Everything You Need to Know about Instant Merchant Accounts
Regardless of your business model or industry, you need a merchant account if you want to accept credit card payments in your small business. However, selecting the right merchant account provider is usually more challenging than you think.
What complicates the process further, is the variety of promises and guarantees that different providers offer. If you’ve been shopping around, you may have come across promises of “instant merchant account approvals” from some payment service providers. It’s easy for merchants to fall prey to such marketing gimmicks and end up making a less than optimal choice if they aren’t careful.
In this article, we’ll take a closer look at the idea behind ”instant merchant account approval” claims and discuss how to choose the best instant merchant account provider for your needs.
What Is an Instant Merchant Account?
Like many others, you may think that instant merchant account approval means your account is approved as soon as you apply for one. However, the reality is that there really is no such thing as immediate account approval for any type of merchant service.
Every provider has its own underwriting process that necessitates a waiting period during which the company will evaluate your application. Of course, it’s true that some processing companies are much faster than others. Some may approve your application within 24 hours; others may take two to six days to get back to you with a response.
So, if the idea of instant account approvals is largely untrue, why do several providers claim to provide such a service?
Well, it’s a marketing strategy. Many merchant service providers advertise ”instant approvals” to have a leg up on the competition and entice prospects to sign up for their services. The real approval process usually involves two entities.
The Merchant Account Approval Process
First, your merchant account provider will review and approve your application. Then, it needs to be approved by their backend payment processor (or acquiring bank) that will be responsible for underwriting your account and processing your transactions.
This second step of the process is usually where delays and difficulties can occur. Each backend processor has its own criteria for determining whether your business is high-risk or low-risk. As such, the approval process is much faster for low-risk businesses.
Low-risk businesses are businesses that have a good credit score, zero history of fraudulent activities, genuine positive online reviews, and provide all the required documentation.
The industry you operate in is also important. Businesses that deal in adult products, CBD, gaming, e-cigarettes, etc. are likely to be classified as high-risk. Your business will also be classified as high-risk if you have a poor credit rating and a history of frequent chargebacks.
To begin the merchant account application process, you must submit the following documents:
- The completed application
- Your business plan
- Resume of the business owner
- Government-issued photo ID
- A personal utility bill
- Recent processing statements (of the last three months)
- Supplier agreement copies
- Personal banking statements
- Business bank account statements
- Articles of incorporation
- Articles of association
- Reference letter from your personal bank
- Your company’s website link
Why Do Merchants Need Instant Approval Payment Processing?
Merchants that look for instant account approvals want to be able to accept the proceeds from their credit card transactions as soon as possible.
There is usually a gap between the time a customer pays you and the time they pay their credit card bills. However, your merchant service provider ensures that this delay doesn’t affect you. You’ll get your funds as soon as they are cleared by the payment processor (instead of having to wait for the customer to pay their bills).
Here’s how this process works:
1. Your customer pays for your goods or services with a credit card using your POS equipment, a virtual terminal, or a mobile app.
2. Your merchant account provider will send the transaction details through its backend processor to the customer’s card issuer.
3. The issuing bank will confirm if the customer has sufficient funds before contacting your merchant account provider via the backend processor to approve the transaction.
4. Finally, your MSP will transfer of the funds to your business account minus the applicable fees.
Does Instant Merchant Account Approval Mean Instant Funding?
No, it doesn’t. Some may assume that if your merchant account is approved quickly, you’ll get your funds instantly as well (once you start processing payments).
It doesn’t work that way because the mechanics of bank-to-bank transfers take time. You can speed up the process by applying for an expedited funding service like same-day funding, next-day funding, or instant deposits.
Can High-risk Merchant Accounts Get Instant Approval?
It’s almost impossible for high-risk businesses to enjoy an expedited approval process. This is because the provider will conduct a far more extensive investigation into the creditworthiness and history of both the business and its owner.
If your business is classified as high-risk, you need to be prepared for higher transaction fees, and you may be required to have a rolling reserve. Essentially, money may be reserved from your sales to cover the cost of any chargebacks you receive. It will be released only after a certain period of time, usually six months.
Fortunately, there are providers that specialize in high-risk merchant accounts. You should expect a host of additional fees from such providers, and of course, they’re likely to be more expensive than regular credit card processing companies.
