Merchant account explained: How to accept digital payments

Key takeaways:

• A merchant account is a specialised account that holds customer funds from card payments before they're transferred to your business account.

• Your business bank account is the central hub for spending and operations, while your merchant account is the necessary entry point for all digital sales revenue.

• Instead of juggling separate providers for your gateway, processor, and merchant account, platforms like Airwallex bundle these into a single business account to speed up your access to funds.

If you want to run a business today, you have to be able to accept digital payments. Since over 90% of customers now use digital payments, a merchant account is now a “must-have” for businesses.

But here’s the tricky part: the account itself doesn't actually "process" the payment. You usually have to cobble together a few different systems – gateways, processors, and the account itself – to get the money from your customer to your bank. It’s a lot of moving parts to manage, but modern setups are finally starting to simplify that process.

In this article, we’ll break down exactly how these accounts work, the difference between a merchant account and your regular business bank account, and how Airwallex combines these tools into one platform to help you skip the usual complexity.

What is a merchant account?

A merchant account is a special type of account that lets businesses accept and hold funds from debit and credit card payments. 

When a customer pays by card, the money doesn't immediately appear in your primary business bank account. Instead, it is held in the merchant account during a "settlement period." This delay allows the payment processor to verify that the transaction is legitimate and that sufficient funds exist, while also providing a buffer for potential refunds or disputes.

Merchant account vs. business bank account

While they sound similar, these accounts have very different jobs. A merchant account is strictly for accepting credit and debit card payments: it acts as a temporary landing spot for sales revenue. Your business bank account, on the other hand, is your primary hub for managing cash flow, paying bills, and handling day-to-day expenses.

Generally, you must set up a business bank account first. Once your merchant account clears a batch of transactions, it "settles" the funds by transferring them into this primary business account.

Payment gateways vs payment processors vs merchant accounts

To accept card payments, you traditionally need three distinct pieces working. While they happen in seconds, each plays a different role in getting the money from your customer’s pocket to your bank account.

Payment gateway

This is the secure software interface that captures the customer’s payment data, either via an online checkout page or a physical point of sale (POS) terminal. Its role is to encrypt this sensitive information and transmit it securely to the processor.

Payment processor

The processor manages the communication between the merchant, the card networks (such as Visa or Mastercard), and the customer’s bank. It handles the request for authorisation and returns a "denied" or "approved" status to the merchant.

Merchant account

This is a dedicated account where funds are held after a transaction is approved. Because card payments aren't settled instantly, the merchant account serves as a necessary staging area for funds until they are cleared for transfer to your primary business bank account.

The Singapore context: PayNow and SGQR

While credit cards rely on the payment gateway, payment processor, and merchant account, Singapore’s local payment landscape offers a significant shortcut.

Because methods like PayNow are built on FAST (Singapore’s real-time interbank network), they can bypass the multi-day settlement cycle associated with Visa or Mastercard. Instead of waiting for a processor to clear the funds into a staging area, the money moves from the customer's bank to yours almost instantly.

PayNow corporate

When a customer pays via your UEN or a PayNow QR code, the funds typically land in your business bank account immediately. This provides a level of liquidity that traditional merchant accounts can't match, as there is no "holding period" required for the bank to verify the transaction.

SGQR

You’ve likely seen the single SGQR label at checkout counters. This isn't a separate payment method, but a unified label that combines several different ways to pay – like GrabPay, PayNow, and credit cards – into one code.

Behind the scenes, a service provider handles the complexity of organising these different streams for you. They ensure that while your PayNow funds hit your bank account instantly, your card-based sales are still funnelled through the necessary merchant account steps so you receive a single, clean statement at the end of the month.

How do you get a merchant account?

The type of merchant account you need depends almost entirely on how and where you sell. Generally, most Singaporean businesses choose one of these three options:

Option 1: All-in-one payment platforms

Providers like Airwallex are Payment Service Providers (PSPs). They bundle the gateway, processor, and merchant account into a single platform. This is the fastest way to get started and is ideal for businesses that want to avoid managing multiple contracts.

Option 2: POS providers

If you have a physical storefront, companies like Square or Clover provide the card-reading hardware and the account software as a package deal.

Option 3: eCommerce platforms

Builders like Shopify often have their own built-in payment systems. They let you start selling immediately without having to find a third-party processor.

How to open a merchant account

Because most modern businesses in Singapore now prefer to use PSPs like Airwallex, the process of opening a merchant account has become significantly faster. Instead of dealing with multiple vendors, you are essentially opening a single "business account" that includes merchant services.

What to look for in a provider

While setup is faster, not all providers are the same. When comparing your options, keep these factors in mind:

• Integrated Services: Does the provider offer a "one-stop shop"? Ideally, you want a partner that provides the gateway, the processor, and the merchant account in one integration to avoid technical friction.

• Security & Compliance: Ensure they are PCI DSS compliant and offer robust fraud detection and tokenisation to protect your customers' sensitive data.

• Pricing Structure: Look for transparency. Some providers charge flat per-transaction fees, while others have "hidden" costs like batch fees, early termination charges, or monthly minimums.

Understand your fee structure

Since you're using a unified business account, you won't see a separate "merchant account bill" and "bank bill." Instead, your costs are generally grouped into payment processing fees.

