How to open a merchant account for business

What is the integral part of each online business, aside from qualitative products or services and purchasers, of course? Probably, it's the ability for your customers to pay by card and for you to accept online payments. To provide customers with this functionality, merchants must enter into an agreement with a bank and open a merchant account. This is not always a quick or easy process, but we've compiled basic tips to help you create a merchant account.

Merchant account for business: the concept explained

Merchant services are the backbone of modern business transactions, enabling companies to accept electronic payments from their customers. At the heart of merchant services is the merchant account — a specialised bank account that allows businesses to accept payments via credit cards, debit cards, and other electronic methods. Whether you operate an online store, a brick-and-mortar shop, or a hybrid business, having a merchant account is essential for processing card payments.

By setting up a merchant account, businesses can accept payments online, in person, or even over the phone, offering customers the flexibility they expect. This enhances customer convenience and improves cash flow by ensuring that funds from sales are deposited quickly and reliably into your business account.

What is a merchant account?

It's a special type of bank account that enables merchants to accept online payments. In fact, a merchant account is an agreement between an online store and an acquiring bank or merchant service provider that enables a financial institution to process customers' payments on the store's website.

The scheme of money movement is as follows:

Step 1. The money is debited from a client's card.

Step 2. A payment gateway processes the transaction.

Step 3. The funds are deposited into the merchant's bank account.

Step 4. The merchant receives funds to its bank account (usually within 1-2 days).

Why is the scheme of settlement so complicated? Let's figure out why the funds go to a merchant account rather than a commercial one right away.

Merchant accounts act as intermediaries, temporarily holding funds from card payments before depositing them into regular business bank accounts or checking accounts. Unfortunately, the sales process is not always smooth. Sometimes, customers may request a refund because the product they bought did not fit. Or the funds on their card were debited due to fraudulent transactions. In such cases, the money is withdrawn from the merchant account, and the remaining sum is withdrawn to the bank account. That is why setting up a merchant account is the priority if you decide to win the world of e-commerce.

Benefits of having a merchant account

Despite being quite a palaver, having a merchant account has tons of benefits for your online business, especially for established businesses looking to expand their customer base and streamline payment processing.

• Transaction speed. It doesn't matter what your online business's current turnover is. The ability to process hundreds or thousands of transactions per minute opens up incredible opportunities to increase your income in the future. Reputable merchant account providers also offer transparent pricing with no hidden fees, ensuring you know exactly what you're paying for.
• Multicurrency. Having a merchant account allows you to accept payments in various currencies. Thus, the expansion of your business is just a matter of time.
• Safety. No matter how you set up a merchant account (using a PSP or with a bank by yourself), it is inextricably linked with a PSP certificate. And having this document, you can guarantee the security of your customers' payment data.
• Increased income & attraction of more customers. By accepting card payments on your site, you increase your profit. More people now tend to pay by card. In addition, large and impulsive purchases are most often paid for by credit cards. And providing them with flexibility and freedom of choice in payment options, you're head and shoulders above some of your competitors.
• Service 24/7. With a merchant account, your business does not depend merely on banks. It allows your customers to pay for their purchases at any time, whether it is on the weekend or overnight.

How to set up a merchant account

Before you open a merchant account, it's crucial to ensure your business is properly registered and compliant with all legal requirements. This process typically begins with registering your company with the appropriate state or local authorities and obtaining a business license. You'll also need to apply for an Employer Identification Number (EIN) from the IRS, which is necessary for tax reporting and is often required during the merchant account application process.

The starting point in setting up a merchant account is to analyse the credit card brands and decide who you would like to work with. When making your decision, don't ignore local payment instruments, as they can increase your traffic. And, of course, make sure your customers can use the services of major credit card operators like Mastercard and Visa.

Depending on your industry and location, you may need additional permits or licenses, such as a sales tax permit or industry-specific certifications. Taking these steps legitimises your business and demonstrates to merchant account providers that you are trustworthy and compliant. Proper registration is a foundational requirement for opening a merchant account and ensures your business is eligible to receive payments and operate within the law.

The next step is to prepare all the necessary documents related to your financial situation (average bill, estimated turnover, and sales volume). Also, banks ask for tax returns, so get them ready before filing with financial institutions. Submitting all required documents is essential for the underwriting process, in which the merchant services provider reviews the business owner's credit history, financial stability, and risk factors before approving the merchant account.

Then, you address the acquiring bank to sign the agreement. Experts advise setting up a merchant account in a bank in the country where the business is registered. To facilitate the registration process, do not neglect the institutions where you registered your current account. When you apply to open an account, here are the factors that will affect the success of the transaction:

• Failures and achievements. Both ups and downs matter. If your business was on the verge of bankruptcy or was in arrears on bills, chances are you will be denied. Your personal credit history will also be included.
• Experience. Are you a seasoned businessman or an enthusiastic newbie? The answer to this question can be a factor in the decision to open a bank account.
• Type of your organisation. Depending on this, the possible risks will be assessed. If your business is not secure enough, the bank has the right to refuse you. It goes without saying that they do not want to be the target of frequent fraudulent attacks.

If the decision is made in your favour, you will receive a merchant account assigned a specific ID in the electronic payment system.

Choosing a merchant account provider

Selecting the right merchant account provider is a critical decision that can impact your business's ability to accept payments smoothly and cost-effectively. Start by researching merchant account providers and comparing their offerings. Key factors to consider include transaction fees, monthly fees, and setup fees, as well as the range of payment processing services available, such as online payment gateways, in-person terminals, and mobile payment solutions.

Its also important to evaluate each provider's reputation, customer support, and security features, including fraud protection and chargeback management. Look for transparent pricing and robust support to ensure your payment processing runs smoothly. Popular merchant account providers like Stripe, Square, and PayPal offer a variety of solutions tailored to different business needs, but it's wise to assess which provider aligns best with your specific requirements. By choosing a reliable merchant account provider, you can ensure secure, efficient, and scalable payment processing for your business.

Understanding merchant account fees

Merchant account fees can significantly affect your bottom line, so it's important to understand the different charges you may encounter. The most common fee is the transaction fee, which is typically a percentage of each transaction amount processed through your merchant account. In addition, many providers charge monthly fees for account maintenance and setup fees when you first open your account.

Other potential costs include chargeback fees, incurred when a customer disputes a transaction, and processing fees that may apply to certain payment types or payment methods. When evaluating merchant account providers, pay close attention to their fee structures and look for transparency to avoid hidden costs.

If you are currently running a business or considering starting one, chances are you'll want to accept credit and debit cards, since they are a preferred payment method for many consumers. In order to do so, you'll need to establish a merchant account. Quite possibly, you're not entirely sure what it means and how it fits in the much larger world of payments. That's understandable. We're here to help you sort through the complex and often contradictory information. Corefy experts are ready to provide you with all the necessary information on how to open a high-risk merchant account and assist in setting up a low-risk merchant account for your project. Contact us to get started immediately.