Editor’s Note: This post was originally posted in September 2011 and has been revamped and updated for accuracy and completeness.

Accept Debit and Credit Card Payments for Your Small Business With a Merchant Account

A merchant account lets your business accept debit and credit card payments.

There are two ways to get a merchant account; both require that you enter into an agreement:

Option #1: Enter into an agreement with a member bank that has a processing relationship with Visa and Mastercard.

Option #2: Enter into an agreement with an authorized agent of the member bank, such as an independent sales organization or member service provider (ISO/MSP).

The agreement means that your business agrees to abide by the operating regulations established by the card credit brands.

To get more familiar with merchant accounts (and all of the terminology surrounding merchant accounts), use our handy, alphabetized guide.

This post will walk you through the 4-step process of acquiring a merchant account for your business.

Step 1: Determine how credit card payments work with your business

Before you set up a merchant account, it’s important to think about how you want credit card payments to work for your business. Some key questions to consider include:

  • What types of credit card brands do you want to accept? Visa and Mastercard are standard, but is it important for your business to also accept other card brands, such as American Express?  You’ll want to be prepared with a list of credit card brands that you want to accept.
  • How do you want to accept payments?  Do you want your customers to make payments to you on your website?  Do you want to be able to process payments on your mobile phone?  Do you want to use a virtual terminal, or is it easier for your business to use an API to integrate into your existing systems to run payments?  Do you have recurring billing needs?  Make sure you’re prepared with the primary way you’ll accept payments, along with all the secondary methods.
  • How much of your sales volume will be through Will you still accept other payment methods, or will you be switching to solely accepting credit cards? It’s important to have some idea about volumes before you talk with a merchant account provider.

Read some of the top questions asked by other small businesses when opening a merchant account.

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Step 2: Compare merchant account providers

Now that you have an idea of how you want the merchant account to work for your business, it’s time to compare merchant account providers.  Some points you’ll want to consider when selecting a merchant account include:

  • Merchant Account Transaction Fees. There are two common types of fees for credit cards transactions.
    1. A flat rate you get charged for each credit card payment that is processed.
    2. A percentage fee based on the total amount of each transaction.*

*For the percentage fee, many merchant account providers use a tiered pricing system based on how “qualified” a transaction is for a particular rate. They will classify these percentage fees into three tiers of rates, using variables such as:

  • The way you accept the payment vs. the primary way your merchant account is set up to accept payment)
  • If the card is a rewards card
  • If the card is present or not
  • Some providers may have different percentage fees based on the volume that you process

It’s important to gather all the details on these rates and do some rough calculations with ~50% of your transactions falling into the higher tiers to get a clear picture of what you will likely be paying in fees.

  • Other Merchant Account Fees. There can be many other fees associated with a merchant account beyond the transactional fees. Other fees to ask about include:
    • Monthly minimum fees
    • Setup fees
    • Cancellation fees
    • Statement fees
    • Customer service fees
    • Chargeback fees
    • Batch fees
    • Annual fees

It’s important to understand all of the fine print pertaining to these fees up front so there are no surprise costs along the way.

  • Evaluating Merchant Account Providers Beyond the Fees:  Not all merchant accounts are created equal, so getting a holistic view upfront will be critical to your satisfaction and long-term success with your merchant account provider.

It’s important to consider the following factors:

  • Does the merchant account provider offer all of the software and payment acceptance options you need, or will you have to supplement with other providers and incur additional fees?  For example, are virtual terminal processing, email invoicing, recurring billing, website payments and mobile payments all included in one solution, or do you have to set these up separately?  The more providers you need to go through, the more costly and complicated your experience will be.
  • How much control over your customer’s payment experience will you have? Many business owners don’t have the time or expertise to set up customized, online solutions, so finding something that is automated and hosted by your solution provider is critical. However, in order to provide a good experience to your customers, you’ll want to make sure you can easily customize any invoices, payment forms and payment communications.
  • Is the complete solution tailored to your type of business and easy for you and any other employees to use? Does the merchant account provider frequently work with your business industry and size? Finding a provider that is dedicated to your business type means that future developments will continue to match your needs.
  • Can your customer’s payment account data be securely stored in a manner where you will have minimal PCI compliance issues? No business needs the headache of an in-depth PCI compliance review, but yet you want to be able to provide your customers with the best possible payments experience. It’s important to find a solution that helps you have the best of both those worlds.
  • How is the customer support? To help you succeed, it’s important to have access to account management and live support along the way.
  • Is the merchant account provider willing to provide you with references or case studies? Learning about other businesses’ experiences with a merchant account provider can be very insightful during your selection process.

Step 3: Merchant account set up

Since the member bank is taking on risk by enabling your company to process credit cards, you should expect a pretty comprehensive review process before you can be approved for a merchant account.

When you choose a provider, here’s what to expect in the merchant account set-up process:

The merchant account provider will require you to complete an in-depth application and you will need to provide a lot of information pertaining to your business model and finances. If you are a smaller business, you will also be required to provide personal information, undergo a credit check and provide a personal guarantee on the account. This process can feel cumbersome, so it’s helpful to work with a provider that will hold your hand through underwriting to ensure the fastest and least confusing approval process.

Step 4: Accept credit card payments

The good news is that all of that work you and the merchant account provider did in the set-up process, will now pay off.

You’re approved for a merchant account. Now what?

Once your merchant account is set up, you will be ready to start accepting credit card payments. If you’ve gone with a great merchant account provider this can be as simple as logging into a software product, entering your customer’s payment information, and clicking the collect payment button to have the transaction processed and funds deposited into your bank account.

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Nell Gable

Nell Gable

Nell Gable is the content marketing manager at PaySimple.

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  • amandawhite

    Really informative blog. i researched a lot before selecting an agent. This will be really helpful for people who are planning to start a merchant account. My merchant account was setup by MerchAct http://www.merchact.com/ . They really guided me well through the process.