Accept Debit and Credit Card Payments for Your Small Business With a Merchant Account

A merchant account is a special type of business bank account that allows your business to accept different types of payment, typically debit and credit card payments.

So a merchant account is an agreement between a retailer, a merchant bank, and a payment processor for the settlement of credit card and/or debit card transactions. Although we’re still quite a way off from becoming a truly cashless society, today almost all American consumers have either a debit card, a credit card, or both, and rely on them to make most of their day-to-day purchases. Card acceptance translates directly into increased sales and prevents the possible loss of a sale from consumers who now usually carry little or no cash and leave their checkbooks at home.

When it comes to merchant accounts for small businesses, there are generally two ways to get a merchant account and both require that you enter into an agreement:

• Enter into an agreement with a member bank that has a processing relationship with a credit card processing industry, like Visa and MasterCard
• Enter into an agreement with an authorized agent of the member bank, such as an independent sales organization or member service provider (ISO/MSP).

This position walks you through the 5 steps of figuring that out for a new business merchant account, including how to:

• Consider your business needs
• Compare merchant account provider fees
• Evaluate other benefits and features beyond credit card acceptance
• Apply for a merchant account with your chosen provider

To minimize risk, vendors use a variety of criteria to determine whether to approve a merchant account application:

• Type of business — does it have a higher or lower risk of credit card fraud or returns?
• Length of time in business
• Business history — bankruptcies, defaults, etc.
• Whether the applicant has had merchant accounts previously
• Personal credit history of the business owner

Most new business owners are more likely to get a favorable review of their merchant account application from the same bank that holds their business and/or personal accounts.

Having a higher risk does not mean that an application will be rejected. However, the vendor may initially demand higher transaction or other fees to compensate for the risk. If the business becomes well established, the fees can be renegotiated at a later date.

Fees

Merchant accounts can have a variety of fees attached to them, not all of which are always clearly outlined in contracts, including:

• Application Fees
• Setup Fees
• Monthly Fees
• Discount Rate
• Per-Transaction Fees
• Cross-border Fees
• Rental fees for a credit card terminal

Additional fees can increase the total fee per credit card transaction to over 3%, so you’ll want to shop and compare when looking for a merchant account — be aware that in addition to extra fees, some also come with contracts that are minimum term and cannot be canceled without penalty.