All You Need to Know About Applying for Merchant Account

January 17, 2021/ Posted in Credit Card Processing

There are more than 374 million credit cards in the wallets of US citizens, according to the American Bankers Association, and many people prefer using them to pay over cash. Many customers can be put off if there’s no option to pay by card which is why applying for merchant account is vital. Read on to find out what it entails, how to get one and what are the general conditions the processors apply.

What Is a Merchant Account?

If you are a business owner or entrepreneur, you are facing or you have already faced the fact that allowing customers to pay by card is a must. To be able to provide them with that service, you need to have a merchant account in a bank. This type of account is actually similar to a line of credit and it operates under similar conditions. To be able to open one, you’ll need the acquiring bank which acts as a mediary between your business and the banks of your clients. Since they deal with sensitive information, they use fees to protect themselves.

Apart from acquiring banks, you’ll need processors who will process all of the information from the credit card during the process. They are crucial because they have the key role in the authorization process and provide hardware and software.

What Is an Internet Merchant Account?

If your business deals with eCommerce solely or in part, you’ll need an Internet merchant account which serves the same purpose as the regular one. Your acquiring bank will deposit the funds to your Internet merchant account once they make sure the issuing bank (customer’s bank) can support it. For an Internet account you also need a credit card processing company to provide you with gateway and other necessary services needed for the transactions to get through.

How Do I Get a Merchant Account?

To be able to get a merchant account, there are certain requirements you have to meet. Some processors have different requests, but they’ll all require you to:

  • Have a company on your name (be the owner or co-owner,)
  • Have a working bank account where your money can be transferred,
  • Deal with something that is not illegal.

They might also ask you to provide them with other documents such as license and identification number, financial statements, history of processing, and more. If you provide all of the required documents, it usually takes only a couple of days to get approved and start your new business adventure. The only potential setback is if you run a high-risk business which usually takes longer to get approved.

How Does a Merchant Account Work?

Since merchant accounts are rather lines of credit than accounts, you need a processor to transfer the money to your designated bank account. It doesn’t happen directly as your customers make transactions, so it is vital to find a reliable credit card processing company. You can change the bank account you want your funds to be directed to in the process.

Make sure you are eligible for a merchant account

How to Open a Merchant Account

In order to open a merchant account, you need to follow these steps:

  • Decide what credit cards you accept and how you want to accept them,
  • Analyze the merchant account providers and their servicers (pay special attention to fees,)
  • Make sure you find reliable credit card processing services because without them you won’t be able to take cards. Among other things, you need the processor as a gateway which serves to connect Visa or Master servers to the customer’s account to check whether there are sufficient funds for the transaction to go through,
  • Gather information requested by the bank and the processor,
  • Submit your application.

Bear in mind that there are numerous merchant services on the offer, so make sure not to fall for the one that sounds too great. Sometimes, certain companies can hide charges or some of the provisions of the agreement, so make sure you choose the one with average pricing and customer support willing to help you. Never hesitate to ask about anything that possibly bothers you since it is your right to be fully informed.

Making a checklist of things you need to get a merchant account is a good idea

Information About Your Business You Need to Know

The information on your business you’ll be asked to include entails:

  • Processing volume,
  • Transaction percentages,
  • Average transaction ticket,
  • Maximum expected ticket.

Processing Volume

The processing volume is the number you submit to the processor and it is the amount of your credit card transactions in one month. If you declare a processing volume you fail to meet, you won’t face consequences, but if you exceed it to a large degree you may be fined because different business turnovers have different merchant accounts. You can calculate it by calculating gross sales and including seasonal swings first and then deciding what portion of that number will go to credit card sales.

Transaction Percentages

The transaction percentages refer to the way you’ll accept credit card payment and processors need this piece of information. You need to decide  how you’ll accept credit cards, whether you’ll do it solely in plastic or also on the phone, online, etc. This is important because it helps the processor measure the risk.

Ticket

Average transaction ticket is actually a figure indicating how much money you process per average Visa or Master credit card sale. You can calculate this by looking at your business plan and estimating the highest and the lowest transaction figures. Thus, the average transaction ticket will be affected by the price of the goods you sell.

