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10 Things to Know When Opening a Merchant Service Account

Updated: June 18, 2024
MJ

Written by

Murad Jaffery

merchantservice females making payments

Introduction

Are you just venturing into a merchant service business and want to cut through the hassle of paper and cash payment processes right from the start? Or are you simply looking for convenient, up-to-date ways to receive payments from your customers? Then opening a merchant service account should be on the list of to-dos you need to complete. A merchant service account is an account your credit card processing merchant creates for your merchant business. It is different from your business account and is the platform where the card processor deposits the values of your merchant transactions and also deducts the funds for transaction processing and account management fees. A merchant account is also accompanied by other tools that help you process payments in your day-to-day business activities. These tools include POS systems, key-in transaction solutions, card terminals, and card readers.

1. The Type of Transaction You Want to Process

Before you decide to set up a merchant service account, you need to be clear on the kind of payments you want to process in your business. You also need to decide if you will render your merchant services from a physical store or an online marketplace. The location of your business will help you decide on the best way to receive payments and the best credit card processing scheme for your business. You can receive payments using a counter-top card machine, a point-of-sale terminal, or a mobile card terminal. You can also choose to process Visa cards, MasterCard, American Express cards, or Discover cards – online or in your physical store. Also, note that these payment processing platforms and card schemes come with their unique pricing, policies, and operating methods. Be sure that your business has the capacity to process the payment method you opt for.

2. You Need to Have an Active Business Bank Account

Irrespective of your business, you'll need a business account to open a merchant account successfully. A business account is different from your merchant account and is where the values of your transactions will be credited. The processing, maintenance, and chargeback fees from transactions will also be deducted from this account. Your business account must have enough balance to offset the account setup, maintenance, and processing fees. To open a business account, you'll need to present your business license, employer identification number (EIN), or social security number if you have no employee.

3. Your Business Must Be Licensed

A business license is an important document you must have to legally run your business in several states in the U.S. and other countries. You'll also need this key document (or a business permit) to open and activate a merchant account. Your business license can be a legal business name statement or relevant credentials to prove your incorporation. This document will be reviewed and archived during your application for a merchant service account. If your business is yet to be licensed by the Secretary of State, you can visit their website to get started. The process is relatively straightforward, and the fess you get to pay will be dependent on your industry, business activities, and location. Also, note that licenses expire after a given period and would need to be renewed. If your business license is expired at the time of your merchant account application, you will need to renew it before proceeding with the application.

4. You May Need Separate Merchant Accounts for Different Payment Channels

Items like chargebacks and business legitimacy are risks financial institutions and merchant account providers take while registering new businesses. As a result, underwriting is necessary to ascertain the level of risk the merchant account provider will be bearing on your behalf. Underwriting takes an average of 3 days to be completed. You will also need to complete different underwriting processes for every payment channel you intend to receive payments in your business. For example, if your business accepts ACH and credit card payments, you'll need to submit separate underwriting with a voided check to both processors. An exception to these multiple underwriting processes is when you open your merchant account through an independent sales organization or a merchant software provider. However, note that your merchant account for a particular processor can be transferred between your retail platforms. As an example, you can use the same account for physical card payments and online credit card processing. All you have to do is enquire about the possibility of using a single account on multiple platforms.

5. You Need to Put Out an Application

While some merchant account providers, such as Leaders, have made the opening process convenient for users, you need to fill out an application to open a merchant account successfully. By using online application platforms, you can eliminate the methods of scanning or printing or mailing application pages. You will also need to give your business details such as your tax identification number or your employer identification number, your routing, and bank account numbers to begin. You'll have to input an authorized personnel's information alongside your business contact and start date. For most merchant account providers, the entire application requires only an average of a few days to be completed. But ensure to visit the Terms and Conditions page of your application to know the entities that should be involved in your registration process. 6. A Merchant Account Can Be Activated in One Business Day A merchant account underwriting process often requires an average of three days to be completed. However, you can have a low-risk merchant account up and running within 24 to 48 hours, provided your registration documents are valid and adequately prepared. For high-risk accounts, expect the activation process to last from 5 to 10 days. And when you go through merchant account software vendors, a few minutes is all you need to have an active merchant account. However, the following factors can generally affect how long it takes to create and activate a merchant account.
  • Your base country and country of incorporation.
  • The risk nature of your business
  • Your target market and potential clientele, return on investment, and transaction volumes.
  • The availability of MCC code for your business industry.
  • Whether you are registering with a third-party or a direct provider.
  • The efficiency of your onboarding process.

7. Be Careful with Processing Cost

Before deciding on a merchant service provider, cost is something you want to put into consideration. In addition to the general processing fees for different payment channels, you also want to be double sure that there are no hidden charges, recurring account charges, and undisclosed maintenance fees. Work ideally with a flat-rate fee provider, such as Stax.

8. PCI DSS Compliance

If you're thinking of opening a merchant service account, PCI DSS compliance is something you may want to consider. Since you'll be handling sensitive financial details from your customers, you must be able to do so securely. The Payment Card Industry Data Security Standard (PCI DSS) is an array of security protocols created by the credit card processing industry to ensure that merchant service providers can securely collect, store and process credit and debit card data. These protocols cover processes that prevent, detect, and respond to information security issues. There are 12 protocols you need to meet to be PCI compliant. These protocols include:
  • Utilizing and maintaining a firewall to prevent unauthorized access to sensitive data.
  • Adequate password protection for devices and merchant service access points.
  • Encryption of customer data during transmission through several processing channels.
  • Limiting access to data to authorized staff alone.
  • Restrict access to physically stored data.
  • Keeping up-to-date access logs for the inflow and processing of customer data.
  • An accurate inventory of resources, equipment, and digital solutions used for data processing.
  • Constantly scanning for security loopholes.
  • Setting up IDs for entities with access to data.
  • Deploying updated software and digital solutions.
  • Adequately protecting cardholder's information by employing 2-step verification and frequent scanning of the database for unencrypted data.
  • Maintaining a functional anti-virus and ensuring it is regularly updated.

9. You May Need Your Arsenal of Business Documents

To register and activate a merchant account for credit card processing for small businesses may only require documents like your business account statement, business license, and EIN documents. However, for a medium-sized or large business, it is a different ball game. You may need to present your business processing history (if you have previously been in business) and a business financial statement of up to two years. Other supporting documents you may need to get your merchant account running include your business plan, your inventory, and shipping reports, as well as your billing and refund policies.

10. Fees and Contract Length Vary with Provider

While you ensure that you do not use up your profit on fees and maintenance costs, you should know how your preferred provider charges for different transactions. For most providers, the merchant fee is a sum of interchange, service fee, and processor markup. Also, remember that different credit card processing firms charge differently for processing your payments. You'd want to consider that while opening a merchant account and working with a low-fee, reliable provider, such as Clover. Invariably, your merchant account can be charged on a transaction basis via interchange-plus pricing. Merchant service providers also allow you to choose from either of the membership, tiered, and flat-rate pricing schemes. You must also note that your merchant account's setup and running fees will also depend on the provider.

Conclusion

The process of a merchant account opening can quickly become quite a feat to complete. However, knowing what this account setup looks like will help you get things done quickly. The different aspects of opening a merchant account have been duly outlined in the article. You'll make the account opening entire process less effortless when you keep these tips at heart.

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MJ

Murad Jaffery

Murad Jaffery is a chartered accountant specializing in the field of accounting and finance. He has been writing on these areas for nearly a decade, and is also an accounting tutor. He holds master’s degrees in accountancy and English literature. Murad enjoys traveling and reading.