What Exactly is a Merchant Account & Why Do You Need One?
Whether you’re a small business that wants to maximise income and propel your new business or you’re a well-established firm that’s branching out, you’re likely interested in knowing about merchant accounts. A merchant account is a type of bank account that allows businesses to accept payments in various ways. In general, in this day and age, this means by debit or credit card. While in essence, the idea of what a merchant account is and what it does and how it can help businesses is a simple concept, there are a lot of avenues and thoughts that need to go into it before setting one up.
You’re most likely interested in a merchant account because you wish to set up a fluid payment system that takes debit and credit cards. According to a study from the Federal Reserve, total payments with cards are up nearly 30 billion since 2015—and this was before COVID-19. The fact is, fewer people than ever want to pay with cash. More people are relying on spending their money by seemingly safer electronic means. And if you’re a small business, you’ll almost certainly want to be able to take card payments by setting up a merchant account. But whatever the case, as cash dwindles and card payments take over the reins as king, you’ll likely need a merchant account to maximise your means of receiving payment.
What exactly is a merchant account?
A merchant account is a business bank account. It allows a business to accept funds in various ways. This includes electronic payments such as debit and credit cards and it can also include accepting more recent forms of electronic payment such as PayPal and wallets on people’s smartphones. These accounts are set up by a payment processor. In general, a payment processor sets up the merchant account for one’s business. And this merchant account acts as a middleman for businesses so they can accept various types of funds.
Since merchant accounts are business bank accounts, you’ll need a business license to set one up. And depending on several important factors such as your type of business, the size of your business, how long you’ve been running, what your main form of taking payment will be, etc., you’ll be required to provide more or less paperwork to get up and running. Once a payment processor has set up your merchant account, you can begin receiving funds and earning more through electronic payment methods. To do this, you’ll need the hardware to receive it. In some cases, the payment processor you’ve chosen to work with may give you a free credit card reader. But in many cases, you’ll have to purchase one through your credit card processing partner.
Research before choosing the merchant account.
It probably goes without saying that it’s worth spending the time to do thorough research before choosing the merchant account you’re going to partner with to help your business run and grow. There are several important factors that you should consider, compare and contrast between different merchant accounts so you make the right choice for you.
1. Consider fees, hardware, customer and personal support.
There will almost certainly be fees involved. There are different charges from different payment processors for you more be able to accept payments by debit and credit card. Best to compare them to see which ones fit into your budget. You should also find out if they provide the hardware necessary (i.e. card payment readers) and their level and reviews of customer and personal support if things go wrong.
2. Check their background and industry expertise.
Some merchant accounts will be better for or specialise in particular industries. There are some who work to support small and local businesses, while some take on large and multidimensional businesses. Depending on who they target, the level of support and particulars will be more or less suited for your business.
3. Consider contract length.
A major point to look at is the amount of time you’ll be under contract with the merchant account. In general, they will last 3 years. Doing your research, looking at reviews and asking around will help you choose a merchant account with which you’ll be able to run and rely on for this length of time or longer.
Requirements and risks assessments
Before you apply, you’ll need to provide your business information vitals. This will likely include your organisation’s name and DBA, contact information, the length of time you’ve been in business, tax ID, financial statements, business bank account routing numbers, etc. And may need to pay an application fee to get everything started.
The merchant will look at your time in business and both personal and business credit histories, too. This includes the standards such as bankruptcies and defaults. Moreover, merchants will look at risk. More specifically, they’ll look at the type of business and future of transactions. In-person payments are considered less risky while making payments over the telephone or online is considered riskier because of the possibility of fraud along with other reasons. All of these factors will be taken into account as part of normal requirements and risk assessments.
*This is a collaborative post.