For the Singapore market, there are four specific fees you should check to understand your true costs:

1. Merchant Discount Rate (MDR)

This is the core fee for processing a transaction. In Singapore, this typically ranges from 1.5% to 3.5% for credit cards. For example, DBS charges an MDR of 2% per transaction for retail shops and 3% per transaction for service-related merchants². 

2. PayNow vs. Card fees

One of the perks of a modern Singapore business account is the ability to accept PayNow. These fees are usually much lower – often a small flat fee rather than a percentage. For example, OCBC charges businesses S$0.20 per transaction³.

3. The "foreign card" surcharge

If a customer uses a card issued outside of Singapore, many providers add an extra surcharge. For example, Stripe adds an extra 0.5% on top of the domestic card rate, and around 2% if currency conversion is needed⁴.

4. FX & conversion markups

This is a silent profit-killer for eCommerce. If you sell in USD but your account only settles in SGD, you’re losing money on the exchange rate itself. 

Most traditional banks don't charge a transparent "FX fee" for incoming money. Instead, they give you a lower exchange rate than the one you see on Google. For example, DBS card transactions typically face a combined cost of 3.25%⁵.

On a US$10,000 USD sale, that difference means you could receive up to US$325 less than the actual market value. To avoid this, look for a provider that offers multi-currency settlement, such as Airwallex. This lets you keep your USD exactly as it is, so you can use it to pay global suppliers or wait for a better rate to convert it yourself.

5. Other administrative and incidentals fees

Even if there's no monthly "account fee," check for chargeback fees (if a customer disputes a sale) and refund fees (some providers keep the original processing fee even if you refund the customer).

The logistics of opening an account

Once you’ve compared the processing fees and selected a provider that fits your business model, the final step is the application.

For a Singapore-registered business, the application is typically 100% digital. Most providers will use your Unique Entity Number (UEN) to pull information directly from government sources, but you should still have the following documents ready to ensure a smooth approval:

• Business Profile: A recent ACRA BizFile (usually dated within the last 6 months) as proof of registration and ownership.

• Identification: Clear copies of NRICs or Passports for all directors and ultimate beneficial owners (anyone holding 25% or more of the company).

• Operating Proof: Your business website URL or a clear description of your products/services.

• Bank Details: A bank statement for the account where you want your funds to be settled.

With Airwallex, our sign-up process is fully online and takes only about 15 minutes. In most cases, accounts are approved within a few business days after you submit all required documents.

Get the most from your merchant account

While merchant accounts are essential for accepting payments, managing them alongside separate payment processors and gateways can be a major administrative burden. You’re often left reconciling data between different platforms and losing money on every transfer.

Instead, use Airwallex to simplify the entire cycle. We’ve built a Global Account that does more than just hold your money – it connects your sales directly to your spending. Here’s how that actually looks for your business:

• Accept funds and settle like-for-like in 20+ currencies: You can collect payments from customers and keep them in their original currency. If you earn USD, it stays USD. This lets you bypass the forced conversion fees traditional banks charge just to "move" your money into a local account.

• Bridge the gap between sales and spend: Because your merchant services are part of your business account, your funds are available immediately. You can use your balance the same day to pay global suppliers or top up your team’s multi-currency Corporate Cards.

• Automate your admin: By handling your gateway, processing, and business account in one place, your reconciliation is done for you. No more matching transaction IDs across three different statements – it all syncs directly with Xero or QuickBooks.

Frequently asked questions (FAQs)

Can anyone get a merchant account?

Most businesses with a registered entity and business account can open a merchant account, though getting approved depends more on your industry and transaction history than business size.

Why do I need a merchant account?

You need a merchant account to accept credit and debit card payments from your customers, whether online or in person. It's the essential link between your customer's bank and your business bank account.

How long does it take to open a merchant account?

Traditional banks may take a week or longer, while modern financial platforms like Airwallex often approve applications within a few business days once you've submitted everything.

What's the difference between a merchant account and a payment gateway?

A payment gateway is the technology that securely captures and transmits customer payment information during a transaction. A merchant account, on the other hand, is where the funds from those transactions are held before they’re transferred to your business bank account. The gateway handles the transaction, while the merchant account manages the money.

Can I have multiple merchant accounts?

Yes, you can set up multiple merchant accounts to handle different currencies or sales channels. However, platforms like Airwallex Global Accounts simplify this by letting you manage multiple currencies and payment streams from a single, unified platform.

Sources:

1. https://www.mckinsey.com/industries/financial-services/our-insights/banking-matters/consumer-digital-payments-already-mainstream-increasingly-embedded-still-evolving

2. https://www.dbs.com.sg/iwov-resources/forms/sgsme/en/day-to-day/accounts/business-account/merchant-services-pricing.pdf

3. https://www.ocbc.com/business-banking/notices

4. https://stripe.com/en-sg/pricing 

5. https://www.dbs.com.sg/personal/cards/cards-rates-fees.page 

This publication does not constitute legal, tax, or professional advice from Airwallex, nor does it substitute seeking such advice, and makes no express or implied representations / warranties / guarantees regarding content accuracy, completeness, or currency. If you would like to request an update, feel free to contact us at [[email protected]]. Airwallex (Singapore) Pte. Ltd. (201626561Z) is licensed as a Major Payment Institution and regulated by the Monetary Authority of Singapore.