What Is an Internet Merchant Account?

person online shopping using a credit card

An internet merchant account is a business account that allows you to process online transactions. If you run a solely electronic venture or make sales using in-person card machines and a website, you’ll need to use one. If you plan on doing either of these, setting up an internet merchant account should be one of your first steps.

The ecommerce market is booming, and with revenue predicted to reach £114 billion in 2023 (according to data gathering company Statista), we see its appeal. However, with the rising business costs in the UK, we also understand why you may be wary of paying additional fees to do so.

In this article, we’ll explain what internet merchant accounts are, the businesses that need them, the costs involved, and how you go about setting one up.

What Is an Internet Merchant Account?

An internet merchant account is a business account that stores your money after a customer makes a purchase using their credit or debit card. Think of it as a buffer zone, where your income sits while on its way to you.

Unlike regular merchant accounts, they’re not designed to process in-person transactions, operating solely with online purchases with the help of a payment gateway and a payment processor. Online payments come with more risks and require extra software, so internet merchant accounts usually charge higher transaction fees than their general counterparts.

Internet Merchant Accounts vs. Payment Gateways: What’s the Difference?

An internet merchant account is a storage for your customer’s money before it goes to your account, whereas a payment gateway is a software that sends your customers’ payment details from your web store to your payment processor. The best payment gateways are the ones that do this quickly and reliably.

Payment gateways come into play very early in the process, capturing and transferring your customers’ data as the sale happens. Internet merchant accounts, on the other hand, only show up after the transaction is authorised. Overall, the process looks like this:

  1. Your customer makes an online order and their payment details are passed on to the payment gateway
  2. Your payment gateway sends the details to your payment processor
  3. Once your details are with your payment processor, it will then request authorisation from your customer’s bank (also known as the issuing bank)
  4. If enough funds are available, the transaction is authorised and your payment processor transfers the money to your internet merchant account (also known as the acquiring bank)
  5. From there, the money finally reaches your bank account.

Do I need an internet merchant account?

If your business relies on online sales in any capacity, you’ll need an internet merchant account. If you only sell through a brick-and-mortar location, and don’t take online payments at all (like a bar or a small cafe, for instance), you’ll only need a regular merchant account.

Can I take online payments without an internet merchant account?

You can take online payments without an internet merchant account through a number of ways, like using a payment-processing company or selling through online marketplaces.

Payment-processing Company

A payment-processing company is a third party that takes payments from your customers on your behalf, and then transfers these payments straight to your bank account. If your card sales are low and don’t justify the cost of an internet merchant account, a payment-processing company, like Adyen or PayPal, will be the best option.

While these companies offer an easier setup process and require less documentation than internet merchant accounts, the transaction fees are higher and the payout times are longer. This may not be ideal if you need fast access to your funds. Some of your customers may also be put off by the fact that they’re not paying you directly, which can compromise their checkout experience.

Online Marketplaces

Online marketplaces host the products of several businesses in one website. This allows you to sell your products on their platform, and they will process your payments when you make a sale. This can be a good choice for businesses looking to expand their sales channels. Famous online marketplaces include Amazon and eBay.

These marketplaces give you an instant foot in the online door and require very little administration on your part, but their transaction fees are usually even higher than the other options. In addition, they may also charge monthly (or annual) account fees. Furthermore, because your products will be hosted on a third-party website, you’ll have little control over their presentation and your customers’ experience.

Internet Merchant Account Costs

Internet merchant account costs normally fall into three categories:

  • Transactional: charged with every sale you make
  • Scheduled: charged on an ongoing basis
  • Incidental: charged as one-offs

To help you plan ahead, we’ll go over the main fees you’re likely to incur.

1. Interchange Fee

Type: Transactional

Definition: These fees go to the issuing banks and, in an online context, vary depending on the type of card your customer uses (i.e. debit, credit, rewards, personal, or corporate). Internet merchant accounts usually add the payment gateway fee here.

Cost: Between 0.4% and 2.75% of the payment, plus a rate of around 10 to 20 pence

Read more about interchange fees here.

2. Assessment Fee

Type: Transactional

Definition: These fees go to the card associations (Visa, Mastercard, or American Express). These fees vary and will depend on where the transaction takes place (UK or abroad), as well as the card’s brand and type.

Cost: Between 0.12% to 0.15% of the payment

3. Account Fee

Type: Scheduled

Definition: This is a fixed cost some internet merchant account providers charge to maintain your account and give you access to their service.

