Skip to content

Merchant Account: Do You Have One Yet?

What is a Merchant Account?

A merchant account is a banking account that interconnects a retailer’s bank account, a customer’s bank account, and a merchant processor to allow a customer to purchase a service or product with a debit or credit card through an electronic payment system. Purchases can be processed with actual physical credit cards, open the phone, by mail order, or e-commerce.

A customer makes a purchase with a credit card, and the funds are then deposited from the credit card into a merchant account. Next, the funds get transferred to the business bank account. For a fee, a merchant account processes this transaction of withdrawing funds from the customer’s account and depositing them into the business’s account. Funds-processing hardware is usually provided by the merchant processor and is often provided free of charge, but not always.

How Does the Processing Work?

One of the most common ways to electronically process funds involves the use of point-of-sale (POS) equipment where the customer actually inserts their credit card into the machine. This type of account is known as a ‘card-present’ or ‘swiped’ merchant account and is popular with retailers, restaurants, hotel-type businesses, convenience stores, attractions, and most types of brick-and-mortar businesses. Because this method is one of the most fraud-resistant transactions, it offers the lowest processing rates.

Online credit card processing is increasingly becoming more popular among consumers because it is the easiest type of purchase. The consumer does not even have to leave their own home to purchase almost anything including meals, groceries, vehicles, clothing, and services. And since cash or checks are not feasible online or over the phone, electronic payment processing is the obvious choice. The consumer only needs to give their name that is on the credit card, the credit card number, the expiration date, and a 3-4 digit security code found on the back of the card.

How to Obtain a Merchant Account

Not every business wanting a merchant account is able to obtain one. It is highly competitive, and vendors minimize risk by using all types of different criteria when considering approval of a merchant account application. The criteria usually include whether or not the type of business typically has a higher number of purchase returns or a significant risk of credit card fraud. Other factors include a business’s credit history, the owner’s credit history, how long the business has been in operation, previous merchant accounts, and other factors. If some of these criteria are not stellar, the business can still be approved but with higher rates charged.

Are There Fees for Having a Merchant Account?

There often several fees that can be associated with having a merchant account. Sometimes these fees get hidden in the jargon of a contract, so it’s best to have a contract lawyer or similar professional familiar with contracts take a look at yours. Some of these fees might include monthly fees, application fees, discount rates, setup fees, per-transaction fees, and cross-border fees.

What Does a Business Need to Obtain a Merchant Account?

Business Bank Account – To obtain a merchant account, a business needs to open a business bank account. To do this, you’ll need an Employer Identification Number (EIN) or your Social Security number if you are a sole proprietor with no employees. Be sure to maintain a balance that can cover associated fees.

Business License – This is not always necessary, but sometimes underwriters will request one and file a copy to validate your business. For many other business-related reasons, a business license is needed, and it is recommended you get one.

Other Documentation – If you anticipate larger amounts of processing, you may have to provide extra documentation including bank statements, profit and loss statements from previous years, balance sheets, and possibly even a voided check from your business. The merchant processor will pay attention to your daily account activity, so be as honest and accurate as possible when estimating your processing limits.

How Soon Can Merchant Processing Be Set up?

If you have all your documentation ready, your account can be set up fairly quickly after submitting your information. As soon as one day is not uncommon. If you submit in the morning, you have a better chance of being approved that day than if you submit your information in the afternoon.

Nearly all businesses now use some form of merchant processing. It’s quick, easy, and you could potentially lose sales if you don’t have it. Many people nowadays don’t carry any cash or checks, and using a credit card is their only method of making purchases, whether it be in person, online, or over the phone.

If you need Merchant Processing financing for your business, visit Affinity Beyond Capital today by calling (833) 234-6489 to speak with one of our expert professionals who will help your business get set up with merchant processing.