How To Set Up A Merchant Account: A Step-by-Step Guide
As a business owner, you might already know that debit and credit card payments can be processed through merchant services. But the process of actually getting a merchant account is not that well known. This is primarily due to the various steps that are involved in setting up payment methods through merchant account providers.
Even if it might seem a little tricky at first, signing up with a conventional or online merchant account services provider is really quite simple. You’ll need to take your time to understand the underlying aspects. Once you have sufficient knowledge about merchant account services, you can move forward with signing up for traditional and mobile payment processing solutions with ease.
From a high-level view, once you’ve chosen your preferred account provider, you’ll need to submit an application with a variety of documentation, like your business license and credit history. Once the provider approves the application, you go through the underwriting process and then set up your new equipment and software. After that, you’re up and running.
Of course, that’s a bird’s-eye view. With this in mind, let’s dive into a detailed overview of how merchant services actually work, more about what goes into the process of opening a merchant account, as well as what to look for when searching for the right merchant account provider.
- How Merchant Accounts Work
- Identify the Kind of Merchant Services You Need
- Determine Merchant Account Costs
- Find the Best Merchant Account Provider for Your Business
- Submit Your Merchant Application
- Set Up the Merchant Equipment and Software
- Start Processing Payments
Understand Just How Merchant Accounts Work
Before you start the sign-up process with merchant account providers for your small business, let’s first look at how these services work.
Setting up your merchant account involves a relationship between three parties:
- The Merchant. This refers to you and your business.
- The Acquiring Bank or Merchant Account Providers. This is the entity you will sign up with to hold your merchant account and receive funds from customer payments.
- The Payment Processor. This refers to the entity that manages and authorizes the actual transactions from credit card companies such as Visa, Mastercard, and American Express that you will accept payments. They are responsible for ensuring funds are transferred so that businesses get paid on time.
The Merchant Account Process
The set-up process for a merchant account actually begins with the need to start accepting card payments from your customers.
To do that, you then need to enter a contract with an acquiring bank or a reliable payment solutions provider. These solution providers then let you select which credit card networks, such as Visa or Mastercard, you will accept payments from.
No matter the type of merchant account you want to set up—conventional, mobile, or online merchant account services—the involvement of the acquiring bank/payment provider, as well as the credit card network, remains a constant feature.
Whenever a customer submits their payment via a card reader or enters its details on your checkout page, the information is processed through your acquiring bank or payment solutions provider.
From there, it’s handled by the credit card networks such as Visa or Mastercard, which authorize the payment and transfer it to your merchant account.
The payment procedure goes through multiple steps to complete. But even then, the process is completed within a few seconds.
Learn What Kind of Merchant Services You Want
The first step in signing up for a merchant account comes in the form of deciding what kind of services your business needs.
Keep in mind that the primary goal of signing up with merchant account services is to accept credit and debit card payments and not depend on cash transactions.
However, the right merchant services provider will arm you with all the payment options and resources your business needs to go even further than that. It also supports the ability of your business to create a higher quality of service for your customer, while also saving your company money.
In-person Payments
If you run a brick-and-mortar store, then going with a conventional point of sale (POS) terminal is a good idea. POS terminals can process payments by syncing with the merchant software on your register.
Mobile Payments
If you require a mobile setup, then you can go with mobile payment processing solutions. These modern card readers are wireless and can attach to your iOS or Android devices to process card payments remotely. (A common example of a mobile card reader are Square readers. If you’ve been to a food truck, chances are you’ve seen a Square reader.)
In addition to simply accepting credit card payments on a mobile reader, you’ll also want to find out if you can take digital wallet payments like PayPal, Venmo, or Apple Pay.
eCommerce Payments
Conversely, if you have an online business, sign up with a merchant account provider that provides you with an online payment gateway. This allows you to accept online transactions over the web and receive them directly in your bank account via your merchant services provider.
Over-the-phone Payments
Similarly, if you process payments over the phone, then you can sign up for a virtual terminal that will allow you to enter the customer’s card details manually into your system.
An Important Piece to Consider: Depending upon the type of merchant services you want to set up, you should ensure you also receive the proper payment processing equipment needed to accept your preferred credit card payment types.
