Dropping a new business? You must be wondering how to accept payment, among many other things. The first thing is – you’ll need a business bank, and the other one is a payment processing service, which can help you receive payments. One popular method of receiving credit card payments from clients and transferring the money to your account is through a merchant account. If you’ve never gone through the process of setting up merchant account before, it could seem intimidating. But with this guide, you will clearly understand how to set up a dedicated merchant account.
Debit cards accounted for 33% of all monthly payments made by US consumers, according to a 2023 survey on consumer payment preferences. Credit cards came in second at 27%. Furthermore, from 59% in 2020 to 66% in 2023, more customers are making at least one online payment per month. To make sure everything goes as planned, here is some professional advice on how to open a merchant account.
Now let’s dive into the guide and make your merchant account application easier than before.
What is a Merchant Account?
An account that allows businesses to accept payments without using cash is known as a merchant account. To accept payments using credit and debit cards, businesses often get a merchant account. Your money will be deposited in your merchant account upon the completion of a card payment, where it will remain until you proactively move it to your business account. You must remember that card payments cannot be processed without a merchant account, and this is the most crucial aspect for online and e-commerce enterprises.
Hence, as a business owner, you must finalize an agreement with a merchant acquirer to open a merchant account. Depending on what you’re looking for, merchant account providers can offer a range of prices and features.
Who Needs to Set up a Merchant Account?
Before moving on to how to apply for a merchant account, you must also know which business requires a merchant account. A merchant account is required for the majority of businesses that take electronic payments, such as credit and debit card payments. This covers companies of all sorts, ranging from little home-based enterprises to big conglomerates.
Before you set up your merchant account, understand which type of business usually requires merchant services or a merchant account via their payment processing provider
- E-commerce Companies: To handle payments from clients who make purchases on their website, online merchants require a merchant account.
- Restaurants: Whether customers place their takeaway or credit card purchases in person, online, or through mobile apps, restaurants and other food-service enterprises require a merchant account to process payments.
- Healthcare Providers: To process payments from patients who pay with their credit card or insurance card, healthcare providers, such as physicians and dentists – need a merchant account.
- Retail Establishments: To receive payments from clients who use credit or debit cards to make in-store purchases, retail establishments must have a merchant account.
- Service-Based Companies: To receive payments from customers who pay with credit or debit cards for services, service-based companies like consulting firms need a merchant account.
- Nonprofit Organizations: To receive donations from supporters using credit or debit cards, whether online or in person, nonprofit organizations must have a merchant account.
It’s important to carefully consider all of your options and select the best way to open a merchant account online for your company because the requirements for opening a merchant account might change based on the provider and the kind of business.
How to Open a Merchant Account?
To acquire a merchant account set up, you have to get a business license to show legitimacy and open a business bank account to facilitate financial transactions. Evaluating your unique requirements before beginning the application process offers a targeted approach to your credit card payment acceptance demands, creating a foundation for a simple and efficient merchant account setup.
Obtain a Business License
You must obtain a license to prove your business is legit, which helps in opening a merchant account hassle-free. This is because you should have a legitimate business, and a business without a license is considered illegal, hence, no merchant would provide service for the merchant account.
Create a Business Bank Account
Once you obtain a business license, you will require a business bank account. Your merchant account provider will deposit your credit card sales into this bank account and deduct any associated fees. The majority of firms choose to create a business bank account with a local bank since these financial institutions usually offer greater customer care and convenience than online banks. Your business license and EIN (employment identification number) are required to open a business bank account.
Assess Your Requirements
Before you apply for a merchant account, it is important to consider your requirements, which is your preferred method of credit card payment acceptance. Before beginning your chase merchant services, Always make a long-term plan and determine the exact needs that your company will have, both now and in the future. Make sure to include additional payment requirements if you intend to grow over the following few years and anticipate having them.
Evaluate what you need –
- Do you only require an in-person payment processing solution for your physical store?
- Will you offer a customer payment gateway so that clients can settle invoices?
- Do you require a system that accepts both online and mobile payments?
- Will you only take Visa and Mastercard?
