It’s virtually impossible to run a business in 2022 without accepting credit cards, especially if your business is online. In fact understanding how to take credit card payments online is a key concept you will want to have a solid handle on before starting your business. Part of this process is setting up a merchant account, which is what enables you to accept credit card payments and receive the funds to your own account.  

For many, the thought of opening a merchant account can be overwhelming as it is a bureaucratic process with multiple steps, but it is a necessary part of running a business and at the end of the day, it is not as complex as it may seem. 

Follow the simple steps that we will lay out in this guide, and you will be on your way to setting up and using your merchant account and watching your business grow. 

What is a Merchant Account?

You obviously cannot open a merchant account without first understanding what a merchant account is. Unlike a standard bank account, a merchant account is a special type of bank account that allows you - as a seller - to process and accept credit card payments. In essence, the merchant account is a written agreement between a seller, a merchant bank and a payment processor that works in the following way:

1. A customer chooses a product to purchase from your site and enters payment information
2. Your payment infrastructure automatically transfers the payment request to the acquiring bank
3. The acquiring bank then sends the request to the customer’s issuing bank
4. The issuing bank validates the request and sends back an immediate response
5. If the transaction is authorized, the seller and the customer both are notified that the purchase went through and the funds are transferred to the merchant account
6. If the transaction is rejected, both the seller and customer receive a failure notification
7. The funds stay in the merchant account until the transaction settles and then are transferred to the seller’s business account

You might also enjoy reading about how to accept payments without a merchant account. 

Who are the Merchant Account & Service Providers?

Before you go about setting up a merchant account, you may want to understand who exactly are the providers of merchant accounts and merchant services. While most banks do provide merchant accounts, you do not necessarily want to just open one with your existing bank. It is worth shopping around and looking for the best terms and conditions that work best for your needs. 

There are four major types of merchant account providers:

Merchant Bank Providers

These are just regular banks that will partner with a merchant services provider (MSP) or independent sales organization (ISO) in order to offer merchant account services as part of their product portfolio.

Merchant Service Providers (MSP)

MSPs work with traditional banks to offer the technology, services and infrastructure needed to operate a merchant account. They provide clients with a one-stop-shop to meet all of their merchant account needs.

Independent Sales Organizations (ISO)

ISOs are similar to MSPs (and some companies are both), but they tend to work with a network of other independent organizations to sell their merchant services solutions without being tied to a specific bank.

Independent Merchant Agents

Independent agents partner up with MSPs and act as a reseller of their services. If you work with an agent, you may have access to a number of different MSPs making it easier to compare and contrast and find the one that best suits your needs. Of course, there are also plenty of fraudulent agents out there so make sure you check references and reviews. 

Merchant Account Pre-Requirements 

There are a number of steps you can and should take before you officially begin the process of signing up for a merchant account. These steps will make sure that you have all of the information at hand when potential service providers ask for it and will also make sure that you know what services you need and what questions to ask.

1. Gather Your Business Account Requirements

Any potential merchant account provider will ask for certain documents in order to prove that you are a legitimate and registered business. Such documentation may include some or all of the following:

• Business License - this is a document you should receive when you first register your business and can probably be downloaded from a local government or municipality website depending on where you are located. Based on the type of business you run and/or product or service you sell, you may have more than one type of license.
• Business ID - in most cases, this is likely to be your company’s tax ID or other identification number depending on the rules in your location.
• PCI Compliance - there are rules and regulations in place to make sure that anyone that processes customer payments online is taking the right precautions to prevent fraud. While you do not necessarily need to be PCI compliant before you open your merchant account, it will be helpful to know in advance what protections you already have in place. 
• Business Registration - there is a process that every business must go through in order to officially register as a business, and you will want to make sure you have fully completed this process before starting the merchant account process.
• Bank Account Details - merchant account providers may ask for your existing business bank account details, which is also information they will need to be able to transfer payments to you when the time comes.  

2. Decide Which Payment Methods You Will Accept

There are many different types of online payments you can accept, most of which require a merchant account. You should spend some time thinking about and researching your customer base and determining which options you are going to offer so that you can then be sure that the merchant account provider that you choose can best support you. 

