Opening a merchant bank account: 9 things you should know.

Opening a merchant bank account: 9 things you should know.

These days, any large or small business worth its salt must accept credit and debit cards from customers. In order to make that happen, you need to first go through the process of selecting a merchant bank account. Since this can often be a confusing journey for entrepreneurs, it makes sense to get a few facts straight before you start.

1. Understand why you need a merchant account.

The first question is an obvious one: what is a merchant bank account anyway, and why do you need one? In general terms, these accounts allow you to accept credit and debit card payments from your customers. More precisely, a merchant bank account pays you the majority of the proceeds of your customers’ credit card purchases even before buyers have paid off their bills. Although you will be required to pay fees for this type of arrangement, it gives you faster access to your cash.

2. You will go through an underwriting process.

Just like you, merchant bank account providers are in business to make a profit. Therefore, it probably does not come as a surprise to learn that they want to do all they can to minimize their risk. The underwriting process is designed to determine whether your business is a good and trustworthy candidate for a merchant bank account. Expect providers to request information about aspects of your company, including:

• The industry in which you operate.

• Your years in business.

• The ways that you accept payments.

• Whether you have a history of chargebacks (involuntary refunds).

• When and how you bill your customers.

• Your credit score.

• Your sales volumes.

Although the idea of underwriting may seem intimidating, most businesses are approved quickly and without difficulty. Others can usually gain acceptance with negotiations over time.

3. You should open a business bank account.

In addition to securing a merchant account, you should also set up a standard business account at your bank. This account will be the home of all the funds you transact and the place from which processing fees are withdrawn. In order to open one, you will need a business license and an employee identification number (EIN) that you can obtain from the IRS website. It is important to maintain a large enough balance in this account to pay for any fees or charges that might arise.

4. Approval for merchant accounts begins with the application.

Believe it or not, it’s quite easy to introduce yourself to a merchant bank account provider. Most applications can be completed within a matter of minutes online. Expect to provide data about yourself and your business, including but not limited to your EIN, bank account and routing numbers, the types of payments you want to accept, and your estimated sales volumes.

5. You may be asked to provide additional documentation.

A simple rule of thumb is this: the higher your anticipated sales volume, the more documentation you will need to show to the merchant bank account provider during the application process. If you only anticipate selling a couple of thousand dollars per month, you might get away with providing little more than a voided check and brochures or other marketing literature that prove that you are actually in business. However, big sellers will generally also be asked to furnish underwriters with several months of bank statements, balance sheets, and profit and loss statements going back one or two years. Since you will be heavily monitored during your initial relationship with your account provider, it is important to be as accurate as possible on your application.

6. The turn-around time is fast.

Once your application and all of the required documentation is submitted, you probably will not have long to wait. 

7. You can use the same merchant bank account for multiple purposes.

Once you have been approved for an account, you can integrate it into your entire business platform. That means that you do not need one account for your physical storefront and another for your ecommerce site. That means you can effectively consolidate all of your electronic payment processing in one place.

8. Remain aware of PCI compliance.

The credit card industry has instituted a set of standards ensuring that customers’ payments are being processed securely by merchants. As a business owner who accepts credit cards, you are required to adhere to these PCI Data Security Standards (PCI-DDS). In many cases, your merchant bank account provider will assist you with your compliance to these rules. However, there are steps you can take on your own as well, including implementing strict policies about user IDs and passwords, and training your staff in credit card security measures. Plus, shredding all documents that contain sensitive customer credit card data and installing anti-fishing and virus protection software on all of your computers. Keeping software updated to the latest version is also an excellent preventative strategy.

Perhaps the most important fact to recognize about merchant bank accounts is that they are virtually indispensable for any business owner wishing to accept customers’ credit card payments. The good news is that obtaining an account that will serve you well is not as overwhelming as it might at first seem. With a little patience and careful research (combined with attention to detail and just a little organization on your part) you can find a merchant bank account that will serve you and your business for years to come.