If you are looking to open a merchant account or trying to choose a merchant processor with good rates and fair terms, you are not alone. To ensure your application for a merchant account, advance preparation is important. Whether you manage a small retail outlet or a large operation, opening your merchant account with a processor who understands your business needs is key to your success.
However, the payment industry is filled with much jargon and this can make the process a tad complicated. Let us first define some commonly used terms: merchant account, payment gateway, and merchant account processor.
What is a Merchant Account?
This is a special kind of bank account used for keeping or securing funds gotten from credit card and debit card sales. From the merchant account, the funds can now be transferred to a regular business account, either on a daily or weekly basis. As a legally binding agreement between your business and the merchant account processor, you will be given terms and conditions to sign before your account is approved.
What is a Payment Gateway?
Before a credit card transaction is processed, the payment gateway or POS system connects to the payment network (Visa or MasterCard) to confirm if the cardholder has sufficient funds for the purchase. If there are sufficient funds, the transaction is sanctioned and the funds are transferred from the cardholder’s account into the merchant account of your business.
Who is a Merchant Account Processor?
A merchant account processor is often a third party company chosen by a merchant to handle transactions from different channels like credit cards and debit cards for the merchant acquiring bank.
How to Get your Merchant Account Approved
Several factors get into play when you need to get your merchant account approved. Since merchant accounts are a line of credit from an account processor, presenting your business in the best possible light is important. Here are some tips that can help you avoid any complications during the merchant account application process, and get your account approved.
Personal Credit History
This is far and away one of the most common reasons for merchant account denials. Your personal credit history plays a big role in your application process. If you credit history is healthy, and signatories for your business also have a good credit history, the application process will be a lot easier. Those who sign for your business are also required to be a company officer or a senior executive in a company, and to have some ownership equity.
Type of Industry and Nature of Business
The type of industry your business is in will be key to your approval. For instance, industries with a history of abuse can make obtaining a merchant account a hassle. Some industries are also traditionally high risk in nature, and most acquiring banks will prefer not to work with these businesses. Your payment service provider, however, may partner with top tier banks that accept merchant account applications in your industry. Some industries that typically experience difficulty with getting approval include pornographic websites, multi-level marketing companies, nutritional supplements, guns and ammunition services, membership clubs, penny auction websites, and online gambling. Keep in mind though, that higher processing fees may be charged to cover the risk assumed by the acquiring bank.
Expected Transaction Volume
Your expected transaction volume is based on your expected growth and past processing amount. To improve your chances of getting an approval it would be wise to show processing volumes within the “average” of your industry. If your processing volume is high, the odds will be stacked against you and you will likely face many chargebacks. Showing monthly volume prediction or high ticket price that is a lot greater than the “norm” in your industry may put the acquiring bank on guard.
Staying Off The TMF List
Settle any merchant account related debts, past or present, to avoid being on the Terminated Merchant File list. Ensure you are in good standing with previous merchant accounts under your name by clearing any outstanding fees owed to the former provider. Also, keep a healthy connection with your customers by having a web presence or maintaining a working phone number, and reply to customer requests as promptly as possible.
All merchant account applications go through rigorous compliance checks before approval. Getting one approved for your business will not be as difficult if you follow the tips above. You can rest assured you will be well on your way to securing an approval for your merchant account as start accepting credit card and debit card payments.
About The Author
Mark Sands, co-founder of High Risk Merchant Account LLC, an authoritative expert in the high risk merchant services space. Mark has decades of experience in the payment industry & enjoys writing on entrepreneurial related topics.