Open Merchant Account in USA: Everything You Need to Know
You may be thinking about opening a merchant account with a processor in order to accept credit cards as a form of payment.4 min read
Wondering how to open merchant account in USA? You may be thinking about opening a merchant account with a processor in order to accept credit cards as a form of payment. Doing so will increase customer traffic since you will now be accepting another form of payment, and therefore, more consumers can shop at your business.
Starting a Merchant Account
Accepting credit cards will help grow your business, increase the average transaction amount, reduce paperwork, and decrease your accounts receivable balance. You'll be able to offer a credit card payment option to your customers once you open up a merchant account with a credit card processing company.
Whether your business operates online or as a brick-and-mortar, the company will most likely benefit from processing credit cards as a form of payment. Arranging the implementation process to setup a merchant account is simple and only requires a small amount of research and planning.
Requirements for Getting a Merchant Account
Many banks offer credit card processing services. A financial contract between your business and the bank will create and authorize the merchant account to exist. Certain rules and guidelines will need to be followed in order for the merchant account to be issued. In order to limit risk, certain rules will be put in place by the bank that issued the merchant account.
There are three main types of risk associated with issuing a merchant account.
- Credit risk
- The bank will be taking a credit risk by issuing a merchant account. This is due to the funds that the merchant may owe the bank.
- Many people are shocked to find out that credit risk is not the most influential factor when it comes to approving (or denying) an application for a merchant account. Banks tend to consider the risks of contingent liability and fraud as more significant factors when sponsoring a merchant account.
- Merchant accounts are frequently distributed to businesses with poor or no credit histories. On the other hand, it is quite common for a bank to deny a leasing application but approve an application for a merchant account.
- As your business grows and monthly charge volume increases, your credit rating will become significantly more important. In order to stay in business, companies usually need to have a solid credit rating so that they can purchase product(s) on credit.
- Fraud risk
- When a merchant recklessly processes credit cards for transactions that have not been properly authorized by the credit card holder, this is known as fraud risk.
- Credit card fraud most commonly occurs when credit cards or card numbers are stolen.
- New merchants are uniquely vulnerable to credit card fraud because they are usually not as familiar with preventing or detecting suspicious transactions.
- Contingent liability risk
- The greatest risk stemming from a merchant account is known as contingent liability risk.
- This risk includes the possibilities of fraud, but also includes the unexpected risks coming from handling different types of businesses and selling methods.
Steps to Start a Merchant Account in the US
It's important to research the merchant processing fees that a bank will charge your business before signing up with them. Most small businesses will decide to work with the bank that they've done the most business with thus far. Using your current bank as a credit card processor is usually the easiest way to get the process started because they already are familiar with all of your basic personal information.
In certain cases, your local bank may charge significantly more (or less) than one of its competitors, so it's important to do the research and compare costs. Please note, the merchant processing bank will most likely force you to open a checking account, too. They will do this so that they can transfer the credit card funds to an in-house checking account.
Tips to Start Accepting Credit Card Payments
To ensure a smooth application process, it's encouraged to work with a processing bank that is highly experienced with processing credit card transactions. After all, if your credit card terminals are not working because the processor is down, then you're losing money.
Most banks will request that you open up a business checking account with them before they will approve your merchant account. It usually takes less than 15 minutes. They will most likely request your employer identification number (EIN) and your business license.
The business checking account should have a mandatory minimum balance it in order to cover any fees, such as:
- Debit card
If you need to learn how to open a merchant account in the US, you can post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.