Maximum expected ticket is the highest amount you expect per single card sale. This is important because certain businesses have a low average transaction ticket but certain higher transactions.

These Things Change

As you progress with your business, hopefully you’ll be getting more income and the portion of credit card sales will increase. If this happens, you must report it to the processing company since different businesses have different merchant accounts and processing services. You can’t pay the same fee if your processing volume doubles or grows three times. For minor changes, you usually needn’t worry, but keeping in touch with your processing consultant or representative can spare you any trouble. And needless to say, rigging the figures can get you to court.

Staying in touch with the bank and the credit card processor is a must

Business Rates and Fees

How much does it cost to get a merchant account? There are two sides to this. First you should know that every time someone pays for your service by card, you will be charged. Naturally,  the fee you’ll pay to the processor depends on the merchant account you’ve got which depends on the size of your enterprise. Nevertheless, certain costs are negotiable while others aren’t. The non-negotiable credit card processing costs comprise interchange and assessment fees. On the other hand, the processor’s markup which includes monthly and yearly expenses, volume markup, and others, can be negotiated with your processor. Thus, it is very difficult to estimate the cost of a merchant account in general. It depends on your specific business situation and that is why you should do thorough research to compare the options you have and check out various pricing models.

Make sure you study different pricing models carefully

Penalties You Can Avoid

The Merchant Processing Agreement (MPA) covers the terms of your agreement with the processor. You must go back to this every now and then to avoid problems and extra fees. It is vital that you keep track of your sales and the agreed processing volume or let your processor know in case you fail to do so. Additionally, you must keep an eye on the tickets too, because if you exceed the agreed figures you might encounter problems with your processor. Finally, you should look at the statements you’ll receive monthly and take care to keep up with any updates.

Terminated Merchant File

The worst case scenario is getting on the TMF list (Terminated Merchant File.) This is actually a database merchants collectively create and they have the right to get you on this for any reason stated above, but they do it only in case there was intended fraudulent activity and misuse. If a business gets here, it is really hard to start off again since it can’t get another merchant account before they set the record straight with the processor who put them since this is the only way to be deleted.

Visa and Mastercard Penalties

These two can also impose certain penalties if you fail to use the cardholder information properly or if you ignore the security measures. These fines can be much higher than the ones imposed by the processor, so pay attention to the payment safety and security. Internet businesses and mail order need to be extra careful when setting up to avoid breaching Visa and Mastercard security measures.

Held Funds

The processor can decide to hold your funds for a period of time, but no longer than six months, if you violate any of the provisions of your agreement. The most common reasons are:

  • Exceeding your processing volume,
  • Exceeding your tickets,
  • Selling goods the processor doesn’t allow,
  • Selling goods you didn’t report initially or afterward.

Overage Charges

These charges are quite significant since not every processor will apply them and they vary from one to another. Overage charges are connected to your monthly processing volume. If it rises above the number you declared, the processor might charge you on that surplus too. For example, if you declared 10% and made 12% in the processing volume, you might be charged for the 2%. You should pay extra attention to avoid these where possible.

Read the Merchant Processing Agreement to be on the safe side

Benefits of Having a Merchant Account

Numerous studies have shown that people tend to spend more money by card than cash which is why having a merchant account is crucial in advancing a business. Apart from making your customers happy, merchant accounts give you the option to avoid dealing with checks which are always risky and might turn out to be drawn to accounts with insufficient funds which can cause you trouble. Credit cards are more transparent and they also help you organize your finances better. With all the data you’ll be asked to provide, you’ll have the figures in front of you constantly and it can make vast improvements to your financial planning. Overall, merchant accounts can help you increase sales and make your business grow in more than one way.

Many people find it better to pay with card

Make Payment Easy

Once you apply and set up your merchant account, it is time to start thinking about acquiring the things you’ll need to start being able to accept cards. Credit card processing companies should provide you with merchant services that include both hardware and software such as gateway mentioned above. If you aren’t operating solely online, you need to think about the logistics of credit card processing. You’ll need to obtain terminals or clover stations to be able to accept different types of cards and you need to think these things through to avoid problems with data protection or the acquiring or issuing bank.