How to get a merchant account for your business

Your business has just made a sale via credit card, but how much of that payment will you receive as revenue, and how easily?

With most purchases now made via credit and debit cards, business owners rely on payment processors to receive electronic payments. However, by also opening a merchant account, you can enjoy lower fees, enhanced fraud protection, and more customization, which will help you to receive funds faster, spend less time on finances, and boost customer satisfaction.

What is a merchant account?

A merchant account is an account for businesses to send and accept card payments. When a customer buys from you, their funds first go to your merchant account, before they’re deposited in your business bank account. This intermediary step actually speeds up transactions by connecting your customers’ bank accounts to your bank account.

Merchant accounts form the core of any merchant services product ecosystem. In addition to banks and card networks, other parts include:

• A payment processor—also known as a point-of-sale (POS) provider or payment services provider (PSP)—is a company or service that facilitates card payments between financial entities. Examples include PayPal, Square, Stripe, Venmo, Elavon, and Zelle. Payment processors also provide customers with ways to pay the merchant:
  • Point-of-sale terminals allow in-person customers to tap, insert, or swipe their cards to pay.
  • Payment gateways are online portals that connect customers’ ecommerce payments to the merchant’s payment processor.

Do I need a merchant account for my small business?

Unless your business is only brick-and-mortar and only accepts cash, you’ll need a payment processor to accept electronic payments. However, if you want to accept payments more quickly, with enhanced security and customizable fee structures, consider also opening a merchant account.

Merchant services by industry

Merchant accounts offer unique benefits for businesses in different industries, such as:

• Construction: Merchant accounts enable quicker, more affordable processing of large payments, which improves cash flow for large projects.
• Consulting: In addition to faster payments, many merchant service providers offer tools to manage clients, automate billing, and comply with regulations.
• Ecommerce: Online retailers benefit the most from processing online payments faster, and added security can protect you from fraud.
• Healthcare: In addition to accepting high-value credit card payments at lower cost, merchant accounts can help healthcare providers comply with industry regulations.
• Hotels and hospitality: Merchant account security features protect you from cancellation-related fraud, plus you’ll save on fees for large or international payments.
• Nonprofit: With a merchant account, nonprofits can efficiently manage large or recurring donations and receive detailed tax information (like transaction fees per donation).
• Restaurants and food services: Credit cards often feature food-related rewards—a merchant account reduces the cost of accepting these payments both in-store or via an online delivery service.
• Retail: Merchant accounts reduce the fees paid for high volumes of card payments, plus they integrate with point-of-sale systems to streamline checkout and therefore increase revenue.

What fees will I pay for a merchant account?

Merchant fees

Merchant services providers charge a merchant fee (also called a transaction fee) for each sale you make. These are deducted before your sale gross is deposited into your business checking account. Merchant fees are negotiable and tax deductible.

When choosing a merchant account, you’ll encounter two types of merchant fee structure: interchange plus pricing and flat-rate pricing.

Interchange plus pricing

Interchange plus pricing involves paying two variable fees per transaction—the customer’s bank charges your business bank an interchange fee, and your payment processor charges you a markup fee. Both fees vary based on the customer’s card type and network. With interchange plus pricing, you’ll see your cost breakdown per transaction.

Because interchange plus pricing varies per transaction, this structure can be cost-effective if you have a high volume of transactions or your transaction amounts vary.

Flat-rate pricing

Flat-rate pricing involves paying the same fee rates—one for debit transactions and one for credit transactions—regardless of the customer’s card network.

Because flat-rate pricing is predictable (and based on the cost of your larger transactions), this structure can be cost-effective if you have a low volume of transactions or consistent transaction amounts.

Other fees associated with merchant accounts

While every merchant account has its own types, these are the most common fees you’ll pay for a merchant account:

Some merchant services providers also require you to pay a minimum amount in total processing fees each month, known as a minimum monthly fee. These limits are usually low, and you’ll only pay more to meet it if you have very few monthly transactions. 

How do I open a merchant services account?

1. Research merchant account providers

Have your accountant or bookkeeper compare the fees and rates of different merchant services providers to calculate how much each company will save you. Then, compare these figures to the features each account offers, such as:

• How fast will I receive payments from this account?
• Is customer support live and/or tailored to my business? 
• What security features does the account offer?
• Does the account integrate well with my business banking platform?
• What do customer reviews and testimonials say about the provider?

2. Prepare your documentation

Your merchant account application will require legal and tax documents. Exact requirements vary, but generally include:

• Business documents and information, such as business license, articles of incorporation, EIN, and business credit history
• Financial statements and tax returns
• Proof of regulatory compliance, such as with the Payment Card Industry Data Security Standard (PCI DSS)
• An open business checking account

3. Complete the application

Fill out the merchant account application and submit all required documents and information. Once the merchant services provider has received all this, they can begin underwriting—evaluating your business risk. This can take days or weeks depending on your business, and will include a credit inquiry. The provider may contact you with additional documentation requests. 

4. Start receiving payments

If you haven’t already, set up point-of-sale terminals and payment gateways to receive card transactions. Work with your team to choose a payment processor that smoothly integrates with your operations and sales systems. Once your merchant account has been approved, test transactions to ensure your payment processor and merchant account are coordinating properly.

5. Activate your merchant account

If approved, your merchant services provider will contact you with account terms and conditions. Review these with your accounting and legal teams before signing. Once you’ve opened your merchant account, set up your account preferences, fee payments, security measures, and what transaction information you want to receive.