Whether operating a retail store, an e-commerce website, or offering services, a merchant account is one thing that you consider important and necessary for the facilitation of easy and smooth financial transactions.
Businesses who are new to accepting online and in-store payments will need to register a merchant account.
A business’s merchant account is a banking account that allows companies to accept and issue payments, generally using credit cards, debit cards, or other electronic ways.
In this article, we will guide you through the process of opening a merchant account, along with some examples.
Additionally, we will discuss some top merchant account providers, and answer whether you should open a merchant account online.
What is a Merchant Account?
A merchant account is a specific type of commercial bank account that allows your organization to accept consumer payments.
It’s a form of intermediary account where the funds are held until they settle into your normal business bank account when someone pays you through credit or debit cards.
First of all, a merchant account becomes imperative in order to start the processing by the payment processors, banks, and all relevant channels.
To properly operate any contemporary business without accepting card payments, a merchant account is essential.
Read about: How Credit Card Transaction Processing Works? A Quick Guide
Open a Merchant Account: Step-by-Step Guide
Step 1: Assess Your Business Needs
First things first: Before trying to attain a merchant account, you have to evaluate your very specific business requirements.
Different types of businesses call for different solutions. To begin with, consider the following:
- Online vs. Physical Store:
Is this an online-offline, totally brick-and-mortar store, or an aggregator of such services?
In this case, you need to decide upon opening an e-commerce-enabled bank account online or have it facilitated card-not-present purchases through telephone sales or postal orders.
Besides e-commerce sites, physical outlets shall have point-of-sale terminals handling card-present transactions.
Read about: Card-Not-Present (CNP) Transaction. Explained.
- Volume of Transactions:
Estimate the number of transactions occurring within a month, along with the average size of transactions.
Sometimes there is a specified volume that a company uses each month because a merchant account gets cut; therefore, how much they process might reflect their fees.
- Types of Payments Accepted:
The types include but are not limited to Visa, MasterCard, and American Express.
Not each type is accepted in every account and sometimes in any it may have a particular restriction or limitation.
- International Transaction:
If your business is foreseen to span your borders then along with your currency an international order processing merchant account has to be allowed.
Step 2: Selection of the Proper Merchant Account Provider
Identifying an appropriate merchant account provider is one of the major decisions a company has to make in the context of opening its merchant account.
There are several categories from where a choice can be made: traditional banks, independent sales organizations, and third-party processors.
A brief overview of choices follows.
- Traditional Banks
Most people try to get their merchant account through a traditional bank. Most banks can provide a merchant account in addition to regular banking.
However, though they may be more well-known and trusted, they are not always necessarily offering the best possible rates or support.
Read about: How Global Bank Accounts Differ To Traditional Bank Accounts
- Independent Sales Organizations
These ISOs resell these businesses to the financial institutions.
Generally speaking, they provide better terms and pricing than going to the banks, but it would be relevant to research customer reviews about the reliability of those.
- Third-Party Processors
With third-party processors like PayPal, Stripe, or Square, you could be set up in minutes with an online merchant account without going through any conventional banking system.
Generally, this type of processor is free to set up and perfect for a small or just-starting-up business.
- High-Risk Merchant Accounts
Specialty high-risk merchant accounts may be required for businesses in high-risk categories such as adult entertainment, online gambling, or nutraceuticals.
Generally, these are more expensive and come with additional requirements, due to the higher fraud risk.
- Payment Gateway vs. Merchant Account
Some of them will be offering an integrated service a merchant account with payment gateways to take your payments online.
Where possible it would be good if one could gauge as to whether they would be looking out for the payment gateway as well or would it come from elsewhere.
Step 3: Comparing The fees
Merchant account fees can range all over the map depending on a variety of factors, including the provider, the volume of transactions, and the type of business.
Beware of the fine print in your contract, and know the following:
- Setup Fees
Some providers will charge a one-time setup fee while others will charge nothing at all. Know about such costs well in advance to avoid any rude shock.
- Transaction Fees
The most regular fee for a merchant account is the transaction fee, the percentage of every sale, usually in the range of 1.5% to 3.5%. It may vary with the type of transaction: card-present and card-not-present are two different fees.
- Monthly Fees
Most of them have monthly account maintenance fees, which are very high – between $10 to $30, and even more concerning the provider given and the many services that they provide.
