Merchant accounts are bank accounts specifically designed to accept credit card payments. Such payments can be made by customers at either the store itself through a credit card terminal or online through a shopping cart made in the web page of the company.

To accept a credit card payment, a merchant first requires an Internet merchant account in a bank or financial institution.

Merchants who have a high-risk business such as adult services providers, online gaming business, casinos, find it hard to obtain a merchant account. This is because of the risks of credit card frauds increase with of the high turn-over involved. The result is that banks shy away from providing Internet accounts to these merchants, who can then turn to private acquiring institutions to provide them merchant account services.

After obtaining a merchant account, the merchant would require a payment gateway account. This is basically the processing account, which verifies the authenticity of the credit card and then transfers the funds to the merchant account.

The customer enters his credit card information on the merchant's web page. This should take place on a secure web page, meaning that the information collected in this web page should be encrypted so that it cannot be read by any third party. This is mandatory to reduce credit card frauds. Next, the shopping cart program then compiles the information and transmits the same to the credit processor, which is the payment gateway. The card processor verifies the information and determines the company that manages the customer's credit card, and then transmits the billing request.

Upon receiving the request, the credit card company validates the accounts and ensures everything is in order. It then sends back an acknowledgement to the payment gateway. If the information is found to be authentic, the credit processor initiates the transfer of the funds to the merchant account.

The merchant account collects the funds for a certain specified period of time, after which it transfers the amount to the merchant's regular bank account.

The merchants also have the choice of opting for a third party merchant account. Here, the merchant account provider company collects the funds on the behalf of the merchant.

Processing fees for third party merchant account providers are higher than of a personal merchant account. The processing of merchant accounts works in the same way for both merchant accounts and third party accounts. The only difference is that instead of paying directly in the merchant's website, the customers are directed to pay in the third party processor website. The customers enter their credit card details in the third party processor's website and the rest of the process works the same way.