Instantly Approved Merchant Service Providers vs Third-Party Payment Aggregators
Merchant service providers offering instant approvals are quite different from third-party payment aggregators. The difference lies in their risk assessment process.
Merchant account providers like Payment Depot, for example, will do the due diligence upfront and won’t approve your account until they‘ve done a thorough risk assessment. This process may take some time, but it eliminates the possibility that your ability to accept payments may suddenly be stopped or suspended in the future.
It is definitely worth waiting a day or two to get your account approved, so you may avoid any future hassles.
On the other hand, payment aggregators like Square, Stripe, or PayPal take a different approach to risk assessment. Their approvals are almost instantaneous, so you will be able to accept payments right away.
They are able to do this because they don’t give you an individual merchant account. Instead, you will be aggregated into a large pool of merchants. The main problem with this is that you may suddenly be cut off at their discretion—with no warning at all.
Payment aggregators assess the risk after your account has been approved, and if they come across any red flags, they can suspend your account or freeze your funds at any time—with little to no notice. Such interruptions will obviously have an adverse impact on your business.
How to Choose an Instant Merchant Account Provider
Now that you have an idea of what instant account approval actually means, let’s take a look at some factors you should consider when evaluating merchant account providers for your business.
1. Contract terms
Don’t let your eagerness to start accepting payments lead you to sign an unfavorable contract that may cause problems down the line. Take the time to check your contract terms and pay particular attention to the following:
- Hidden fees. Some providers will promise zero setup fees, but sneak in hidden fees to make up for the difference. These could be in the form of chargeback fees, account change fees, PCI compliance fees, and equipment rental fees. Avoid any provider that does not disclose all their fees upfront during your conversations with the sales team.
- Contract length. Don’t sign up with a provider that locks you into a long-term contract. Companies that do this usually offer a rapid approval process to get you on the hook for a long-term contract that you can’t escape without paying a huge early termination fee. Payment Depot does not charge any cancellation fees and does not bind you to a contract, so you can cancel your monthly subscription with us at any time.
- Equipment leases. It is much cheaper to purchase card terminals outright than to lease them. Avoid providers that try to force you to purchase or lease hardware systems that your business doesn’t need or want.
- Chargeback policy. If your business has a high chargeback ratio, you will end up paying much higher processing fees—besides losing money on the disputed sales and chargeback fees. So, you are better off working with a processor that actively helps you prevent chargebacks. Anytime a chargeback is in process, your processor can notify you so you may contact the customer and prevent it by offering a refund instead.
2. Transaction fees
Your provider will charge fees for every transaction you process. This will include the interchange fees paid to the bank that issued the card, the assessment fee paid to the card brand (American Express, Visa, Mastercard, etc.), and the markup added by your credit card processor.
There are four different pricing models that processing companies use to impose these fees:
- Flat rate pricing. In this model, your provider charges the same fee across the board for every transaction, regardless of the size of the transaction. This may be advantageous for very small businesses with low monthly transaction volumes, but once you start processing more, the savings will disappear. This is because you won’t get any cost savings from transactions that are cheaper to process.
- Interchange-plus pricing. In this model, the fee consists of the costs of interchange plus the markup that your provider will charge you. It’s quite transparent because your provider won’t be able to lump fees together and overcharge you for transactions that are more affordable to process. You will be able to see the exact interchange fee and markup for each transaction.
- Tiered pricing. In this model, transactions are classified into qualified, mid-qualified, and non-qualified tiers based on the risk they carry. Non-qualified transactions carry the highest risk—and the highest processing fees—while qualified transactions have the lowest risk and the lowest fees. The issue with this model is the lack of transparency. The merchant services provider arbitrarily measures the risk attached to each transaction and sets fees to match. This makes it difficult for business owners to understand how they are being charged.
- Membership-based pricing. In this model, all you pay is a monthly membership or subscription fee in exchange for the direct costs of interchange—regardless of how much you process. This ensures that you can save more on processing costs as you continue to grow and scale. Payment Depot offers membership-based pricing with no markups, no contracts, and no hidden fees that allows small businesses to save hundreds of dollars every month on credit card processing.
3. Company reputation
Make sure the partner you opt to work with, has a sterling reputation among its existing customers. Check popular review sites like the Better Business Bureau, Trustpilot, etc. to see what customers are saying. A high rating and lots of positive reviews is a good sign, while a large number of customer complaints is a red flag.
