Merchant accounts can seem scary, complex and full of indecipherable words at times. Cut through the jargon and confusion with our A-Z Guide to Merchant Accounts.

With this handy, alphabetized guide you’ll be a confident, informed merchant account holder before you know it. Bookmark this guide and reference it anytime you need!

Aggregate Merchant Account

Your small business doesn’t have its own “dedicated” merchant account, but rather gets added to a pool of a large number of other companies within a larger merchant account. It’s usually faster to sign up, but will probably mean less control on the rates, fees, and when your money is disbursed back to your bank account. And, as you reach a higher volume (when your business grows) you will need to switch to a dedicated merchant account.

Approval Time

When you apply, it might be as short as one day or a few hours for your account to be approved. However, if you apply over the weekend or in the evening, it can take some time. Part of the process, in most cases, is to have an underwriter actually physically look at and assess your application, so it will need to happen during business hours.

Business Bank Account

The Merchant Account is the link from your customers’ payments to your Business Bank Account. You will need to provide bank account and routing numbers (and probably a voided check) to set up your Merchant Account with direct deposit to your bank account.


The reversal of funds, requested by the customer, from your account back to the customer. A high ratio of chargebacks as a percent of your transactions is a red flag for the merchant account underwriters, as the merchant account provider can be on the hook for the funds if they aren’t in your account.

There is also a classification called a “Fraudulent Chargeback.” This is a scenario where a consumer will try to get products or services up front so that by the time you bill or charge for the transaction, the consumer can be long gone with the product and simply request a chargeback to neglect paying for the goods. A processor, being able to spot incidences of this, will sometimes place transactions on a “hold” in effort to protect the merchant from such incidences.

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Dedicated Merchant Account

To counter-balance the “aggregated” model, a Dedicated Merchant Account is a single merchant account specifically set-up for your business. In order to open a dedicated merchant account, you’ll have to go through an underwriting process to for the provider to assess the financial risk, but it will allow for more control of your money and the rates you will be charged in the future, which might be important as your business grows.

Direct Deposit

One of the best features of a Dedicated Merchant Account, Direct Deposit means that after processing a customer’s payment, funds will be automatically deposited into the business bank account. You won’t need to request funds — it happens automatically.

Electronic Checks (or ACH)

An electronic form of a paper check. You may need an additional merchant account to accept electronic checks (or ACH payments), as most credit card merchant accounts don’t offer both payment types.

Flat Rate

Most commonly found in an Aggregate Merchant Account, you can now find providers who sell a “one-flat-rate” model. While easier to decipher your Effective Rate, be cautious if you are processing more than $5,000-$8,000 per month; you might be paying more than if on a Tiered Rate plan with a Dedicated Merchant Account

Funding Time

Once your merchant account is set up, you’ll want to know more about access to your funds. Typically, funds are deposited into your business bank account between 1-3 business days. It will vary depending on the card type. Some merchant account providers offer “next day funding,” where they are essentially “pre-funding” the money. With many providers, faster funding time can be earned by building a consistent processing history.

Growing Business

Great! Your business is growing and you’re looking to facilitate more payment types for your customers. Your predicted level of growth is something to consider when deciding between an Aggregated Merchant Account or a Dedicated Merchant Account.


The dreaded word – your funds are on “hold.” What does this mean??

These are the typical reasons a “hold” can be put on your account. No matter the reason, the hold allows the processor to investigate “abnormal” activity.

A hold is different than a “freeze” – where you can’t continue to process, but both can be disconcerting to a business owner. It’s important to be realistic and accurate with your transaction levels so the chance of holds can be minimized.

Identification Number (EIN/TIN)

Often a requirement for opening a merchant account, your Employer Identification Number or Tax Identification Number is a way for the processor to identify your business. If you are a sole proprietor, this number can also be your Social Security Number.

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Just a Few Documents

Often merchant account providers have a simple online application that you need to fill out, but to potentially expedite the process, it can be helpful to gather a few documents before you start.

A voided check can to confirm the business bank account, or to locate your routing and account number (printed on the bottom of your checks).
Marketing materials like a website or brochure can show that you are actively running your business.
Financial statements or processing statements to validate the stability of your business and the processing volumes that are requested on the application.

Key Metric – The Effective Rate

If you are going to look at one thing to measure your merchant account and the competitiveness of the rates you receive from your provider; you should look at the “effective rate” of your credit card processing. While there are different rates that customer credit card payments will process at (explained more under Tiered Pricing), the average amount that you will pay is the effective rate, or the total processing fees divided by the total sales volume. It’s best to calculate this rate annually as there can be drastic variations on a month-to-month basis.

License (Business)

A document that authorizes your ability to start a business in a particular area, a business license is not always required when applying for a merchant account. However, it can be useful for the underwriting process and might be required if you are in a traditionally “risky” industry.

