What is a merchant account and how to get one?
The merchant account allows a seller to accept credit card payments on his website. You’ve got it right. Accepting credit card payments isn’t something you can do on your own. It requires legal permission in the form of a merchant account. Scroll down to learn what a merchant account is, how it works, and how to get a merchant account in 2020.
What is a merchant account?
Simply put, a merchant account is a type of bank account. It allows e-commerce merchants to accept credit card payments. The owners of Amazon, WooCommerce, Shopify, and Alibaba all have merchant accounts. What are you waiting for then? There are two ways you can get a merchant account:
- Through a PSP (payment system provider);
- Individually (by heading to a bank yourself).
It reminds of ceremony preparation. You can either hire a ceremony planner or organize the entire ceremony on your own. Though hiring professionals always costs extra, it saves both time and, well, nerves. From shaping a guest list to picking the napkins, a ceremony planner knows the entire process from inside out. You, on the contrary, don’t.
Where to begin? How to define the budget? Finally, how to make it all work? A crisis followed by sleepless nights is almost guaranteed. Opening a merchant account looks quite alike. However, instead of spending hours over the guests’ list, you have to find the right bank, collect a thick file of documents, and spend days waiting for approval. And that’s just to name a few of the challenges you have to face.
Involving a PSP helps a lot. First, the PSP links you with an acquiring bank that fits your budget and industry type perfectly. As a result, you won’t pay sky-high transaction fees in the future. Secondly, the PSP provides you with a payment gateway, fraud & chargeback prevention, recurring billing, and all the other cool features that banks don’t. At PaySpacelv, we have clients who tried to apply for a merchant account at a bank themselves and failed. Then, they reached us out for help. Finally, we opened merchant accounts for them at very same banks within a few days.
Why do you need a merchant account?
There are three main reasons why you need a merchant account:
- You want to accept credit card payments on your website/inside an app.
- You run a brick and mortar store and want to shift from cash to credit cards.
- You already accept payments online and now want to add credit cards as your payment methods.
Can you succeed in eCommerce without credit card payments? Not really, The European market price for credit card transactions increased up to 9.2 billion euros. Such a tendency is fair for African, Asian, and American markets as well. Hence, no matter what region your target, you don’t want to miss a payment hype.
How does a merchant account work?
As we have already mentioned, a merchant account is a type of bank account. Not only it allows you to accept credit card payments, but it also holds the funds from sales. How does it work? There are two main stages:
- All the funds’ clients spend on your website transfer into your merchant account at the very moment the purchase is completed.
- Then, all the funds from your merchant account are automatically transferred to your banking business account.
The regularity of payouts (transfers from your merchant account to your business account) depends on a PSP of your choice. On average, it takes from one up to 14 days. These transfers are out of your control. Thus, discuss the information about payouts before signing down any agreements.
Once applying for a merchant account with the help of a PSP, you are getting more than just a bank account. The company also provides you with the merchant interface. That software enables you to monitor the dynamics and volumes of sales. You also get PCI compliance, fraud and chargeback prevention, recurring billing, credit card authorization hold, e.g.
The large part of these options is free. However, some of them cost extra. It all depends on the PSPyours. There are different types of merchant accounts. For example, a gambling merchant account, travel agency merchant account, and even antique agency merchant account. The regular merchant account permits you to accept Visa and MasterCard payments only. However, you can discuss the payment options with a PSP and also receive a wide range of other payment methods like:
- local credit cards;
- eWallets (Skrill, PayPal, Stripe);
- wire transfers;
- mobile banking.
How to open a merchant account in 2020
Opening a merchant account isn’t is not as hard as it seems. All in all, we are to help. To open a merchant account, you have to:
- Provide answers to the five main questions about your business (scroll down to see the full list);
- Collect all the documents required;
- Adjust your site;
- Fill in the merchant account application.
Once you make the above-mentioned steps, you will open a merchant account fast and hassle-free.
Five main questions about your business goals
To find a perfect acquiring bank for you, the PSP needs to understand your business nature and purposes. Here is a list of questions all the PSPs ask so to offer you a solution:
- What is your business type? Is it a high-risk, low-risk, or middle-risk? The answer to this question affects the choice of a bank, the transaction fees, the type of a merchant account to apply for. Check out how to define the high-risk industry.
Here is the list of the most common high-risk businesses:
- NUTRA (nutraceuticals);
- Booking and travel agencies;
- Bitcoin/Forex trading;
- Computer software/hardware;
- Collection agencies
- What is your turnover? Displaying your turnover is a must. Thus, get ready to handle a PSP your processing history documents. They show your financial state and card turnover within the last year (at least half a year for low-risk businesses). The processing history attached to the application increases your chances of approval. The startup owners who don’t have a processing history yet, cal apply for a merchant account as well. The procedure and range of documents, though, will differ from a regular one.
- What is your GEO? What countries are you willing to penetrate? Do you plan to reach out global audience in the future? When applying for a merchant account, you will be required to mention these details. Why is it so? First, clarifying your GEO helps to find the best payment solution on the market. Secondly, it simplifies the process of choosing payment methods.
- What payment model do you need? Different businesses require different payment models. Selling marketing courses benefits from recurring billing, while selling tours don’t. Think of your product nature. Does it benefit from a one-time payment option or recurring billing or both?
- What payment methods do you prefer? Besides Visa and MasterCard you can also accept eWallets, ACH, cryptocurrency, wire transfers, local credit cards, e.g. Your industry type and GEO affect the payment methods choice.
Range of documents to open a merchant account
Take a look at the list of documents needed to open a merchant account:
- Certificate of Incorporation;
- Certificate of incumbency;
- Valid ID copies for all company directors and owners.
- Utility bill/Bank statement/Rental agreement under corporate names proving company location;
- Local documents as per company jurisdiction which displays company directors and owners;
Site requirements to open a merchant account
How to apply for a merchant account?
The first step is choosing the PSP. Once you’ve made your mind about the PSP, you fill in the merchant account application and attach the documents mentioned above. The PSP of yours will provide you with an application by email. You will also receive a detailed guide on what steps to make. The high-quality PSPs also offer customer support during the entire application journey.
What are the merchant account fees?
The merchant account implies various fees attached to it. Nevertheless, not all of which the latter are identified in contracts, including:
- Application fees;
- Rental fees for a credit card terminal (required if you run a brick-and-mortar store);
- Setup Fees;
- Monthly Fees;
- Discount Rate;
- Per-Transaction Fees;
- Cross-border Fees;
Thus, make sure to ask questions about the fee structure before signing any contracts with PSP. In case you have got any questions already, reach us out for a free payment consultation.