Cost: Between £9.95 and £75 + VAT per month

4. Fixed Acquirer Network Fee (FANF)

Type: Scheduled

Definition: Businesses that take Visa card payments are charged this fee every three months. While it is a fixed fee, the exact amount you’ll pay depends on your sales volume and business type.

Cost: Bespoke

5. Setup Fee

Type: Incidental

Definition: This is a fee charged at the beginning of your contract with an internet merchant account provider. It doesn’t go towards any particular service and it is currently being phased out, but there are some companies that still make use of it.

Cost: Between £60 and £150

6. Chargeback Fee

Type: Incidental

Definition: If a customer disputes a payment made to you and the ruling is in their favour after an investigation, this is the fee you will be charged. When this happens, in addition to paying the fee, you’ll still need to refund the customer.

Cost: Between £15 and £30 per chargeback

Did You Know?

The UK ecommerce is expected to grow 5.58% each year until 2027.

How to Set Up an Internet Merchant Account

You can set up an internet merchant account by following these steps:

  1. Choose the card brands you’d like to accept payments from
  2. Choose the pricing model that best suits your needs. The main ones are: flat-rate, interchange-plus, and subscription. For flat-rate pricing, you’ll pay fixed transaction fees. For interchange-plus pricing, your costs amount to an interchange fee plus a markup. With subscription pricing, you are charged a monthly fee plus an interchange fee per transaction, but no markup.
  3. Find the internet merchant account provider that accepts payments from the cards you’d like, and offers your preferred pricing model
  4. Set up your website and get it ready to sell
  5. Finally, submit your application alongside the required documentation. This varies between providers, but they’ll usually ask for: Certificate of Incorporation, Certificate of Incumbency, a business plan, a description of your goods and services, a live website (including its terms and conditions), and IDs of the company’s owners and directors.

Internet Merchant Accounts and PCI Compliance

As systems that process card payments, internet merchant accounts are subject to the guidelines of the Payments Card Industry (PCI). Because of this, PCI compliance is something you need to pay attention to when choosing (and using) your internet merchant account.

Beyond the issue of being trustworthy to your customers, non-compliance can be a costly affair. Some internet merchant account providers charge a monthly non-compliance fee (usually around £30 and £40) until your business takes the necessary corrective measures. If a data breach occurs because of your non-compliance, you could be looking at a fine of up to £17.5 million.

Some of the requirements to be PCI compliant include:

  • Install and maintain a firewall
  • Change vendor-supplied default passwords and security settings
  • Protect stored cardholder data by restricting and monitoring its access
  • Use and regularly update antivirus software
  • Make sure everyone with computer access has a user ID
  • Have an information security policy

To abide by these requirements, you should complete a self-assessment that shows how secure your system is, and regularly scan the network you use to process payments. To be extra cautious, it’s worth noting that some internet merchant account companies offer you tools to help your business stay – or become– PCI-compliant (for a fee). This normally costs between £2.49 and £29.99 + VAT per month.


Looking to open a merchant account? It’s a good idea to read our guide on how to open a merchant account in seven steps.

Next Steps: Choosing the Right Internet Merchant Account Provider

Businesses owners that rely on online payments need an internet merchant account – even if they also sell in a physical store. This type of business account will allow them to process online transactions and sell through their website.

Ecommerce is a vibrant market, and there are plenty of internet merchant account providers to choose from. We’d recommend shopping around to find the one that’s best suited to the needs of your business.

If you’re ready to start your search, check out our merchant account comparison guide. In it, we cover the pricing and features of the best providers we analysed in our market research, so it can certainly help you pick the right one.

Frequently Asked Questions

What are the advantages of an internet merchant account?
An internet merchant account allows you to process online transactions while helping you stay PCI-compliant. They’re integrated to your website, so it will also contribute to a smooth checkout experience.
Are internet merchant accounts free?
Internet merchant accounts aren’t free. At the very least, you will be charged transaction fees in exchange for their services.
Who provides internet merchant accounts in the UK?
Several companies provide internet merchant accounts in the UK, among these are Stripe, Worldpay, and takepayments.
Is PayPal an internet merchant account?
PayPal isn’t an internet merchant account. It’s a payment processing company, which means that it charges your customers on your behalf and will transfer the funds to you. It doesn’t set up an intermediate business account to store your money while the transaction is taking place.
Written by:
Lucas Pistilli author headshot photo
Lucas is a Brazilian-born journalist and Expert Market’s go-to writer for all things EPOS systems, merchant accounts, and franking machines. Having covered business, politics and technology for many years, he’s driven by his passion for the written word and his goal to help people make well-informed decisions.