What is a Merchant Account And How Do You Get One?

what is a merchant account

What is a merchant account and why do you need it?

If you own a business, it’s vital to have the tools necessary for success. A merchant account offers just that.

Find out all there is to know about these accounts and how to take the steps necessary to obtain one. We have all the need-to-know information here. By the time we’re done, you’ll not only understand what the heck a merchant account is, but also how to get one.

What Is a Merchant Account?

Besides being a necessary commodity for any company, a merchant account in laymen terms is a bank account. It lets businesses accept card payments rather than relying solely on cash.

Contrary to popular belief, when you swipe your card at the store that money doesn’t plop directly into the business’s bank account with a happy jingle. Instead, it is transferred to a merchant bank, to your credit card company, to you, and back to the bank.

It’s a huge jumble. Only afterward does it get moved to the company’s account.

Internet Merchant Accounts

About 8 in 10 Americans are online shoppers. That means you should consider an internet merchant account.

However, these do come with quite a few caveats.

First, you must have an internet merchant account on top of a regular one if you want to accept any e-commerce. Secondly, you can expect higher fees because online payments are riskier.

Internet merchant accounts also require separate accounts for various card types, so you may have one for Mastercard, Visa, American Express and more. Finally, you need a payment gateway to authenticate the card through the credit card company.

These accounts are sometimes offered through banks, but they are very common in third-party providers.

Why Do I Need One?

In a survey that included over 2,000 Americans, researchers found US citizens are using cash less and less. The findings indicate that 50% of the respondents carried cash with them less than half the time they went anywhere. Almost the same percentage claim they use cash fewer than eight days every month.

For a business that can’t accept cards, half of your revenue is being thrown out the window.

How Do I Get One?

Really, the process includes signing a contract with a bank or other authorized provider. We’ll walk you through the steps.

1. Consider Needs

Before you even look at a bank, consider what your company needs. What type of cards do you think will be used most? What’s your budget?

Also, contemplate what percentage of sales you expect the account to bring in and what type of account you’ll need. To determine the latter, consider what types of payments you would like the company to accept.

Write everything down to keep track of your thoughts and numbers. You will need it when you meet with a representative.

2. Meet with Banks and Representatives

Your first stop should be the bank that holds your business account. Because the institution already possesses one of your accounts, it may be an easier process here altogether. Furthermore, the bank may be more lenient about assessing your company.

However, don’t stop there. Speak to other representatives and ask for consultations.

When you meet with a representative, ask the following:

  • What is the discount rate? This will indicate the percentage of funds the provider will receive.
  • What are your monthly minimum fees? If the discount rate and transaction fees do not meet a certain amount within a month, the provider will withdraw extra funds to meet this minimum amount.
  • How much are the transaction fees?
  • Will I need a reserve account? What are the fees? Reserve accounts may be necessary if you are a startup or high-risk company. The account protects the processor by retaining a percentage of your sales.
  • What are the funding times?

3. Compare

Now, it’s time to compare prices, reputation, and services. Decide on the one that fits your company’s needs best.

There are tips to help you decide which companies to go with.

Darrah Brustein knows her stuff. She’s the founder of Equitable Payments, Network Under/Over 40 and Finance Whiz Kids. Brustein recommends considering the following when reviewing merchant services:

  • The company’s reputation
  • Your impression of the representative and his or her ability to simply explain everything
  • Finding the right pricing model

Pricing models include flat-rate, tiered pricing and interchange plus.

Brustein recommends flat-rate for merchants processing small monthly amounts. Tiered pricing is best for more flexible plans, but costs more. Interchange plus is ideal for businesses processing over $2,000 a month.

4. The Application Process

Once you’ve decided on the best offer, you will be asked to submit an application. The information and process here can be very intricate, so make sure the processor helps you every step of the way. If they don’t, consider going elsewhere.

The bank or merchant service will investigate several things:

  • The riskiness of the business sector
  • The business’s financial history
  • How long you’ve been in business
  • Your personal credit report
  • Past merchant accounts
  • Your business model

As a result of these in-depth investigations, banks are sometimes reluctant to accept new startups or high-risk companies. Consider these tips for getting accepted in the application process:

  • Apply with a high credit score
  • Acknowledge any past financial difficulties
  • If you have special requirements, be willing to accept higher fees

5. Get Approved

After you’ve been approved, your account should be set up and you can start accepting card payments. Now, you will enjoy more revenue and customers. And this, in turn, will help your company grow.

All of this starts with a merchant account.

Wash Your Hands of the Stress

What is a merchant account? It’s a necessary tool.

It’s a lengthy process, but when you see the funds rolling in from online sales, you won’t regret it in the least.

But the entire process can be very exhausting, time-consuming and (let’s face it) confusing. So let us take care of it for you.

Our experts will simply describe our payment option plans to find the one that’s right for you, whether you’re low-risk or not. Contact us today to get rid of that cash-only enterprise and start swiping!