A merchant account is a certain type of bank account which is designed to allow businesses to accept payments made by their clients with a debit or credit card. In other words, a merchant account is an agreement between three parties: a retailer, a merchant bank and a payment processor for the purpose of settling credit and debit card payments. When a customer pays for his or her purchase with a credit or debit card, the funds are initially deposited into the merchant account and eventually transferred further to the bank account of the business. The transfers to the bank account are usually organized on a daily or weekly basis.

Types of Merchant accounts
There are various types of merchant accounts that typically can be grouped into two categories and the description of each type gives a rather clear overview which of them would be the most suitable for your business. The main categories of a merchant account are swiped and keyed.

Swiped merchant account is usually used when a business meets its clients face-to-face and during this meeting a client is able to swipe his or her card to pay for the products and services. This type of merchant account is usually described further in respect to the application of the said account:

Retail Merchants – conduct transactions in a retail environment. The customer's card is swiped through a terminal and typically a signature or a pin code is captured;
Wireless / Mobile – similarly as retail merchants, but in a wireless environment using a mobile terminal. An example of such a merchant would be a taxi driver or a pizza delivery;
Restaurant – similarly as retail merchants but with an additional function – ability to add tips to the charge. According to the name of this type of merchant account, mostly used by restaurants and cafes;
Lodging – similarly as retail merchants but the business may adjust the payment amount according to additional charges. This type of merchant account is used by hotels and bed & breakfasts in case a client has used a minibar or other extras.
Keyed merchant accounts are used when the customer card's information is taken over the phone or internet (or sometimes even in person) and keyed in by the employee himself. While this application of a merchant account takes more time and is less convenient, it is also less expensive than the previously discussed merchant accounts.

Internet or e-commerce merchants – for businesses that operate through a website and use internet payment gateway service to collect the customer's card information and process it accordingly;
Mail & Telephone Order – the customer's card information is delivered over the phone, mail or internet and manually processed through either a credit card machine or virtual terminal;
Face to face – this type of merchant is similar to wireless / mobile swiped merchant account, but instead of investing more funds to acquire a mobile terminal, it is possible to take the necessary information of the customer and key it in over the phone.

Advantages and disadvantages of a merchant account
While it is crucial to choose the most appropriate type of merchant account depending on its intended application for the best experience, there are some general pros & cons to be discussed.

Advantages:

Increased sales – due to higher convenience in comparison to cheque or cash payments;
Faster transactions;
Security – no risk of theft or unintentional mistakes by employees when working with cash;
More choices – the more payment options you offer to your clients, the more convenient it is for them to shop with you;
Ability to accept multi-currency credit or debit cards.

Disadvantages:

Cost – typically, a business has to pay for each transaction;
Delay – customer's funds are first deposited to merchant account and only later transferred to the business bank account;
Fraud – there is always a risk of identity theft or internet fraud;
Charge backs – it is easy for customers to require a charge back, especially if the funds are still in the merchant account.