- Refund and Chargeback Fees
You may be charged some chargeback fee every time there are disputes over charges that were made from their various credit cards.
In cases of refunds, this always has to be relayed to the issuing bank, and this is always bound to bring more costs and other inconveniences along the way.
- Additional Fees
Enquire about hidden charges: The batch fees to close out day transactions, any gateway fees if you process online, and terminal rental fees if you will need any hardware for a POS.
Read about: International Payment Fees | The Essential guide.
Step 4: Gather the Necessary Paperwork
The nature of the operation that comes with a merchant account makes certain documentation from you necessary as the business proprietor.
While this does vary by company and nature of your business, some key pieces typically include:
- Proof of Identity:
This includes any government-issued identification, such as a passport or driver’s license.
- Business Documents:
Be prepared to prove your legitimate business with any available documentation, including your business license, your tax ID number, articles of incorporation, and bank statements.
- Credit History:
Most of them also pull your personal or business credit history to determine your associated risk factor.
Bad credit might affect whether one is accepted for a merchant account and/or the fees one pays.
- Bank Account Info:
You will also be asked to link your company bank account information with your merchant account regarding the flow of fund transfers.
Read about: 5 Best International Business Accounts | Open From Anywhere
Step 5: Apply for a Merchant Account
The right step will involve seeking out a proper provider who can work hand in hand with you after gathering all of the paperwork and applying to have a merchant account.
Most providers do have online applications, thus meaning that all will be well without even having to leave your comfort zone at the office or home.
This is usually accompanied by an application form that requests information about your business, your foreseen monthly revenues, and the types of payments you intend to accept.
You may be asked some risk-related questions related to your business-like chargebacks, and fraud, among others.
Depending on the complexity of your business and also depending on the review process of the provider chosen, it may take anywhere from days up to several weeks for approval.
Some providers may want additional documentation. So do not be surprised if verification is requested.
Step 6: Set Up Your Payment Processing System
Having the merchant account, your line of action should now be directed to setting up the payment processing system. The composition would include but is not limited to the following:
- Payment Gateway:
For online sales, you will be setting up an online gateway for making safe card transactions on your website using services such as Stripe, PayPal, or Square.
- POS Terminal:
You are going to need to buy or rent a point-of-sale terminal if you have a physical store. It’s the actual device that will allow your customers to swipe, insert, or tap credit or debit cards.
- Integration:
If you have an e-store, you will need to integrate your merchant account with your website or e-commerce platform, such as Shopify or WooCommerce.
Your payment gateway will provide full integration tools and support that may be needed to do so.
- Testing:
Once all is set, just run a couple of test transactions to make sure the money goes through well and lands in your business account.
Step 7: Account Monitoring
When your merchant account is already running, it is important to have it monitored regularly. Keep track of the following:
- Transaction reports:
Most of the providers offer detailed reports that can help you in tracing sales, fees, and account activities.
- Chargebacks:
Be very watchful about chargebacks, and make sure that you respond promptly to disputes to avoid some penalties.
- Security:
Your payment processing system should be under PCI DSS compliance standards for the safekeeping of customer card information and securing it from fraud.
Examples of Merchant Accounts
Following are a few well-known merchant account providers:
- Square:
Suitable for small businesses, Square provides free POS software and it never charges a monthly fee, though charges transactional fees a little higher, which accounts for 2.6%+10¢ for each in-person sale.
- PayPal:
It provides an easy facility to create a merchant account online without much hassle.
Further, it charges low for every transaction in online payment, which is pretty fine for an e-commerce-based company.
- Stripe:
Stripe is counted as one of the most opted online merchants; it gives very easy integrations with nearly all e-commerce platforms.
- Worldpay:
It was suitable for large enterprise businesses, which provide quite flexible solutions for physical along online shops.
Read about: Top Online Payment Methods Across The World.
Conclusion
This would involve setting up a merchant account for your business if it is willing to accept credit or debit card payments.
This would mean taking due consideration of your business needs, selecting an appropriate provider, understanding the fees involved, and how to set one up properly in order to smoothen your company’s path and grow the same.
Whether it’s a more traditional bank merchant account or an account through an online retailer, taking a little time for review could ultimately ensure the most beneficial terms of business.
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