.png)
If you want to accept electronic payments, then you are going to need a merchant account - but how do you open one?
Whether you’re operating an eCommerce store, a physical retail shop, or a service-based business, a merchant account allows you to process transactions efficiently. Here’s our step-by-step guide on how to open one up.
Understanding Merchant Accounts
An acquiring bank or merchant account provider is the entity you sign up to open a merchant account and receive funds from customer payments.
Before opening a merchant account, there are a few essential things your business will need.
First, you must be able to accept card payments from customers. Then, select the credit card networks you would like to accept payments from.
Whenever a customer wishes to buy something from your business, they will enter their details on a checkout page or via a card reader - an acquiring bank or merchant services provider processes the transaction.
Credit card networks, such as Visa, Mastercard, and American Express, authorise the payments and transfer the funds to your merchant account.
Payment processors ensure that your business receives the funds transferred and get paid on time by managing and authorising each transaction from the credit card networks.
Determine Your Business Needs
It's important to consider your business needs before choosing a merchant account provider.
The right payment provider for you will equip your business with all the payment options needed to create a higher quality service.
Finding a merchant services provider that aligns with your business' needs doesn't have to be complicated, listed below are a few things to consider about the type of payment services you may require:
In-person Payments
If your business is a brick-and-mortar store (physical establishments where customers interact face-to-face with employees to purchase goods and services) then the conventional point of sale (POS) terminal is suitable.
POS terminals can quickly process payments by syncing the register with merchant software, streamlining transactions and enabling efficient checkouts.
eCommerce Payments
For an online or eCommerce business, where commercial activities like selling products and services are conducted on an online platform or over the internet, your business will require a provider with an online payment gateway.
Online payment gateways allow customers to make secure online transactions over the web or directly through their bank accounts via a merchant account provider.
Over-the-phone Payments
If your business operates over the phone, you have the option to sign up for a virtual payment terminal.
Over-the-phone payments allow you to enter customer's card details manually in your system.
Mobile Payments
If you require a mobile setup, then a mobile payment processing solution would be well suited to suit your business's needs.
Modern card readers are wireless, attaching to iOS or Android devices to process card payments remotely.
You should consider whether you would also like your business to accept digital wallet payments like PayPal or Apple Pay.
Choose a Merchant Account Provider
Choosing a merchant account provider to suit your business' needs can be difficult when there are so many providers.
The most important feature to consider is whether they accept credit and debit card payments in the form of traditional, mobile and online payment solutions.
It can be beneficial to research merchant account providers; a few areas of comparison are listed below:
Merchant Account Costs
There are a number of costs associated with payment services. Costs can include, but are not limited to:
- Transaction fees.
- Monthly maintenance fees.
- Chargeback fees.
- Credit card processing fees.
- Early termination fee.
- Set up and equipment fees.
Paying close attention to the costs of each payment processor is key to finding the right merchant account provider for your business.
Low Transaction Volumes
Transaction fees, also known as flat-rate pricing, are the most common merchant account costs.
They can vary slightly depending on providers, with most typically charging anywhere between 0.5% to 5% of the transaction's value.
Many small merchants will only accept payments for purchases over a certain value (e.g. £2) - their slender profit margins prohibit them from absorbing the fees associated with small transactions.
Transaction fees work well for businesses with low credit card transaction volumes.
High Transaction Volumes
For businesses with high transaction volumes an interchange plus pricing would be most suitable.
This method allows the provider to charge the exact interchange rate for the transaction, plus a set fee.
Interchange rates vary depending on the bank and payment types, some transactions may be cheaper than with a flat-rate pricing model.
Processing Time
Some merchant accounts process transactions faster than others.
If your business is reliant on a quick turnaround, e.g. an eCommerce that promises quick shipping, then finding a provider that can process payments quickly is important.
Security Features
As security threats evolve and emerge, including fraud and cyber-attacks, security is more important than ever.
Strong security measures can protect your business and customers from any potential cyber threats.
Secure payment processing features may include encryption, fraud detection software, and tokenisation - look for a merchant services provider that prioritises security.
Integration
Before choosing an account provider any business should consider the ease of integrating payment processing software with existing systems, such as the website or POS.
The quicker and easier to integrate, the more seamless the set-up process.
Customer Support
Customer support is a direct connection between the merchant account provider and your business and is important for resolving issues or questions about the service.
As such, you should look for multiple points of contact, including phone and email.