This equipment comes directly from your acquiring bank or merchant services provider and has different costs associated with it. In the case of online payments, this comes in terms of software and payment gateway support and has a service fee associated with it.
Merchant Account Costs
Regardless of the type of payment solutions you end up choosing from your service provider, you will have to account for a variety of fees to be able to benefit from them.
These costs include but are not limited to:
- Setup Fee
- Monthly Maintenance Fee
- Transaction Fee
- Credit Card Processing Fees
- Equipment Fee
- Early Termination Fees
- Chargeback Fees
In most cases, transaction fees represent the bulk of fees charged by merchant account providers. Most providers take a cut out of each sale plus a small transaction fee. This pricing model is known as flat-rate pricing, and the transaction fee percentage is based on your sales volume.
While this payment structure works well for businesses with low credit card transaction volumes, it can get pretty costly for high-volume merchants. Thus, they usually go for a pricing model commonly known as interchange-plus or interchange markup pricing. In this case, the provider will charge you the exact interchange rate for that transaction plus a set fee, often between $0.02 and $0.15. Because interchange rates vary depending on the banks and payment type involved, some transactions will end up much cheaper than flat rate.
However, that method can end up still costing high-volume businesses a lot —and it makes it extremely difficult to predict how much you’ll owe in fees each month.
This is where Stax can give businesses an advantage. Instead of taking a percentage of your sales, you’re simply charged a flat membership fee for access to wholesale interchange rates. Stax’s payment structure is often more cost-effective and can save businesses up to 40% in processing costs.
It’s also important to note that all merchant account providers work upon the same underlying process, but not all of them have equal services.
Some excel in terms of supporting mobile payments. Whereas, others take pride in delivering additional support with their services.
Depending upon their services, these vendors also charge different fees for the same payment services.
For example, some acquiring banks will charge you their service fee as well as the credit card network’s processing fee on each transaction. On the other hand, modern service providers often offer reduced costs that are included in their monthly fees. It’s factors like this that can help you differentiate between various merchant account providers and understand your potential expenses between processing rates, annual fees, and additional fees.
Paying close attention while comparing the costs of acquiring banks or service providers is key to finding the best merchant account provider for your business.
Compare Different Merchant Services
Since you can accept credit and debit card payments in a number of ways, it is essential to choose an acquiring bank or account provider that supports all your needs.
For instance, if you need a way to accept credit cards in the form of traditional, mobile, and online payment methods, then your selected payment processor must offer services that allow you to support them all.
Doing so helps you manage all your finances in one location.
In most cases, it also saves you from paying additional setup costs or higher equipment fees.
Additionally, when doing a comparison between each service provider, you should also look at the types of businesses they serve and their customer support.
Some payment processors also have different restrictions for what they consider high-risk businesses, as well as how they handle PCI compliance.
Submit Your Merchant Application
Up until a few years ago, getting a merchant account was a very complicated and grueling process. Submitting your business license, physically verifying your business location, and providing your credit score information were all part of obtaining a merchant account.
But thanks to the advancements in financial technology, the process is now super easy and can be completed in minutes. You just need to contact the right provider that uses modern solutions to process all applications.
Visit the Merchant Account Provider’s Website
When you have done your research in terms of payment services, costs, and overall reliability, simply visit the website of the acquiring bank or payment solutions provider to apply for a merchant account.
Select the Required Services
Sign up for the kind of merchant services you need for your small business. You’ll need to specify your needs for conventional and/or mobile payment processing solutions.
You will also need to move forward with choosing the necessary equipment for your solutions.
A great merchant account provider will have experts on hand to help you with the selection process and make sure you are making the best decision that fit your needs.
Submit the Required Details and Documents
Follow the process of filling out all the required details about your business. This will often require your personal information, business information, as well as any additional data that applies to your case.
Depending on the provider, this may feel like the most time-consuming step in the application process. But it is one of the most important as these extra steps really help in ensuring your business is protected and able to truly maximize all the merchant service providers can offer.
However, with a little bit of planning, this can be easily checked off the list. You simply need to put together the necessary information and documents, which the financial institution will then use to verify and underwrite your application.
