Current accounts and merchant accounts are two types of accounts that are widely used in the business world in India. While both types of accounts are used by businesses, there are several key differences between them. In this article, we will explore four differences between current accounts and merchant accounts.
Purpose of the Account
The first and most significant difference between current accounts and merchant accounts is their purpose. Current accounts are primarily used for day-to-day transactions and managing the cash flow of a business. They are generally held by businesses that have a high volume of transactions and require frequent deposits and withdrawals. These accounts are designed to cater to the needs of businesses that require quick and easy access to their funds.
Merchant accounts, on the other hand, are designed specifically for businesses that accept card payments. These accounts are used to process card payments made by customers, and the funds are deposited directly into the merchant’s account. Unlike current accounts, which are used for managing cash flow, the primary purpose of a merchant account is to process payments.
Fees and Charges
Another major difference between current accounts and merchant accounts is the fees and charges associated with them. Current accounts typically charge fees for services such as cheque books, overdraft facilities, and ATM usage. In addition, current accounts may also have minimum balance requirements that businesses must maintain to avoid fees.
Merchant accounts, on the other hand, charge fees for card processing services. These fees may include transaction fees, monthly fees, and other charges. The fees charged by merchant account providers vary depending on the provider and the type of card being processed. However, in India, the Reserve Bank of India (RBI) has mandated a cap on Merchant Discount Rate (MDR), which is the fee charged by banks to merchants for accepting payments through debit or credit cards.
The documentation requirements for current accounts and merchant accounts also differ significantly. To open a current account, businesses typically need to provide basic identity and address proof documents, along with proof of business registration. In addition, businesses may need to provide details of their business activities and financial statements to comply with Know Your Customer (KYC) norms.
Merchant accounts, on the other hand, require additional documentation, including a copy of the business’s PAN card, GST registration, and proof of ownership of the business premises. In addition, merchant account providers may require additional documents such as bank statements, cancelled cheques, and audited financial statements to assess the business’s creditworthiness.
The settlement periods for current accounts and merchant accounts also differ significantly. In a current account, the funds deposited by the business are available for immediate use, and withdrawals can be made at any time. However, in a merchant account, the funds received from card payments are not immediately available to the merchant.
The settlement period for merchant accounts varies depending on the provider, but it typically ranges from 24 hours to 48 hours. During this time, the payment processor verifies the transaction and processes the payment before transferring the funds to the merchant’s account. In some cases, the settlement period may be longer, particularly for high-value transactions or transactions involving foreign cards.
In conclusion, current accounts and merchant accounts are two types of accounts that are widely used by businesses in India. While both types of accounts are used for managing funds, they serve different purposes and have different features. Businesses that require frequent deposits and withdrawals and need to manage their cash flow typically opt for a current account, while those that accept card payments require a merchant account. When choosing between a current account and a merchant account, businesses should consider their specific requirements and choose the account that best suits their needs.