For a business to start accepting credit or debit card payments, it must enter into an agreement with a merchant services provider. The provider facilitates all communications regarding an electronic payment transaction. Moreover, the business has to acquire a merchant account to receive the payments. But what is a merchant account, and how does it work?
A merchant account is a special business bank account that enables businesses to accept credit and debit card payments.
How Does a Merchant Account Work?
When a credit or debit payment is made, the money does not go directly into your bank account. It has to be authorized and processed first before you receive it.
The credit or debit payment begins with a credit card network, such as Visa, American Express, and Mastercard. When a customer purchases a product or service online with their card, the card processer captures the buyer’s card details and sends them to a credit card network. After receiving the card information, the credit network sends the transaction to the issuing bank. The issuing bank approves the transaction and allows the money to be deposited into the merchant’s account.
Once the money has reached the merchant’s account, you can transfer it to your normal business account, where you can withdraw or use it to cater to other business expenses. A credit card processor often takes between two and 14 days to transfer money from your merchant account to your bank account.
Are There Any Merchant Account Fees?
There are various merchant account fees, including setup fees, monthly fees, and transaction fees. These fees depend on the contract between a business and a merchant services provider.
Setup fees are charged upfront when setting up a merchant account. The setup fee is paid once. Monthly fees are charged every month for account maintenance. Transaction fees are charged every time a transaction is made. Merchant accounts automatically deduct transaction fees after a transaction has been conducted then deposit the remaining money in the business’ bank account.
Requirements for Opening a Merchant Account
You will need a couple of things to successfully open a merchant account with a merchant services provider. These requirements include:
Financial Statements: Financial statements, such as tax returns and banking statements, will prove that you are responsible to a merchant services provider.
Physical Address: You will need a physical place where the merchant service provider will send you forms, statements, and other documents. You can use your home address if you have an online business.
Business License: A business license proves that your business is legal. A merchant services provider will ask for your business license to authenticate that your business is legit.
Business Bank Account: Your business bank account is where the merchant account will deposit earnings made through credit or debit payments. Be sure to provide your business account routing number during the application.
Voided Check: You will be required to submit a voided check together with the application letters. It will be used to confirm your business account information.
With more customers embracing paying using credit and debit cards, your business should also keep up with the trend to reap more profits. We hope this guide helps you move your business up the ladder by obtaining a merchant account.