How to open a merchant account

If your business has high transaction volume and specialized payment needs, a merchant account may make sense


Many businesses are taking more credit card payments during the COVID-19 crisis. And if you process a high volume of transactions and have specialized payment needs, a merchant account may make sense for you. Here’s what you need to know.

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Many businesses have shifted to taking more credit card payments during the COVID-19 crisis.

Some are doing this on the fly by using providers such as PayPal, Square and Clover. These services don’t require businesses to open a merchant account to take payments and simply charge a flat fee for transactions.

However if you do a substantial volume of transactions – generally $50,000 to $100,000 or more – or operate in an industry with specialized payment needs, it may make sense to open a merchant account. The pricing may be lower or more tailored to the unique quirks of your industry.

How to find a merchant account provider

This entails opening a merchant account with a company known as an acquirer or acquiring financial institution. This is a bank that will process and settle your daily credit card transactions and then settle them with the card association, such as Visa or Mastercard. You need to have this account to be credited for credit card transactions.

Many acquirers sell their services through what are called independent sales organizations, or ISOs. The ISOs process applications and screen out merchants they think may be involved in fraudulent transactions or have a lot of chargebacks.

To find a merchant account provider, ask around in your industry for one that knows your type of business. Trade associations can be a good source. Your accountant or banker may also be able to suggest one.

See related: How to change your business’s merchant category code

How to avoid scams

There are a number of scammers in the area of merchant processing, and some are quite sophisticated. Before you engage with a merchant processor or ISO, even one that has been recommended by someone else, go to the Federal Trade Commission’s website and search for its name. The FTC has pursued a number of cases against fraudsters in the industry.

When you find a reputable merchant account provider and file an application for an account, they are likely to look at factors such as the type of business you run and whether there’s a high risk in your industry of fraud or returns, how long you’ve been in business, your business history and your credit history.

See related: How to protect your business from credit card fraud

What costs are associated with a merchant account?

It is important to shop around and make sure you read the fine print in your contract before you sign.

A merchant account comes with costs other than transaction fees. There may be fees to open the account and a monthly fee to maintain it. There may also be fees to maintain secure technology. Also pay attention to any tiered pricing structures, upgrade fees and cancellation fees.

The FTC has published an article that lists the types of fees you may be charged, and I encourage every merchant to check it out. Fees can have a big effect on how much you really pay and often are negotiable, so don’t hesitate to ask if some fees can be waived.

Once your application is approved, you will get a merchant account – a bank account that lets merchants take debit and credit card payments. When someone makes a purchase from you, the money will go into that account and then be transferred to your business bank account after the transaction clears.

Industries that are considered “high risk” because they have a greater track record of credit card fraud and returns may have to open a merchant account with a specialized merchant account provider that offers “high-risk” accounts. Their fees can be significantly higher, so here, again, it is essential to shop around.

See related: Small business guide to credit card merchant fees

Bottom line

Does this take a lot of research? Yes, but your time will be well spent. With payments becoming increasingly electronic, the more you know about how to process credit cards efficiently, the better.

And the right merchant account provider or ISO can become an essential part of your team, keeping you up to date on key trends and developments in payment processing so you can stay one step ahead of them.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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