Setting Up A Merchant Account

A merchant services account, or merchant account, is a special account that allows a business to accept credit card payments, debit cards, and electronic payments in exchange for goods and services. This is particularly important for businesses in ecommerce, where facilitating credit card transactions is crucial for capturing sales opportunities.

Unlike a traditional bank account, however, a merchant account acts as a temporary holding account, eventually rerouting received funds directly into your business bank account. This means that you are unable to access the funds in your merchant account until they are deposited into your business bank account, which typically occurs 24 to 48 hours after you collect payment and complete the transaction with your customers.

When you apply for and set up a merchant account with a merchant processor or acquiring bank, you will be able to accept card and electronic payments. Merchant accounts also allow businesses to accept payments through various methods, catering to customer preferences. You may likely also receive a spectrum of additional financial services to aid in your business’s success. This spread of services are referred to comprehensively as merchant services.

Merchant services generally include software and hardware such as point-of-sale systems, credit card machines, online payment gateways, PCI compliance, account statements, online reporting, and technical support. Some, but not all, of these services are included in the cost of your merchant account. Others are optional and come with additional costs.

What is a Merchant Account?

A merchant account is a specialized type of bank account that enables businesses to accept credit and debit card payments from their customers. Essentially, it acts as an intermediary between the customer and the business, facilitating the processing of electronic payments. When a customer makes a purchase using a card, the funds are first held in the merchant account before being transferred to the business’s primary bank account. This process ensures that the transaction is authorized and that the funds are available, providing a secure and efficient way for businesses to handle customer payments. By setting up a merchant account, businesses can streamline their payment processes and offer more flexible payment options to their customers.

9 Steps To Setting Up A Merchant Account

Setting up a merchant account involves multiple steps to ensure smooth and secure payment processing. Here’s what to expect:

Step 1: Register Your Business

• Obtain any necessary business licenses or permits.
• Establish your business as a legal entity (LLC, corporation, etc.).

Step 2: Open a Business Bank Account

• Merchant accounts require a linked business bank account to transfer funds.
• Separating business and personal accounts simplifies accounting and tax filing.
• Business bank account information, including routing numbers, is required for setting up a merchant account.

Step 3: Assess Your Business Needs

• Consider transaction volumes and types (in-person, online, mobile).
• Determine which software you will be using to run your business and which payment channels you require.

Step 4: Research and Compare Providers

• Search for reputable merchant services providers that directly integrate into the business software you will be using. A stand-alone merchant services option is often more than enough, and in that case you can research and use any provider. Understanding the offerings and processing fees of merchant services providers is crucial to protect your business and leverage the full benefits of the services offered.
• Main things to consider: Merchant account fees, customer support, contract terms, and integration capabilities.
• Ask for referrals from other business owners, or read online legitimate online reviews.

Step 5: Prepare Required Documentation

Gather documents such as your business license, Employer Identification Number (EIN), bank statements, and financial history.

As a business owner, it is your responsibility to ensure that all required documentation is accurately gathered and submitted to facilitate a smooth and efficient application process.

Step 6: Complete the Application

• Provide accurate and detailed information on the application form.
• Be prepared to answer questions about your business type and revenue.

Step 7: Undergo Underwriting Process

Providers will evaluate your creditworthiness and business stability through a comprehensive underwriting process.

This process helps manage risk and determine your fee structure.

Step 8: Set Up Payment Equipment and Software

• Depending on your business needs, this could involve POS systems, online payment gateways, or mobile card readers.

Step 9: Start Accepting Payments

• Test the setup to ensure smooth processing of credit card payments. This is crucial for capturing sales and meeting customer preferences.
• Train your staff if necessary.

What To Expect When Setting Up A Merchant Account

Setting up a merchant account, though time consuming, is fairly straightforward. Choosing the wrong merchant service provider can be expensive, which is why it's essential to devote time to research. A quick Google search for “merchant service provider” yields a daunting 45 million results. Resist the urge to pick a provider at random despite that feeling of being overwhelmed.

Instead, create a list of providers that you believe could be a good fit for your company. You should consider banks where you have established relationships, providers found during your Google search, or work with the payments experts at Swipesum to help you find the best merchant services provider for your business. You are looking for a processor with transparent, reasonable pricing and fair contract terms that provides your business with excellent service.

After identifying a handful of quality options, start asking for quotes. You will want to seek quotes from all of your top choices. Don't settle for the first quote you get. Having multiple options gives you an upper hand during negotiation and can help prevent being pressured into signing a contract prematurely by a pushy salesperson.