- Will you also take American Express?
- How will your consumers pay you?
- How about eChecks and ACH?
Comparing the Online Merchant Accounts
Before you set up a merchant account, you need to know what your company requires and what might help you to evaluate potential merchant account providers and choose the best fit. So, Here’s how you can evaluate the suppliers…
1. STRONG SECURITY AND PCI COMPLIANCE
The duty that merchants have to safeguard the credit card information of their clients might occasionally feel onerous. However, by selecting a PCI-compliant merchant account provider with good security measures, you may eliminate some of that stress. Several types of merchant account providers are safe and secure, as they will relieve some of your burden and offer you peace of mind to know that your merchant account provider is actively safeguarding your clients’ sensitive data.
2. FREE INTERNAL ASSISTANCE:
Your profit is on the line if something goes wrong with your credit card transaction. Try to open your merchant account with a company that offers free, on-site, round-the-clock customer care. Square is the best merchant service provider and is best for small businesses.
3. NEXT-DAY FUNDING:
To get money into your account more quickly, several merchant account providers provide next-day financing solutions.
4. MODELS OF TRANSPARENT PRICING
Credit card processing fees can be difficult, especially for startups. If the firm managing your merchant account is unclear or anything other than completely transparent, you might want to give it some more thought. Examine several credit card pricing models to see which one best fits your business, then choose a provider that offers your preferred choice. The two most popular and cost-effective pricing models are flat rate and interchange plus.
5. THE ABILITY TO SCALE
When registering for a merchant account, consider the long-term goal of your business. Even if your company is currently small or brick-and-mortar, you will need a merchant account provider that can grow with you and adapt to your changing demands if you intend to expand or go online.
6. NO AGREEMENTS:
Make sure your merchant account provider offers month-to-month contracts, or select one that does not. Cause, being forced into an extended contract with a supplier that proves to be a poor fit is the last thing you want to happen.
7. NO EXTRA COSTS:
Lastly, find out about any additional costs associated with the merchant account service. Certain fees are pointless and affect the seller exclusively.
Choose a Single Credit Card Processing Company
A merchant account provider that is distinct from their credit card processor is the option used by certain retailers. But dividing these services up between two distinct suppliers is a squandered chance. Selecting a merchant account to accept credit card processing is more efficient, convenient, and economical for retailers.
There are various advantages if your merchant account is opened by your credit card processor as well –
- Usually, underwriting is done internally (and only needs to be done once).
- It will not be necessary for you to open two distinct accounts to process ACH and credit cards.
- Availability of extra services such as eCommerce connectors, payment gateways, integrated payment apps, and chargeback management.
- Minimizes the number of individuals you must interact with and provides you with a single point of contact for all credit card processing activities.
Complete the Application to Get Your Merchant Account
After evaluating merchant account providers and selecting one, you must complete the application to open a merchant account. Be ready with the required paperwork since this application will need comprehensive details about your company. The amount of information you provide will be determined by the volume of data you wish to process. Just like, Information about the authorized signer – the person who has the authority to withdraw money from the account or make a purchase.
Most likely, you’ll have to give the following information
- Contact information
- Tax Identification Number
- Data on the beginning of a business
- Bank account details for a business
- Bank account and routing numbers
- The anticipated dollar amount processed
Send It To The Underwriter
Both the acquiring bank and the account provider risk when they take on a merchant account. Therefore, before admitting you, the supplier will underwrite and evaluate your business. High-risk industries or firms, early warning indications of fraud, or newly established companies are considered red flags. Your business should pass the underwriting procedure with ease if it has been operational for several months to a year and has demonstrated good standing. However, because banks and account providers are less willing to take on the risk of a new company, it could be difficult for startups to survive past the underwriting stage.
Approval for Your Merchant Account
Once you’ve submitted your comprehensive merchant account application, the approval procedure usually takes one business day to one week, depending on the supplier. As soon as your company is given the go-ahead, you may begin receiving credit card payments from your customers. This reduced approval period enables a smooth transition, allowing your company to immediately begin credit card processing activities and improve overall financial efficiency.