4. Customer support
Look for a provider that offers 24/7 live customer support and a holistic range of support services that can meet the peculiar needs of your business. Make sure that you can talk to a real person on the other end of the phone, chat, or email so that your issues can be resolved faster. You might also want to check if the company assigns dedicated customer success managers to each of their clients.
The 5 Best Payment Solutions with Fast Approval and Funding
The following five merchant account providers offer the full range of services that your small business may need. In addition, they’re well known for their quick approval processes and faster funding.
1. Payment Depot
Payment Depot’s approval process is one of the fastest in the industry and if all goes well, your merchant account may be approved within 24 hours. Plus, it offers transparent membership-based pricing, that allows businesses to save more in credit card processing as they scale. Monthly memberships start at $59 per month which gives merchants access to the direct costs of interchange. The best part? Payment Depot does not lock you into any contracts and doesn’t charge any markups or hidden fees.
Stax’s approval process typically takes 24-48 hours from the time of application submission. It also offers a membership-based pricing model with zero markups on interchange rates, and no hidden fees or contracts. Your charges for a month are fixed regardless of how much you process, which means the more you process, the more you can save on processing costs.
Signing up for Helcim is easy and you can complete the form in just five minutes on the company’s website. Approval usually takes 24 hours or less, but the provider exempts high-risk businesses. Helcim’s volume discounts, lack of monthly fees, and transparent interchange-plus pricing are a plus, but it does charge a percentage markup on the interchange rate.
4. Dharma Merchant Services
Dharma’s approval process usually takes 2-3 days, but the company can speed up the process under the right circumstances. You can inquire to see if you qualify for a fast-tracked application process. Dharma is particularly suited for eCommerce businesses because it offers some of the lowest rates in the industry for card-not-present transactions. The provider offers interchange-plus pricing.
5. Easy Pay Direct
This provider specializes in high-risk merchant credit card processing. Its approval process can take as little as 2 days because each applicant is connected to a dedicated New Client Specialist (NCS) who will help you complete your application. However, the company offers a tiered pricing plan that is not as transparent as that of the other providers on this list.
How to Speed up the Approval Process
Below are a few things you should ensure if you want to expedite the merchant account approval process:
- Provide all required documentation
- Provide accurate information about your business and processing history
- Make sure you have a high credit score
- Ensure that your website is up to date with the correct info (privacy/refund policy, etc.)
The Bottom Line
As discussed earlier, there‘s really no such thing as “instant“ approval for merchant accounts. Processors that allow you to sign up instantly do not vet merchants upfront. This can lead to problems later on in the form of account holds and freezes.
It‘s, therefore, best to work with a merchant account provider like Payment Depot that follows a rigorous underwriting process upfront, so that you don‘t run into any problems with your account later on. Also, by following the best practices mentioned above, you can make sure that your application gets approved in the shortest possible time.
Can Merchant Accounts Truly Get Instantly Approved?
No, most merchant account providers will take some time to review your application and establish your creditworthiness. However, you can get near-instantaneous approval from payment aggregators (like Stripe, PayPal, and Moneris) that require a less stringent vetting process.
How Long Do Low-risk Merchant Accounts Take to Get Approved?
In most instances, a low-risk merchant account will be approved within a day or two.
How Long Do High-risk Merchant Accounts Take to Get Approved?
It can take 3-6 business days or more depending on the peculiarities of the business. Some providers like Easy Pay Direct can take as little as two days.
Are Instant Merchant Accounts Risky?
It depends on the merchant account provider you choose to work with. An instant merchant account provider can take shortcuts in the vetting process and approve your application within 24 hours to sign up as many clients as possible. However, the provider will usually mitigate this risk by attaching hidden fees and hefty early termination fees which will incur costs that will adversely affect your business.
Plus, third-party payment aggregators may suspend your account with little to no warning if they come across a red flag during their underwriting process (which typically takes place after they’ve signed you on).
On the other hand, some merchant account providers like Payment Depot and Stax offer quick approvals but still implement a rigorous vetting process upfront. This may take slightly longer, but it ensures that you don’t get locked into an unfavorable contract that can become a burden. So, your risk is mitigated.