Types of payments that you may want to consider accepting include:

• Credit Card Payments - you can choose whether to accept all major credit cards, just Visa and MasterCard, or any other combination that makes sense for your business and what your specific customers will expect. 
• ACH Payments - if you have customers who you think will want to pay via bank transfer, you can consider accepting ACH payments. 
• E-Checks - some people prefer to pay via check and not use a credit card.
• Mobile Payment - with the rise of more and more mobile payment apps, it can be useful to offer customers the option to pay using Apple Pay, Google Pay and the like.
• POS Terminals - if you will have a brick and mortar location, you will need a physical point of sale terminal that can be used to swipe credit cards. 

3. Decide How to Accept Online Payments

It is not just which types of payments you will accept, but you also need to think about how you will accept payments online. This includes deciding whether or not to open a merchant account with your local bank or to look elsewhere and consider other providers. 

If you expect to have customers in multiple locations or even internationally, it might make more sense to work with a payment service provider that will help set up a merchant account as well as the rest of the infrastructure involved in accepting payments, making it even easier for you. 

4. Consider Fees

You need to go into the process of setting up a merchant account understanding that there will be fees involved. Different providers may have different fee structures, but even before you start researching the options you should get a sense of what your business can afford. It is perfectly acceptable to set a limit above which you are unwilling (or unable) to pay - this may help you narrow down your choices when you start looking into specific providers. 

5. Consider Legal Terms and Policies

Similar to the point about fees, each merchant account provider will have their own terms and conditions that you should make sure to read carefully before signing anything. It might be helpful to think about certain things that may be no-goes or red lines for you that you will want to make sure to look out for in the terms and conditions. For example, some providers may require you, as the business owner, to sign a personal guarantee that says that if the business cannot afford to pay the fees you will be personally responsible for them. If this is not going to be acceptable to you, then make sure you check and double check that this is not a requirement. 

How to Set Up or Open a Merchant Account

Once all the prep work is done and out of the way, it is time to actually begin the process of setting up your merchant account. Following are the steps you need to take:

Organize the Required Information About Your Business

You should have already gathered most of this information as part of the preparation stage, but now is the time to make sure it is all in one place and easily accessible. Different providers will have their own requirements for the types of documentation they will want to see and those requirements may also vary depending on how long your company has been in existence, the size, the volume of transactions, and the level of risk. 

Most providers will want to see information like where you plan to sell, what your average turnover is and is expected to be and the price range of your products. 

Determine if you Need a High-Risk Merchant Account

If your business is deemed as “high risk” you may need to provide additional information or look for a specific high-risk merchant account provider that specializes in your industry. This will increase your chances of being approved for a merchant account.

Some possible red flags that could cause your business to be considered high risk include:

• Poor credit rating (for the business or you personally)
• New business
• High-priced items only
• Subscription sales
• Industries known for high rates of fraud

Set Up a Website

If you do not already have a website, you will definitely need one as part of the merchant account process. There are certain requirements that providers will look for that you need to make sure your site meets, including:

• A unique domain name
• A complete description of the products you sell and costs
• Contact information, including customer service phone number and email
• Delivery and shipping details
• Information about acceptable payment methods
• Clear return and refund policies
• Secure

In many cases, the credit card networks themselves are the ones that set the standards that ecommerce sites are required to meet. Without adhering to these regulations, you will not be able to process payments. Better to make sure all is in order before securing a merchant account provider. 

Search for Merchant Account Providers

Now for the fun part - finding a merchant account provider that best suits your needs. Before you even think about the costs involved (which will be in the next step), there are other important factors to keep in mind when looking for the right provider for you:

• Does the provider offer the complete package with all of the services that you need? For example, can you get invoicing, recurring payments, and mobile payments all in one package?
• Will you be able to customize your customers’ user experience? While it helps to have as many automated services as possible, you do want to make sure that your payment process will share the same look and feel as the rest of your website, for example.
• How easy is the product to use? Will it be easy to teach other employees how to use it, is it intuitive, do they have experience working with other sellers in your industry?
• Is the solution PCI-compliant? What precautions are in place to ensure that customer data is secure?
• What type of customer support is offered?
• Can you get references or case studies?

These are just a few of the factors to consider. It’s important to take your time and make sure you do not get locked into a contract that will cause problems down the line. If you can, get your attorney to review any contract before you sign it. 

Compare Fees

While you can narrow down the field of selection based on the answers to some of the questions in the section above, the financial element cannot be discounted. You will definitely want to consider the fees that each provider will charge and find the most cost effective option. Note that cheapest is not always best - what you want is to make sure you are able to afford the fees and that they make sense given your business structure and expected transaction volume. 