Here are the most common documents and details required by merchant services providers during the application process:
- General info and business documentation, including your contact information, and employer identification number (EIN). articles of incorporation, business license, credit history, etc.
- Your business’ financial statements. This includes your business bank account statements, balance sheets, cash flow, income statements, records of credit card transactions, etc.
- Other supporting documents, may include a business plan, voided checks, forecasts, marketing materials, etc.
Provide Additional Information if Necessary
Depending upon the efficiency of your chosen acquiring bank or payment provider, you will receive an update on your application status in just a few days. Your application may get approved, or the provider might require some additional information to put it through. Submit the details and move on.
Go Through the Underwriting Process
Once your information is submitted, the provider will review and analyze your application to ensure accuracy and evaluate risk. Known as the underwriting process, this step is necessary to determine your eligibility for a merchant account.
This step can take a few minutes to several business days depending on your provider, your industry, and the type of business you have. High-risk merchants may take longer to underwrite.
Setup the Merchant Equipment and Software
The next part of the process is receiving your equipment and setting up your software until you can start using the required merchant services. Upon approval, you may also need to make payments for equipment costs and service fees.
Most merchant account providers make this process easier by providing extensive onboarding support—often even a support person to walk you through set-up. By following the provided instructions and seeking help when you need it, setting up your merchant account is simple.
Enjoy a World of Efficiency and Superior Business Processes
By turning to physical or online merchant account services, you do not just welcome additional payment methods. You also improve and scale your business operations effectively.
Using traditional, conventional, or mobile payment processing solutions allows you to:
- Increase your sales.
- Improve your financial management.
- Become more efficient in processing payments.
- Expand your business operations to include more avenues of delivery.
- Deliver a better customer experience through multiple payment methods.
If you are on the fence about signing up for merchant services, then this will be the time to make a decision. Move forward with easily integrating modern payment solutions in your day-to-day business operations.
At Stax, we take pride in offering easy-to-use yet highly efficient payment solutions to our clients. From conventional POS support to online merchant account services, we can fulfill all your merchant account needs and help you scale your operations to the next level.
FAQs about Merchant Account
Q: What is a merchant account?
A merchant account is a service that enables businesses to accept debit and credit card payments by processing them through the merchant services. This process involves the merchant, the acquiring bank or merchant account providers, and the payment processor.
Q: How does a merchant account work?
Setting up a merchant account involves a relationship between three parties: the merchant (you), the acquiring bank or merchant account provider, and the payment processor. When a customer submits their payment, the information is processed through your acquiring bank or payment solutions provider, then handled by the credit card networks, which authorize the payment and transfer it to your merchant account.
Q: What is the process to set up a merchant account?
Setting up a merchant account involves first knowing the kind of services your business needs. Services can range from in-person payments, mobile payments, eCommerce payments, to over-the-phone payments. Next, the merchant should compare various service providers for support, costs, and reliability. Once a service provider is chosen, online applications can be filled out and documentation such as general info, business documentation, business’ financial statements, and other supporting documents can be submitted for review and underwriting. Lastly, set up the equipment and software provided by your acquiring bank or merchant services provider.
Q: What costs are associated with a merchant account?
The costs associated with a merchant account may include setup fee, monthly maintenance fee, transaction fee, credit card processing fees, equipment fee, and early termination fees.
Q: What are the benefits of using a merchant account for my business?
Having a merchant account helps a business increase its sales, improve financial management, become more efficient in processing payments, expand business operations, and deliver a better customer experience as it provides a wider variety of payment options. It also has the potential of saving up to 40% in processing costs for high-volume merchants by using payment structures like Stax’s that charge a flat membership fee instead of a cut from each sale.
Q: What are the key factors to consider when choosing a merchant account provider?
When choosing a merchant account provider, consider factors such as the types of payments they can handle (traditional, mobile, online, etc.), the types of businesses they serve, their customer support, PCI compliance, their pricing structure, and the associated fees for their services.
Q: What happens after the merchant account is set up?
After the merchant account is set up, merchants can start using the required services to process payments. This starts with setting up merchant equipment and software and making payments for hardware costs and service fees. The provider typically provides comprehensive onboarding support to simplify the setup process.