Set Up a Merchant Account

So you’ve decided you need to get merchant account privileges for your business. Now you next obvious task is to figure out how to set up a merchant account. After finding a provider with a good reputation who you want to deal with, what exactly are the steps to move forward? Here’s the practical side of how to get a merchant account.

How Do I Set Up a Merchant Account and Which General Type of Account Do I Need?

Before you start filling out forms, you’ll need to figure out which of the popular options best fits your business. These are:

  • Traditional Merchant Account – for those businesses that conduct retail sales offline through a credit card terminal. The card is physically present, and so is the customer.
  • Internet Merchant Account – Like the name implies, this is for those who accept credit cards online. Neither the card nor the customer is physically present.
  • Off Shore Merchant Account – This is for businesses which primarily make sales in other countries – it can be through catalogue sales (mail order) or Internet sales. These contracts are utilized to keep the money in the country where the sale occurs. The purpose is to avoid foreign exchange fees or taxes.
  • High Risk Merchant Account – Businesses are categorized as “high risk” by the credit card industry themselves, based on historical trends for either fraud or chargebacks. The hospitality and travel industry are two examples.
  • For “mixed business” you will be classified under the more risky category unless your business is primarily (80% or more) of the safer type. So, for instance, someone who sells offline and online from the same business would have to have more than 80% actual card swipes to get a traditional merchant account.

The reason these categories matter is because credit card rates (the percentage you pay) will vary, depending on the risk level. If you inappropriately classify your credit card merchant account as lower risk (to get a better rate) you will be penalized and your account may be closed. Furthermore, this kind of fraud will be recorded and make it harder to accept credit card payments down the road – they keep track.

Service providers will often break these four classes into other categories, but these are the basic types. As an example, here are the choices from one service provider:  Retail/Restaurant; Mail/Phone/Internet; ACH/Check Services; iPhone/Mobile Processing; High Risk/Bad Credit; Cash Advance Merchant.

If you intend to do both offline retail as well as Internet credit card processing, you should look at having more than one merchant account (depending on your volume of sales for each type).


Your next step is to start filling out an application. This is most likely an online form, but if you are getting an offline merchant account through a local bank, it may be a paper version.

You’ll be asked to provide the following:

  • Personal information – for the person applying or a principal in the business (someone who can legally sign contracts for the business). This will include a valid email and contact phone number.
  • They will ask you generally what type of sales you do – online or offline. Your business name and website (if you have one) will be requested as well.
  • You will be asked to rank your (the owner) personal credit. (Some applications leave this out, but your personal credit will be examined at some later step.)
  • Questions about your business will then follow: Physical location; how many years in business; legal name of business/DBA; types of sales; predicted credit card sales volume.
  • Questions about the owner – percent ownership; home phone and address; social security number (even if EIN is used for business – SSN# is a security feature and used to check personal credit); birth date. They will also ask for proof of ID (driver’s license number is common).
  • Financial Questions – Banking information, including primary account number for the business; estimated total sales and per-item sale; how orders are taken (percentage by type of sale).
  • Other questions will be card acceptance by type (will you take Discover, Diner’s Club, American Express); if you need a credit card processing terminal; whether you’ve used a merchant account service before; if you’ve ever had your ability to process credit cards terminated and if so, why.

With this information submitted, you will either be contacted by a service representative by phone, or a contract will be mailed to you to sign, or (and this is becoming more common) an electronic signature will be accepted online. This is done with an app that allows you to use your mouse to “draw” your signature in a box.

You shouldn’t have to pay an application fee if you are dealing directly with a service provider. Service companies make their money when you accept credit card payment through their system so there’s no reason to charge for an application.

Important Points

When you apply, you are allowing them to verify your information and check your business/personal credit. You are also making statements about your business, how you will accept credit card payments and in particular the volume and type of sales you expect. It is important not to exaggerate or lie when making these statements.

Part of your agreement will reflect the information you have provided. If you’ve lied, your agreement will be altered to reflect the realities and may entail a penalty. Be particularly careful about address and tax numbers entered. Recently the Federal Government enacted a law that requires reporting by the merchant account credit card processing services directly to them. An error in your information can mean mandatory withholding of 28% of your funds until it is sorted out. Don’t let that happen.

Another important point is that you will agree to the terms of service provided. This is usually a separate link to a document. Download and read your company’s version carefully. Reading it online is fine, but you want a downloaded copy for your records. Be warned! Even for the best merchant services, these agreements can run to 40 or more pages. That is a lot to read over, but it will cover all the details. You’ll learn such interesting things as what constitutes a valid signature and what happens if someone other than the cardholder uses the card.

What If I Have Questions?

Most of your questions regarding transaction processing will be answered in the agreement documents. But the best merchant account providers also have good customer service as part of the package. A phone number for questions should appear on their website. It’s not a bad way to test the waters either – give them a call and see what it’s like to interact with their representative.

Final Steps

You will receive a phone call (for verification) and if everything checks out, your account should be up and running in a day or two. You will receive a merchant number (which acts as your account number and all the details you will need for submitting card information.