Remember to negotiate. Think back to your Google search and how many merchant service providers there are. They want and will fight for your business, so negotiate lower rate and fees, contract terms, additional technical support, etc. You'll be surprised what they are willing to offer to win your business.

Before signing a contract, be sure to read every word of it. Take a your time and be sure the contract includes everything you negotiated and no hidden fees. Once you have signed your contract, it's time to set your account and any hardware and software. Your merchant service provider will help in this process, and get you started accepting payments.

Terminating a contract with a provider can be more difficult than ending a bad relationship. And, no, you can't just ghost them. That's why it is important to do you research and find a best provider for your business. Trust us, and you'll be on your way to reducing the costs of your payments processing and increasing your profits.

Merchant Account Fees and Costs

Understanding the fees and costs associated with a merchant account is crucial for managing your business’s finances. Merchant account fees can vary widely depending on the provider and the specific services you require. Common fees include:

• Setup Fees: A one-time fee charged by the provider to establish your merchant account.
• Monthly Fees: Recurring fees for maintaining the account, which may cover customer support, account statements, and other administrative services.
• Transaction Fees: Fees charged per transaction, typically consisting of a percentage of the transaction amount plus a flat fee. These fees can vary based on the type of transaction (e.g., in-person vs. online).
• Interchange Fees: Fees set by the card networks (e.g., Visa, Mastercard) and charged by the payment processor to handle the transaction. These fees are usually a percentage of the transaction amount.

By carefully reviewing and comparing these fees across different merchant account providers, you can select a provider that offers the best value for your business.

Benefits of Using a Merchant Account

Utilizing a merchant account offers numerous advantages for businesses. Firstly, it enables you to accept credit and debit card payments, which can significantly boost sales by providing customers with more payment options. This flexibility can lead to increased customer satisfaction and loyalty. Additionally, merchant accounts improve cash flow by ensuring timely deposits of funds into your business bank account, typically within 24 to 48 hours of the transaction.

Moreover, merchant accounts enhance the security of transactions, reducing the risk of fraud and chargebacks. By partnering with a reputable merchant account provider, you can also gain access to advanced payment processing technologies and support services, further streamlining your operations and improving overall efficiency.

Security and Compliance

Security and compliance are paramount when it comes to managing a merchant account. The Payment Card Industry (PCI) Security Standards Council sets stringent regulations to ensure that businesses protect customer data and prevent fraud. Compliance with PCI standards involves implementing specific security measures, such as encryption, secure storage of cardholder data, and regular security assessments.

Merchant account providers play a crucial role in helping businesses maintain compliance. They offer guidelines, tools, and services designed to safeguard sensitive information and ensure that all transactions are processed securely. By adhering to these standards, businesses can build trust with their customers and minimize the risk of data breaches and financial losses.

Where to Go for a Merchant Account

Finding the right merchant account provider can be a game-changer for your business, but navigating the complex landscape of options can be overwhelming. To open a merchant account, you need to consider the process and requirements, including costs, necessary documentation, and selecting a suitable provider. In addition to off-the-shelf payment aggregators such as Square, Stripe, and PayPal, businesses have various other options, including acquirers, Independent Sales Organizations (ISOs), agents, vertical SaaS platforms with integrated payments, and accounting software solutions with payment capabilities. Here’s what you need to know about each category and how Swipesum can help you make the best choice for your unique setup.

Direct Acquirers

• Overview: Direct acquirers, also known as acquiring banks, facilitate credit and debit card transactions for businesses. They connect directly to card networks (e.g., Visa, Mastercard) and handle the transaction authorization, clearing, and settlement processes.
• Top Providers: Examples of major acquirers include Fiserv, Elavon, Worldpay, and Chase Paymentech.
• Pros:
  • Direct relationship with banks can offer the most competitive rates. These acquirers hold most of the merchant accounts for well recognized logos such as Burger King and Target.
  • Often include end-to-end payment processing services.
• Cons:
  • Support is going to be the main concern, unless you're processing billions in volume.
  • Application processes can be more complex.
  • May require businesses to meet stringent underwriting criteria.

Independent Sales Organizations (ISOs) and Agents

• Overview: ISOs are third-party organizations authorized to sell merchant services on behalf of acquirers. Agents work under ISOs to provide personalized service to businesses.
• Top Providers: Examples include Sonder Payments, LawPay, and Get Beyond.
• Pros:
  • More personalized support and flexibility in service offerings.
  • Ability to negotiate tailored pricing and terms.
  • For most merchants in the US, this is going to be the best route.
• Cons:
  • Variability in service quality depending on the ISO or agent.
  • Normally not tech companies but sales and support organizations.
  • Potential for hidden fees or longer-term contracts.

