounts with limited customization options, a dedicated merchant account provides more flexibility and customization capabilities. Merchants can often negotiate for better rates and choose between different pricing models based on their business needs. They can also request additional payment methods or connectors to be added to their dedicated account, catering to their customers’ payment preferences.

Dedicated Merchant Account Frequently Asked Questions

What Is A Dedicated Merchant Account?

A dedicated merchant account is a payment processing arrangement that is established specifically for a business. It is generally associated with an individual merchant relationship and merchant identification number, rather than operating through a shared, aggregated payment processing structure.

What is the difference between a dedicated merchant account and an aggregated merchant account?

A dedicated merchant account is individually underwritten for the business, while an aggregated payment solution allows multiple merchants to process payments through a larger provider’s payment infrastructure. Dedicated accounts generally provide more individualized pricing and processing arrangements, while aggregated merchant accounts offer simple and faster onboarding.

Do I get a merchant ID with a dedicated merchant account?

A dedicated merchant processing relationship is generally associated with a merchant identification number, that is MID, and it helps in identifying the merchant within the payment infrastructure. The exact account structure depends on the acquiring and the processing arrangement between the merchant and the payment solution provider.

Is a merchant account the same as a bank account?

No. A merchant account is a part of the payment infrastructure that is used to process credit and debit cards, while a business bank account is used by the company to hold and manage funds. Processed card transactions are generally settled to the merchant’s registered business bank account according to the processing agreement between the merchant and the PSP.

How long does it take to get a dedicated merchant account?

The time frame varies as per the merchant’s industry, documentation, ownership structure, processing history, transaction profile, and the acquiring institutions. Applications that require additional compliance or risk review may take longer than simple applications.

How much does a dedicated merchant account cost?

There is no universal pricing, and the cost can include transaction processing fees as well as various other charges, such as gateway fee, monthly fee, settlement fee, chargeback penalty, equipment rental, or other service fees. The pricing will depend on the merchant’s business model, transaction volume, risk profile, and couple of other factors.

Can startup get a dedicated merchant account?

Startups may be eligible, although businesses that have existing processing history may receive better approval possibility. Startups may have to provide additional information because in such cases, acquiring institutions have less historical transaction data to evaluate. The business model, financial information, ownership, and expected processing history, expected processing activity, they all are considered for startups.

Can high-risk businesses get a dedicated merchant account?

Some high-risk businesses, especially those operating in sectors such as gaming, online dating, matchmaking, CBD, vape, cigars, tobacco, pharmacy, they may get dedicated merchant accounts through high-risk acquiring institutions that support such industries.

The eligibility definitely varies significantly by industry, jurisdiction, products, transaction characters, and the underwriting policies of the payment service providers at the time when the merchant makes the application.

Can an international business get a dedicated merchant account?

International business may be eligible depending upon the corporate structure, operating location, customer geography, banking arrangements, and the requirement of the acquiring institutions. Cross-border businesses should clearly disclose where the company operates and where customers and settlement funds are located.

What documents are required?

The requirements can vary, but in most of the cases, businesses are asked to provide corporate documents, identifications, ownership information, tax information, banking details, processing statement, financial information, and website or business model documentation.

Can I use my existing payment gateway with the dedicated MID?

There is a possibility of doing that. However, the compatibility totally depends upon the payment gateway, processor, and the acquiring institutions, and the available technical integrations. Merchants should confirm gateway compatibility before changing their processing arrangement.

Can a dedicated merchant account support recurring payments?

Some dedicated merchant account providers do support recurring and subscription transactions. However, the availability and requirements depend on the gateway, processor, acquiring institution, and the nature of recurring billing model.

Can I accept international cards?

Most of the dedicated merchant account providers offer support for international card acceptance, but the currencies, countries, and transaction types support depends on the processing arrangement and the policies of the payment service provider. Cross-border processing can also involve different pricing, fraud, and risk consideration.

Can a dedicated merchant account have a rolling reserve?

In the case of high-risk merchants, this is true most of the times. Depending on the profile of the merchant and acquiring institution requirement, a reserve may be required. The amount, calculation method, and release conditions should be reviewed by the merchant before accepting the term sheet.

What happens if my chargeback increases?

An increase in chargeback can lead to additional risk review and, depending on the circumstances, changes to the payment processing terms or other risk controls. It is important for merchants to carefully monitor disputes continuously and maintain appropriate transaction fulfillment and customer service records.

Can I switch from a payment aggregator to a dedicated merchant account?

Yes, businesses may be able to move from an aggregated payment provider to a dedicated merchant account. However, before switching, merchants should review the processing history, gateway compatibility, pricing, settlement terms, chargeback arrangement, and technical requirements.

What if my dedicated merchant account application is declined?

The first step should be to understand the reason why the application was declined. The business can then determine whether additional documentation, clarification, website changes, or different acquiring relationship may be appropriate.

Ask QuadraPay Today About Dedicated Merchant Account Solutions

If you’re a business owner in the UK, US, EU, EEA, AU or NZ considering a dedicated merchant account can be a wise decision to enhance your payment processing capabilities and optimize your business operations.

For more information on dedicated merchant accounts and how they can benefit your business, don’t hesitate to contact QuadraPay. Our team of payment experts can guide you through the intricacies of dedicated merchant accounts and help you choose the right payment processing solution that aligns with your business requirements. Contact us today to explore the benefits of dedicated merchant accounts for your business!