If your researching merchant account companies here’s 10 things you should keep in mind during the merchant account application process.
It’s always better to know up front what you’re getting into so this list is meant to give you the necessary information and a couple resources that will give you the upper hand when applying for a merchant account.
Here’s the list:
#1 – There IS an Underwriting Process
A merchant account is a dedicated bank account used for the sole purpose of accepting credit card transactions and you have to be approved, because you’re applying for an account with a bank.
Every transaction that takes place has the potential to be Charged back and thus there is a risk of loss.
Because of this, personal credit and business credit both come into play with the application process.
The account approval process is DIFFERENT with payment service providers like PayPal , Stripe and Square, but they are not considered to be true merchant account processors.
2 – Application requires Tax ID number and SSN of signers and typically 24- to 48 hours to approve
There’s a link to all of the application requirements in the description of this video, but for the most part (and for most providers) you are required to give your tax ID number and your SSN.
If you’re a Sole-Proprietorship or a Corporation, that doesn’t matter, there are different ways you can apply, so there’s not one standard, but be prepared to give your personal information as part of the application process.
Some companies have quicker turnaround times, but for the most part applications are approved in about 1-2 days. The aggregators
3- Don’t compare PayPal, Stripe or Square application process to merchant account application process. They’re not the same
Payment aggregators like Paypal Stripe and square are fundamentally different than Merchant account providers, and therefore, so is the application process
The rates and fees are also higher for those payment aggregators and we’ll get into rates in a minute.
I have posted an extensive comparison video here, that discusses the differences between PayPal, Stripe and Square vs. a true Merchant Account option. Go watch that video to learn the fundemental differences between the providers.
4 – Different businesses require separate merchant accounts
During the application process, you will be asked to provide the products and services that you intend to sell and merchant accounts are mostly based on SIC or MCC codes which is a classification of business types.
If you claim to be a clothing store, selling jeans and t-shirts, then you will apply for a merchant account specifically for that business and if you start a 2nd business
Don’t co-mingle businesses with your merchant account. Not only is it not a smart business practice from an accounting practice, it could get your merchant account Shut down if you accept credit card payments for other types of businesses, even if you are a part owner in those other businesses.
5 – PCI Compliance is REQUIRED
Don’t let anyone tell you “we don’t have PCI requirements”. EVERY processor who provides merchant services, is required to administer PCI self assessment tests to validate PCI Security each year.
The Card networks require this and there is often a yearly or monthly fee that is associated with it.
Typically, it ranges from $50 to $125 per year for PCI Compliance, and if you (as the merchant account holder) disregards this notice, there is an additional NON-compliance fee which can range from $19.95 to $49.95
6. High Risk vs. Low Risk Businesses
Each business category is associated with risk. The underwriting department of each merchant account provider determines what risk category your company falls into.
Restaurants for example, or low risk while something like CBD oil companies are very high risk.
Bankruptcy attornies are prohibited and there are lists and lists of other prohibited businesses.
Just know that your company will fall into a specific risk category and it could affect the approval of your account AND it could affect the rates of your merchant account.
As you would imagine (just like applying for a loan) some banks have a higher tolerance for risky businesses.
7. There are different types of merchant accounts.
The basic types are
Retail, Online, and Mobile
They can all cross over into the other and you can have Hybrid accounts that fit your business.
For example, let’s say you’re a bakery and you sell out of your retail location and 40% of your sales are done at your retail location and the other 60% are done online, you are a hybrid retail and ecommerce (online) account.
The reason this is important is to let your
8. Rates are negotiable – to a certain degree
If you haven’t seen my What is interchange video, go take a look at it. I cover the topic of Interchange and merchant account rates, in detail, in that video, but here’s the short version of it.
90% of your END OF MONTH fees that that you will see on your monthly statement, get paid to issuing banks and Visa mastercard networks. The other small sliver of the fee is what the processing company makes in exchange for software, hardware, and general monthly maintenance to keep your merchant account active.
The only part of the merchant account fee is that is negotiable is that 10%.
9. Contracts are negotiable (almost always)
36 month contracts with a $300 to $500 cancellation fee used to be the standard.
Nowadays, a month to month merchant account agreement with no cancellation fee is the norm.
Make sure that the fine print of your agreement doesn’t lock you into a long term contract.
10. Not all merchant accounts are the same
Simply put, some providers give you MORE than others.
It could be:
- Better customer service which in my humble opinion is extremely important. Direct access to an account rep could save you hours upon hours per month by avoiding “800” customer service departments.
It could be:
- Better software
- Access to more account features like free virtual terminal, free hosted payment page, free recurring billing, options and highly discounted (or free) payment gateways and ecommerce website plugins.
- Better security access
- Better reporting
- And my personal favorite is professional guidance on marketing and process related items like customer checkout processes and payment workflows.
- And the list goes on.
In a competitive marketplace like the merchant services space, you want to make sure that you’re applying for a merchant account with a provider that will give you MORE than just the bare minimum.
And of course for my recommendations on the best merchant account providers that I set my clients up with and help service, check the links in the description.
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On this website we publish tutorial style training articles and videos including, how-to videos, and informational videos that are on the topics of payment processing, Merchant accounts, invoicing and other software tools AND payment workflows that tie all of them together!