A growing number of consumers are now paying for goods and services with debit and credit cards. While cash still has its place, most businesses see the value in offering alternative payment options to cater to as many people as possible.
To accept digital payments, you must open a merchant account, which is a separate account that funds flow through before making their way into your business bank account. If you’re new to the business world and getting ready to open a new merchant account, you may need to be aware of the following information.
Not All Merchant Account Providers Are Equal
After searching for merchant account providers online, you may have come across providers of both paid and free merchant accounts. There are dozens of options to choose from, which means it’s not always easy to pick one that’s going to suit your needs the best.
Compare the features of both paid and free merchant accounts to help narrow down your options. Their reputation, usage options, and costs may all help you make an informed decision that benefits you and your customers.
You Have to Open a Business Bank Account
Even if you’re an entrepreneur just starting in the business world, you will need to open a business bank account before acquiring a merchant account to accept debit and credit card payments.
Fortunately, it’s not a challenging process, with most people successfully opening one in under an hour as long as they provide a business license and employer identification number. If you are a sole trader operating independently, you may be able to use your social security number.
Once your business bank account is established, money will transfer into it from your newly created merchant account. Transaction and processing fees may also be taken out of your business bank account.
You’ll Need to Apply for Merchant Account Underwriting
When you open a merchant account, payment processors and banks take on a considerable amount of risk since customers can issue chargebacks that banks are responsible for. Therefore, you must undergo an underwriting process to ensure your business is a risk worth taking.
Often, this requires you to fill out an application with information such as your bank account, tax ID, processing volumes, contact information, and more. The more money you intend on transacting through your merchant and bank accounts, the more financial information you may need to provide, such as several months of bank statements and profit and loss statements.
There Are Processing Fees
While you may be looking for free merchant accounts to save money, free doesn’t necessarily mean completely free. Both traditional and free merchant accounts come with fees, but they tend to be significantly more affordable through free merchant accounts with fewer overhead costs.
Generally, there are interchange fees, assessment fees, and transaction percentages to consider when opening a new merchant account. Interchange fees refer to the card issuer receiving a portion of each transaction, while assessment fees are a percentage of the transaction that goes to the credit card association.
Your merchant bank and merchant account provider will also take a small percentage or dollar amount from each transaction.
Opening a merchant account can be crucial for ensuring you can cater to as many customers as possible. Don’t forget to consider the information above before deciding which account provider is right for you.