Vertical SaaS with Integrated Payments

• Overview: Vertical SaaS solutions provide industry-specific software that integrates payments seamlessly into their platforms. This has been going on for years, but now shareholders and SaaS customers demand it. Examples include software tailored for healthcare, fitness centers, retail, and hospitality.
• Top Providers: Mindbody (fitness), Toast (restaurant), and Shopify (e-commerce) are examples of vertical SaaS with integrated payment capabilities.
• Pros:
  • Simplifies business operations by combining software and payments.
  • Deep integration with industry-specific workflows and tools.
• Cons:
  • These are not payments companies and are notoriously bad at all things payments. From initial pricing, to onboarding, to customer service, it is difficult for a software company focused on one business vertical to also be payments experts.
  • May have higher fees or limited payment customization options.
  • Potential lock-in effect with the SaaS provider’s ecosystem.

Accounting Software with Integrated Payments

• Overview: Accounting software platforms like QuickBooks and Xero offer integrated payment processing to streamline invoicing, payments, and bookkeeping.
• Top Providers: QuickBooks Payments, Xero Payments, and FreshBooks.
• Pros:
  • Convenient integration with accounting and finance functions.
  • Streamlined payment collection and tracking.
• Cons:
  • Typically suited for small to medium-sized businesses.
  • May have higher per-transaction fees compared to dedicated merchant accounts.

Customer Support

Choosing a merchant account provider with excellent customer support is essential for a smooth and hassle-free experience. Reliable customer support can assist you with setting up your account, troubleshooting issues, and conducting test transactions to ensure everything runs smoothly. Look for providers that offer multiple support channels, including phone, email, and online chat, to address your needs promptly.

Additionally, a provider with a good reputation and transparent fees and terms can help you avoid unexpected costs and complications. By selecting a merchant account provider that prioritizes customer support, you can ensure that your business receives the assistance it needs to operate efficiently and effectively.

By incorporating these new sections, the article now provides a comprehensive guide to setting up and managing a merchant account, covering all essential aspects from understanding what a merchant account is to ensuring security and compliance.

Swipesum’s Recommendations for Setting up a Merchant Account

At Swipesum, we understand that every business is unique. Whether you operate a brick-and-mortar store, run an online e-commerce platform, or use specialized industry software, finding the right merchant account provider can significantly impact your bottom line. Here’s how we can help:

• Transparent Provider Comparisons: We evaluate the top providers for your specific needs, from acquirers and ISOs to vertical SaaS platforms.
• Customized Pricing Negotiations: Our experts negotiate with providers to ensure you receive the most competitive rates and contract terms.
• Tailored Solutions: We work with you to assess your transaction volumes, business model, and long-term goals, recommending solutions that maximize efficiency and savings.
• Ongoing Support: Unlike many providers, Swipesum continues to support your business with fee monitoring, optimization services, and consulting.
  

The Role of a Merchant Account in the Payments Process

A merchant account plays an essential role in your ability to accept card payments at your business. Without one, you won't be able to accept debit and credit cards or other forms of electronic payments.

Essentially, when a customer swipes a credit card at your business, you collect their card information using a credit card machine and request authorization for the transaction through your merchant account. Your merchant processor verifies the card information with the credit card company, ensures there is sufficient funds in the customer's account, and authorizes or declines the transaction.

If the transaction is authorized, the merchant processor collects the payment from the customer's bank and deposits the funds (minus fees) into your account. You can expect to pay anywhere between 2% and 4% of the total transaction amount in fees charged by your merchant processor, the credit card company, and the customer's bank.

Frequently Asked Questions

• What documents do I need to apply? Business license, EIN, and financial statements are typically required.
• How long does it take to set up a merchant account? This can vary from a few days to a few weeks.
• Can businesses with bad credit be approved? Approval may be more challenging but is possible with certain providers.
• What is the difference between a merchant account and a payment gateway? A merchant account holds funds temporarily, while a gateway authorizes and processes transactions.
• What should I do if my account is frozen? Contact your provider immediately to resolve any issues and provide any requested information.

In Summary

Setting up a merchant account is a critical step toward expanding your business's payment capabilities and increasing customer satisfaction. By taking the time to research providers, negotiate fees, and understand your options, you’ll be well on your way to efficient and cost-effective payment processing. Consider consulting with experts, like the team at Swipesum, to find the best solutions tailored to your unique needs.