Merchant Credit Score

While the business credit score is an indicator of the health of your company, merchant account processors are also going to look at the owner/signer’s personal credit score. Having a good score can make the process go quickly, while having a marginal score might mean additional documentation or an upfront reserve needed for the account. It’s important to ask questions of your potential merchant account provider in order to better understand their tolerance for risk. Businesses with multiple partners might be able to apply with a different signer if the application is declined due to credit score.

Mid-Qualified Rate

Part of the tiered rate merchant account plan, the mid-qualified rate falls between (as you might have guessed) the Qualified and Non-Qualified rates. A “mid-qual” rate, as us payment nerds refer to it, is established by a set of card types and payment acceptance methods (think: MOTO, web, swipe) that can provide some savings on your rates that don’t fall into the Non-Qualified bucket, the most expensive rate type.

Non-Qualified Rate

The highest rate in a tiered merchant account rate plan, the Non-Qualified Rate is established for a bucket of credit card types or payment acceptance methods that are deemed the “riskiest” (not accepted in person) or are types of cards that provide high-yielding rewards for the consumer, making the transaction more expensive for all parties involved.

Online Payments

(or Payment Gateway or Virtual Terminal) – In order to accept payments online or over the phone, you will need both a merchant account as well as a payment gateway. A payment gateway is essentially the interface for payment acceptance and transmits the transaction information to the merchant account processor. With an online payment gateway, you can replace the need for a physical POS terminal and provide your business with a virtual terminal.

Policy for Returns

If you collect payment after goods and services are rendered, you are considered the “safest” for underwriting risk as the opportunity for chargebacks is minimized. If you collect payments many months before the service/product is fulfilled, a red flag might be raised for the merchant account underwriter. These policies create a larger window for the customer to cancel and for your business to have to reimburse funds, creating more risk for the merchant account provider.

Qualified Rate

The lowest rate available in a tiered merchant account plan, the Qualified Rate is established for a bucket of transaction types that are deemed the “safest” and are often applied to transactions where the card is in hand (swiped) or is a non-rewards or corporate card that is less expensive to process for all parties involved.

Rewards Card

While highly valued for the consumer (who doesn’t love cash back, travel discounts, and free airline miles?!), the business can definitely feel the pinch when processing rewards cards, as these will typically always fall into the Non-Qualified or highest rate bucket in a tiered merchant account plan.


Every provider or bank has a different level of risk that they are willing to accept. They want to make sure that you won’t leave them liable for the money that you are collecting. Industries with a higher chance of fraud or chargebacks can deem your company “high risk.” Additionally, your billing policies or your credit score might go into the risk calculation. There are some high-risk processors that have more relaxed guidelines, but it might change your rates, cause you to have a hold placed, or require you to have a reserve on your account.


Prior to 2008, PCI DSS Compliance was a “best practice” for businesses and merchant account providers, but today it is a requirement! There are 12 core requirements around the handling of credit card information and almost 250 specifications within those topics. However, boiled down, they demand that you meet data security requirements regarding how you accept, store, and transmit credit card information.

There is a periodic review or assessment that you must complete in order to ensure you are maintaining PCI compliance, not just for a point in time.

Tiered Pricing

The most common form of pricing for credit card processing, tiered pricing typically breaks down rates based on three levels: Qualified, Mid-Qualified, and Non-Qualified.

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The process by which a processor or bank decides to give your business a merchant account, similar to the process your business would undertake to get a loan. They will look at a variety of the facets that we’ve defined, including the following: Business Type/Industry, years in business, chargeback history, billing policy, owner credit score, and requested processing volumes.

Verify Identity

A key component to merchant account approval, identity verification is actually required by law (under the Patriot Act) to verify the applicant’s identity. Verification is typically accomplished by answering a few questions that only you could know (previous addresses, cars owned, etc.) Failure to verify correctly could mean that you forgot what type of car you drove in 1986 (and can be remedied with the processor), or that someone else is attempting to open an account in your name.

Volumes (Processing)

By having a realistic idea of your current processing volumes and future expectations (both a monthly average & high-ticket), the underwriting process will be more seamless, and approval times will be faster. Providing accurate processing volumes can also make sure that once you are set-up, you reduce the opportunity for holds, or freezes on your account.

What If I’m Declined?

Some of the primary reasons a merchant account application can be declined are: poor credit score (for the guarantor or the business), too high of processing volumes with too little business history, “high-risk” industry, high chargeback history, unable to verify identity of the applicant, or a positive result for OFAC (the national Treasury’s list of sanctioned parties). For factors involving new businesses or too high of processing volumes, you can resolve the issue by starting small and establishing a good history with the processor, requesting higher volumes over time.

More on this topic: Top 5 Reasons for Merchant Account Declines

Years in Business

In an underwriter’s view, businesses with long tenures are more stable, so the risk of underwriting the account decreases over time. Your years in business is an important factor to bring up during the application process.

Zip Code

Always ensure your business’s physical address, when requested on an application, is listed as an actual address and NOT a P.O. Box. The address can be your home if you are a home office.

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