Submit Application, Wait for Approval, and Start Processing Payments!

Once you’ve chosen which merchant account provider you want to use, you will need to fill out the application and provide all of the required documents (which you have easily accessible since step 1!). Many providers have a fully digital application, but there may be some that require an original signature.  

The approval process can take as little as a few hours and as long as a few days, depending on the providers’ process and your risk profile. If you are high-risk, you may be approved with certain stipulations that you will have to fulfill. The approval process might include some back and forth - remember that the merchant account provider wants your business and is on your side so don’t be afraid to ask questions and try to work together to get approval. 

Once approved, the provider will help you onboard and then you will be ready to start accepting payments. 

Most Popular Types of Merchant Accounts

Very broadly speaking, there are two main types of merchant accounts: high-risk accounts and ISO or MSPs.

High Risk

A high risk merchant account is one that is specifically tailored to businesses that are considered high risk for any number of reasons. These reasons may include a poor credit history or the fact that a business is new and does not yet have a track record. Certain industries that are more likely to be targeted by hackers and fraudulent activity are also considered high risk. There are merchant account providers that focus on serving high risk clients, and traditional service providers may shy away from offering their services and taking on the risk. 

ISO and MSPs

Non-high risk businesses can work with an independent sales organization (ISO) or a merchant service provider (MSP), either of which can offer all of the technology and infrastructure required to set up a merchant account and enable a business to accept credit card payments. 

What are the Merchant Account Fees & How Much Does It Cost to Set Up a Merchant Account?

No matter what solution you choose, you will have to pay fees in order to benefit from your merchant account. The amounts can differ quite significantly per provider, so you will need to do the research and calculate exactly how much each option would cost you. The most common costs include:

• Initial setup fee - this one time payment covers the costs of onboarding and getting set up.
• Monthly fee - some providers charge a flat-rate monthly fee for the ongoing use of the service. The fee amount may vary depending on the size of the business or other factors. 
• Transaction fee - this may be instead of a monthly fee or addition to, and is a charge (usually a percentage) for each transaction that is processed. 
• Processing fee - some providers may add an additional credit card processing fee.
• Equipment fee - if you rent or lease equipment like a physical POS terminal, you are likely to pay a monthly equipment fee.
• Cross-border fees - there may be additional fees charged by some providers for international payments.

How Long Does it Take to Open a Merchant Account?

Opening a merchant account does not happen overnight. It can take a few weeks or even months of conducting research and ensuring that you know exactly what you are looking for. Once you begin the application process, however, things can move quickly with an uncomplicated business being able to get approval and setting up within just a few days. 

Should I set up Merchant Services for my eCommerce Business?

If you would like to be able to accept credit cards - which most ecommerce businesses do - then you should most definitely set up a merchant account. 

FAQ

Can I create my own merchant account?

You need to work with a merchant service provider, an independent sales organization or a traditional bank in order to open a merchant account. It is not something you can create on your own. 

What does it take to get a merchant account?

Any licensed and registered business should be able to open a merchant account. Different providers have their own requirements and vetting process, but in general you will need to show a business ID and financial statements and other paperwork proving that you are a viable business. 

Is it difficult to get a merchant account?

In most cases it is not difficult to get a merchant account. Assuming that you can provide the required documentation it can be a fairly quick and easy process. If your business is high-risk, the process can take longer and be more difficult, sometimes requiring the need to seek out a specific high-risk merchant account provider. 

How do you get approved for a merchant account?

Offering approval for a merchant account is done by each individual provider. It is up to you as a business owner to reach out to and apply for a merchant account from providers that offer the services you are looking for. 

How much does it cost to set up a merchant account?

The fees depend on the individual service provider that you choose. Some charge an initial set up fee followed by a flat rate monthly fee and per-transaction fees. Others may waive the set up fee and still others may charge only a flat rate or a per-transaction fee. It requires a certain amount of research to find the right pricing structure that works for your business. 

What banks offer merchant accounts?

Many traditional banks partner with merchant service providers and offer merchant accounts as part of their portfolio. 

What is the difference between a merchant account and a business account?

As a business owner, you use your business account to conduct your own transactions, making withdrawals and deposits as you see fit. The merchant account, in comparison, is simply a holding pen for funds to wait until they settle and are then transferred to the business account. 

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