Receiving payments from your customers is one of the primary yet sensitive areas of any business, particularly in the initial stages of starting a company. Once you have set up a business account, it is important to set up an online merchant account as well. Wondering why? Well, in today’s world of growing technology, customers hardly carry around cash or cheque books in their wallets. Presently, debit and credit cards are the go-to forms of payment.
But what is a merchant account? Let’s read further to learn everything about merchant accounts.
What is a Merchant Account?
A merchant account works as the middleman that allows your business to accept debit and credit card payments both in person and online. Once a payment processing solution sets up a merchant account for your business, you can begin accepting credit and debit card payments in no time.
A merchant account is a bank account wherein the payments from credit and debit card transactions are deposited. Further, your merchant account provider transfers the funds to your business bank account within 3 to 5 working days. Some payment solution providers have come up with the same-day transfer of funds.
How Merchant Accounts Work?
Merchant accounts are specialized bank accounts that businesses use to accept credit and debit card payments. Here’s how they work:
- Businesses apply for a merchant account.
- The application is reviewed based on the business’s risk factors.
- Once approved, the account is set up with a unique identification number.
- The business integrates payment processing into its sales channels.
- When a customer makes a purchase, transaction details are sent to the payment processor.
- The payment processor requests authorization from the card network.
- If authorized, the funds are reserved for settlement.
- Settlement occurs at regular intervals, transferring approved funds to the merchant’s bank account, minus fees.
- Merchant accounts are monitored for fraud and risk.
- Fees are charged for various aspects of the service.
Types of Merchant Accounts
Here are some common types of merchant accounts:
- Retail Merchant Accounts: for physical stores.
- E-commerce Merchant Accounts: for online businesses.
- MOTO Merchant Accounts: for mail or telephone orders.
- High-Risk Merchant Accounts: for industries with higher risk factors.
- International Merchant Accounts: for global operations.
- Mobile Merchant Accounts: for mobile payment processing.
- Aggregated Merchant Accounts: shared accounts for multiple businesses.
Benefits of a Merchant Account
Merchant accounts offer several benefits for businesses:
- Expanded payment options for customers.
- Increased sales potential.
- Improved cash flow.
- Enhanced credibility and professionalism.
- Reduced risk of fraud.
- Simplified financial management.
- Access to additional services for optimization.
Choose a merchant account provider based on your specific business needs to enjoy these benefits.
Who Can Apply for a Merchant Account?
Businesses of various types, including sole proprietorships, partnerships, LLCs, corporations, and non-profit organizations, can apply for a merchant account. Eligibility criteria vary, and financial institutions assess factors like credit history, processing volume, industry type, and risk assessment.
How to Get a Merchant Account?
Follow these 6 steps to start accepting payments on your merchant account.
1. Get Hold of a Business License
To open a merchant account, it is important to prove that your business is legitimate. Therefore, the first step toward opening a merchant account is to get a business license.
2. Open a Business Account
After getting a valid business license, the next step is to obtain a business bank account. Your business bank account will be where your merchant account provider will deposit the funds from your credit and debit card sales and withdraw their fees.
3. Assess Your Needs
Before thinking of opening a merchant account, it is important to evaluate your business needs. For instance, you are required to decide which credit and debit cards you need to process. Do you want to accept American Express, or will Visa and Mastercard do? Before getting a merchant account, map out everything you need for your business.
4. Compare Merchant Account Providers
Now that you are thorough with your needs, you can use that information and start researching different merchant account providers to find the best suited for your business. Let’s look at a few features to keep in mind while looking for a merchant account provider.
- Strong Security
As a merchant, it is your responsibility to protect your customers’ sensitive credit and debit card information. We understand that it might sometimes feel like a burden. But you can release some of that burden by choosing a PCI-compliant merchant account provider.
- Flexible Customer Service
Look for a provider that has 24/7 in-house customer service free of cost to solve your issues, if any occur.
- Instant Funding
Some merchant account providers like Razorpay provide next-day funding services so you can get the fund in your account faster.
- Transparent Pricing Models
Credit card processing fees can prove to be confusing. So, if your merchant account provider is unclear about the fee, it might be a sign to shift to another.
5. Fill Out the Application
After selecting a provider, you will be required to fill in an application that will require detailed information about your business. Documents you are likely to provide:
- Contact information
- Authorized signer information
- Bank account number
- Tax ID
6. Start Processing After Getting Your Merchant Account Approved
Opening a merchant account will take somewhere between one business day to a week, depending on your provider. Once approved, you can start accepting credit and debit card payments right away.
If you are looking for a payment processing brand to set up your merchant account easily, check out Razorpay, which offers exemplary services to suit your business’s needs the best. Step into the future of accepting payments with Razorpay.
Frequently Asked Questions
What are merchant account fees?
Merchant account fees can include transaction fees, discount rates, monthly/annual fees, statement fees, chargeback fees, payment gateway fees, and PCI compliance fees. Fees vary between providers, so it’s important to compare options for the best fit.
What documents are required for a merchant account?
Documents required for a merchant account application can include:
- Business identification documents.
- Personal identification documents.
- Financial statements.
- Bank statements.
- Processing history.
- Website or online presence information.
- Voided check or bank letter.
- Card acceptance policy.
Specific requirements may vary depending on the provider.
What is the eligibility for merchant banking?
Eligibility criteria for merchant banking vary, and financial institutions assess factors like credit history, processing volume, industry type, and risk assessment.