Essential Guide to Establishing a Merchant Account for Your Business


With 89% of U.S. retail transaction volume coming from in-store payments with debit and credit cards, it is impossible to ignore that card payments have emerged as the preferred payment method among consumers.

As a result, business owners must reconsider how they accept payments for the goods and services they provide or risk losing a significant amount of business.

The process of accepting credit card payments involves far more than simply purchasing a card reader. Therefore, this guide will not only help you set up your business to accept credit card payments but also walk you through the process of acquiring the needed merchant account to do so.

What is a merchant account? 

A merchant account is an account held with a merchant processor whereby funds are electronically transferred from the client’s card issuer to the business through an intermediary and into their bank account.

80% of merchant accounts are opened by a merchant service provider (MSP) or an independent sales organization (ISO).

MSPs and ISOs help facilitate each transaction from the time the card gets swiped to the business receiving their funds, which typically requires a three-step process: authorization, settlement, and funding.

Authorization: In this phase, the customer initiates the payment, whether online or in-person. When this happens, your payment terminal or merchant gateway will request permission to accept the payment from the payment processor, which sends the relevant transaction information to a credit card network, such as Visa, Mastercard, American Express, or Discover. From there, the card network will communicate the transaction details to the bank that issued the card to the customer to check the account status and either approve or decline the transaction.

Settlement: During this phase, you are responsible for sending all authorized transactions to the payment processor at the end of each day, where the funds get collected from the customers’ bank. This is oftentimes an automated process.

Funding: The last phase of this process refers to the funds being transferred from the customers’ bank into your bank account with any applicable interchange fees deducted. These funds are typically made available to you within 48 hours.

The MSP or ISO acts as a link for all the different components involved in processing the payment, from requesting authorization to helping the funds get deposited into your bank account.

Not only do most people prefer to use a credit card for purchases, but according to a recent study, credit card users also spend between 12% and 18% more than cash users since they can defer the payment for purchases. Therefore, not only are you accommodating your customers’ preferences, but also boosting your revenues.

How to choose the merchant processor best suited for your business 

When it comes to a vital aspect of your business, such as your merchant processor, you must do your due diligence to choose one that works well with your current processes and gives you everything you want and need from a merchant account.

These are some common characteristics that you should look for when selecting a merchant service provider:

1. Transparency 

MSPs and ISOs should be transparent with their fees, including equipment leases, account terminations if you are dissatisfied, and chargebacks.

Many factors can impact the processing fees you owe, so the account provider should be willing to explain what you can expect to pay.

You can expect your merchant processing fees to be structured in one of three ways: as a flat rate fee, a tiered fee, or interchange-plus transaction fees.

A flat-rate fee is either expressed as a fixed percentage or a fixed percentage plus an additional sum of money. For example, Chase for Business charges 2.90% + $0.25 per transaction.

Tiered transaction fees vary depending on the risk level of your business. Your business will either get categorized as qualified (low-risk), mid-qualified (some risk), or non-qualified (high-risk). Mid-qualified and non-qualified categorizations are common for transactions where the card is not physically present when initiated and the settlement gets delayed.

An interchange-plus fee includes a fee set by the card association and a fee charged by the MSP or ISO. This pricing model is transparent and merchant-friendly since merchants know how much it will cost to process the transaction and receive payments from customers.

Some additional fees you may be responsible for include: 

An application fee

A one-time setup fee

A monthly service fee (this usually ranges from between $10 – $30 per month)

Equipment fee for businesses using POS terminals

A transaction fee for swiped transactions (usually 1.95%-2.0% of the transaction amount)

A transaction fee for manually keyed-in transactions (usually 2.30%-2.50% of the transaction amount)

A cross-border fee for international payments (this ranges between 0.60%-1.25% of the total transaction amount).

Chargeback Fee

PCI Compliance Fee


Additionally, look for a provider who provides clear and detailed answers to all your questions and adequately addresses any concerns you may have.

2. Versatility 

Look for an MSP or ISO that accepts all forms of credit cards, such as Visa, Mastercard, Discover, and American Express. Additionally, they should accept physical swipes and online payments, like Apple Pay or Android Pay.

Choose a service provider that accepts all credit card payment options that your customers can access, which may vary depending on where your customer base is located.

3. Integration: 

Your merchant account should not force you to look for new software than those you have been using, so be sure you will be able to integrate it with your current systems, such as those you use for accounting, point of sale, and merchant gateway.

4. Security 

Your customers should be able to purchase from your business using a credit card without fear of their personal and financial information becoming compromised.

Your customers could blame you if this were to happen, even if the breach did not occur on your end.

To keep your customer’s financial and personal information safe, you must adhere to Payment Card Industry (PCI) compliant standards, as this will keep your systems secure.

How to open a merchant account

Regardless of which MSP or ISO you choose, the process will likely follow these steps:

1. Determine what your needs are 

Every business will have different needs for processing credit card payments, and it starts with determining how you will accept payment: in-person, online, or both.

The location of your customers will have a significant impact on which provider you choose since some providers may not offer the popular credit card companies in other countries. Visa and Mastercard are well-known worldwide, but if your customers are primarily in the U.S., you should look for a provider who offers Discover and American Express in addition to Visa and Mastercard.

2. Request quotes from different providers 

Do your due diligence to shop for the best provider at the best price.

Seek out quotes from different providers based on your needs to determine who can meet your needs at the lowest cost to you.

3. Prepare your website 

Many providers will require your website to meet a set of guidelines. For instance, Visa has the following guidelines for a merchant’s website:

A comprehensive description of goods and services for sale

Detailed customer service contact information

Overview of refund and cancellation policy posted

Your location

Additionally, your website should state when the customer’s card will get charged and what security you have in place to protect their personal and financial information.

4. Prepare your documents 

For most MSP or ISO applications, you will need to provide an Employee Identification Number (EIN) or your social security number if structured as a sole proprietorship.

They may also request your business license and processing statements to show your volume of transactions and refunds.

5. Submit your application and prepare for underwriting 

Depending on the provider, an application could take a few minutes. They will screen your application to review your credit and check for any previous financial issues, so if either of these may be an issue, it is best to disclose the incident on your application.

MSPs and ISOs evaluate your risk during the underwriting process to determine how likely you are to have costly issues, such as high volumes of chargebacks.

6. Set up your merchant account 

The account can get set up within a few days once approved.

After being approved, your provider will send you the technologies you need to process credit card payments, such as payment gateways and card readers. If you have an existing gateway, you can request a VAR sheet to update your gateway to include the new processor.

Finally, once you have the technology and account integrated with your current processes, you will be able to satisfy your customers, accept their credit card payments, and boost your revenues.

If you’re a merchant who has questions about credit card processing, you can schedule a free consultation with my using my calendar link below.

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