Gather Required Documents
The next step is to gather the required documents to submit with your merchant account application.
Listed below are the most common documents and details required by merchant services providers:
- General information and Business Documentation: Including the business's contact information, employer identification number (EIN), business license, and credit history.
- Financial Statements: Including the business' bank account information, bank statements, cash flow, income statements, tax returns, estimated monthly processing volume, and any records of credit card transactions.
- Additional Supporting Documents: Other documents may include voided cheques, the business plan and forecasts, as well as marketing material.
- Personal Information: Some personal information about yourself as the business owner may be required, such as your name, home address and social security number.
If any of the information provided is incorrect or inaccurate the approval process may be delayed, or even result in your application being rejected.
To avoid this, take time to carefully gather the required documents and ensure they are correct before submitting the application.
Submit Your Application
Submitting the required documents and the underwriting process is important to opening a merchant account as they verify that you have a legitimate business. Here's what to expect:
Submit Required Details and Documents
Once you have collected all the required documents, you can begin the process of filling out the details about your business on the application.
Depending on the efficiency of your chosen acquiring bank or account provider, you should receive an update on the application status within a few working days.
This will inform whether you have been approved, or that they may require some further information.
Underwriting Process
Underwriting is the essential process in which providers will evaluate the risk of approving a merchant account to your business.
The provider will review and analyse information to ensure that the documents provided were accurate.
If your business is established and has had a good credit standing for the last few months to a year, then the underwriting process should be simple.
However, high-risk merchants may take longer to underwrite as providers require further time to analyse the associated risk.
Set Up Payment Processing
Once approved, you will need to set up the payment processing equipment and software before accepting credit and debit payments.
The exact tools and equipment will depend on which online payment methods, channels and services your business chose to use.
Set Up Merchant Software and Hardware
Most merchant account providers make the set-up of merchant software and hardware easier by providing extensive on-boarding support.
Instructions should be provided with the equipment, including simple steps about setting up a merchant account.
Be aware that there may be some fees to cover the costs of the hardware and service.
Comply with Security and Regulatory Requirements
Merchant account providers play a crucial role in helping your business remain compliant with the Payment Card Industry Data Security Standards (PCI DSS).
PCI DSS set important regulations to ensure businesses protect customer data and prevent fraud.
Many merchant account providers do so by implementing security measures, such as encryption and regular security assessments.
It's important to optimise your security platforms before processing credit and debit card transactions.
Test to Ensure Everything is Working Correctly
Once your merchant software and hardware are set up you can begin to test the processing system to ensure it is functioning as intended.
By testing the payment processing system, you can troubleshoot before your business starts accepting payments from customers.
Monitor and Optimise Your Account
The final step to opening a business bank account is to monitor and optimise the account after set-up.
This can improve cash flow by streamlining payment processing and ensuring the transaction process is hassle-free to enhance customer satisfaction.
FAQs
Below are some of the most popular questions asked when considering how to open a merchant account.
What are the Benefits of Using a Merchant Account?
Merchant accounts can deliver a better and more seamless customer experience, helping to increase sales.
As well as that, merchant accounts play a vital role in expanding business operations.
Getting a merchant account can help improve your financial management and the efficiency of payment processing.
How Should I Choose a Merchant Account Provider?
Merchant account providers can differ in a number of ways, from processing time to security features, prioritising these would be beneficial to efficiently process payments.
Choosing a merchant account service with fast integration and customer support is also important to ensure your business's needs are met.
How Long Does it Take for a Merchant Account to be Approved?
The underwriting process can take anywhere between a few minutes or several working days, depending on the merchant and the merchant service provider.
As mentioned earlier, the higher the risk associated with your business, the longer it will take to underwrite.
Are there Fees Associated with a Merchant Account?
Merchant account fees can differ based on transaction volume.
For those with a low transaction volume, a flat-rate pricing model (transaction fees) is most common.
However, if your business has a high transaction volume interchange plus pricing will be best suited to reduce costs.
Can I Get a Merchant Account if I Have Bad Credit?
Yes. However, there may be some additional fees associated with a bad credit merchant account.
These may include higher processing fees or higher monthly account fees to cover the additional risk to a merchant service provider of serving businesses with bad credit.
Payments Made Simple with Cardflo
To start accepting payments online, in person or over the phone you'll require a merchant account. Cardflo's platform offers a number of benefits, guaranteeing low rates starting from 0.4%, fast integration, and security as standard.
Learn more about how to streamline your payment processing.