Merchant Accounts Rates and Fees
Now that you know how to apply for a merchant account, you must know the charges associated with the merchant accounts. While the charges of merchant accounts vary, none are free. Accepting credit and debit cards without having to pay a fee is just not feasible. Rather, your primary goal should be to minimize the amount you pay for processing. This entails knowing what costs you can bargain for and making sure your prices are reasonable.
You are not able to bargain for interchange or assessment fees. The processor’s markup, which might include monthly or yearly fees, volume markup, per-transaction costs, batch fees, and other charges, is negotiable.
Note – Because processing rates and fees are so intricate, we’ve covered the process in our previous article. Check out our credit card processing fees for an excellent breakdown of charges if you’re new to processing or just need a reminder on fees.
If you just want to know the overall rates for merchant accounts, here it is –
- When you swipe your card for a Visa, Mastercard, or Discover transaction, you should budget between 1.95% and 2%.
- For online transactions made through e-commerce stores, invoices, etc., the budget is between 2.30% and 2.50%. But remember, these are highly approximate figures.
- Your unique business facts will determine your real merchant account pricing.
How to Open a Merchant Account in US?
If you want to open a merchant account in the United States, check out this useful advice on my website: https://emerchantauthority.com/blog/how-create-merchant-account.
It proposes selecting a reputable payment processor, acquiring appropriate documentation, and following the steps provided for a smooth setup. Don’t forget to test transactions, be careful of service costs indicated in the blog, and consider getting professional counsel for compliance.
It’s a simple road map for anyone starting the process!
Bottom Line…
Opening a Merchant Account that Accepts Credit Card Payment: It is easy to set up a merchant account for your business if it is well-established, but that does not mean startups won’t get approval for the same. However, businesses dealing in high-risk industries might face some challenges, as merchants do not want to deal with such high-risk accounts. However, some high-risk merchant account providers work with such companies. This makes it easier for you to run your business while accepting payments easily via credit or debit card. Also, always choose the right merchant account for your business, especially if it is a startup.
FAQs: Setting Up Merchant Account
Q1. What are the types of payment accepted in a merchant account?
👉 Once you have a merchant account, it is good to sell your goods and services online. Here are the payments accepted in a merchant account –
- Credit cards: Diners, JCB, Visa, MasterCard
- Debit cards: Solo, Visa, MasterCard, Delta, and Visa Gift cards
- Demand Draft, eCheck, and ACH checking accounts
Q2. What is a payment gateway?
👉 A payment gateway allows you to charge your customers’ credit, debit, gift, or checking accounts for purchases they make online. The payment gateway functions in the background and is not visible to your clients.
Q3. How much does a merchant account cost?
👉 An initial setup charge upon opening a merchant account (which does not cover the price of a point-of-sale (POS) system or card reader) Account fees, usually a fixed charge of $10 to $30 each month or year.
Q4. Who pays merchant fees?
👉 The bank you use, which holds your merchant account, pays these costs to the relevant suppliers on your behalf. The vendors then pass along the cost to you in the form of transaction fees. However, there are primarily two ways to get around this charge: charge the customer instead.
Q5. How are merchant fees calculated?
👉 Determining the effective rate is the most efficient method for figuring out credit card processing costs. The entire amount deducted for processing divided by the total monthly sales is the effective rate. Your effective rate is the amount that remains after the computation.
Q6. What are some ways to reduce merchant fees?
👉 Here are a few ways to reduce processing fees for payments –
- Take cards in person
- Consider surcharging
- Give discounts in cash
- Change the processors
- Go over your statement frequently
- Adopt a minimum credit card amount
- Policies for chargebacks and preventing fraud
Q7. What is the transactional fee for merchants?
👉 Generally, a business must pay 1.5% to 3.5% of the entire amount of each transaction in credit card processing fees. You might have to pay between $1.50 and $3.50 in credit card fees for a $100 sale.
Q8. What is a processing charge?
👉 The costs that retailers incur each time they take a credit or debit card payment are known as processing fees. Different payment processors have different price structures. They could consist of a percentage of each transaction, a fixed fee per transaction, or both.