How to Set up a Merchant Account: 9 Merchant Account Requirements You Need to Know

It’s no longer a matter of if you accept credit card payments. Now, it’s more a matter of how

Credit card usage hit record highs in 2022, according to TransUnion. What’s more, the total tally of credit cards exceeded 500 million for the first time ever, with Gen Z accounting for most of the growth. CNBC reports that “an additional 233 million new credit accounts were opened in the second quarter [of 2022], the most since 2008, according to a separate report from the Federal Reserve Bank of New York.”

All this to say that if your business isn’t set up to process payments from credit cards, mobile payments, etc., then, you’re missing out on major sales opportunities. Not to mention, those customers will likely continue to choose competitors who can accept their payment method of choice. 

To be able to accept credit card payments (and debit card payments) in your business, you need more than just the hardware. You also need behind-the-scenes software and accounts to make the system work. One of those elements is a merchant account.

Below, we’ll look at what a merchant account is and the merchant account requirements you need when applying for one. 

What Is a Merchant Account?

A merchant account is a bank account a business opens so its payment processor has somewhere to deposit received funds. When customer transactions are processed, they are credited to the merchant in a merchant account. The merchant account holds funds that a small business acquires from selling its products and services.

The funds sit there for 1–3 business days during processing. During that time, the merchant services provider may issue the funds to the SMB’s bank account. This is done in good faith that the transaction was valid and will go through and that the card issuer will disperse the funds as well. 

Typically, funds deposited into a merchant account will have processing fees deducted—interchange fee and markup, for example—so the merchant doesn’t receive the entire amount in the transaction. 

You can see how the merchant account provider assumes a certain level of risk as part of this process. As such, they don’t do business with just any merchant. They do due diligence with a full application and screening process to mitigate risk. 

“Banks view merchant accounts as a type of credit. They want to make sure that when they process a debit or credit card transaction, the transaction won’t result in a chargeback or loss,” says Meaghan Brophy, senior retail analyst at “Businesses looking for a merchant account generally need to prove they’re a legitimate business with good credit and a history of successful customer transactions.”

Merchant Account Requirements List

As for how to obtain or apply for merchant accounts, the process always involves submitting certain requirements.

Every merchant account has its own set of requirements. “Most will tell you upfront what kind of documentation is needed,” says Brophy. “Be ready to provide ample documentation that proves the legality and legitimacy of your business.”

While it’s important to check the requirements for your specific merchant account and application, you can generally expect to provide the following:

How To Set Up A Merchant Account_ Merchant Account Requirements_Infographic

1. Business bank account

Separating personal and business expenses should be one of the first steps you take when legitimizing your venture. This not only shows that you’re serious about your business, but it can also reduce your personal liability and protect personal assets should your business run into financial issues. 

One merchant account requirement is having proof of a business bank account, as well as bank statements. “Business owners should be able to collect financial statements from their banks,” says Brophy. 

Choose a bank that fits the type of business you have and can deliver your business needs. If you anticipate needing funding in the future, for example, a bank with a financial institution that offers small business loans. If you have a staff, find a bank that can provide payroll services. 

In terms of your merchant account requirements, make sure you have sufficient funds in your business accounts. Overdraws and low balances indicate more risk. 

2. Financial statements

To elaborate, you’ll also need to provide bank statements to showcase your business’s financial competence. Typically, they’ll ask you to go two years back (if you can go that far). “Specifically, most merchant accounts will need business bank account information including routing numbers for depositing funds from transactions,” says Brophy. 

In addition to your business bank statements, you might need to provide processing statements as well. This will show merchant accounts how much you typically process so they can gauge your credit card sales volume. It also allows them to glean other pertinent information about those transactions. Here, banks are mostly looking for fraud risk.

Not only will you need to provide business bank statements, but you may be asked to provide personal statements as well. Merchant account providers want to make sure your business and the person running it are dependable. 

Merchant account providers check to make sure you and your business have good credit. A credit check will let them know if you’re financially dependable or a high-risk liability. They’ll also look for your history with fraud. If your business faces a lot of chargebacks and fraud issues, you’re also a higher risk. It’s a good idea to take steps to reduce fraud in your business

3. Business license

While this may not apply to all businesses, you may be required to have a business license(s). This may include a general business license, sales tax registration, professional/occupational license, or worker’s compensation, among others. To determine what your specific business license requirements are, check with your merchant account provider and local regulations. 

4. Physical address

Your merchant account application will require a physical address where forms can be mailed. If you have a brick-and-mortar business, this is the address of where your shop is located.

5. Completed application

We’ve mentioned the application a few times, and this is a requirement in its own right. While the application will likely list the steps to take and documentation to include, it is a deliverable in and of itself. 

When filling out your application, double-check to make sure you’ve entered everything correctly without error. It could help to have a trusted colleague to give it a review with fresh eyes as well. 

6. Employer Identification Number (EIN)

When you file for an EIN, this is what you use instead of your social security number when you file business taxes. Think of it like the SSN for your business. It’s a unique identifier that you use on financial, tax, and other legal forms. 

Don’t have an EIN? You can apply for one with the Internal Revenue Service (IRS).

7. Articles of incorporation

You’ll need to incorporate your business, either as an LLC, sole proprietorship, partnership, corporation, or cooperative. This legitimizes your business and makes it official in the government’s eyes. 

The article of incorporationalso referred to as article of organizationis proof from your local jurisdiction that your business is, in fact, a business — as well as in good legal standing. To get your article of incorporation, go to your state’s website for business resources. You can do a search for “how to get an article of incorporation [state]” to find out how. 

8. PCI compliance

The Payment Card Industry (PCI) has Data Security Standards (DSS) that merchants and payment processors must abide by. PCI compliance is intended to protect customer information, requiring businesses to use specific security procedures when handling data. 

While this isn’t a federal regulation, many states have laws around this, and merchant account providers also have their own requirements. Check with your merchant account provider. 

9. Supporting documents

This is a catchall category, but different merchant account providers require different documentation from different businesses. Some potential documents you may also be asked to provide include: 

  • Marketing materials
  • Business plan
  • Voided check
  • Business policies, including your return, shipping, and other customer policies
  • Forecasts 
  • Inventory reports

It’s always best to check with them directly for your unique situation, as you might have different requirements for opening a merchant account. 

Applying for Your Merchant Account

Once you’ve prepared these requirements, you’re ready to move forward with your merchant account.

Brophy’s biggest tip at this stage? “Shop around several merchant account providers to make sure you’re getting the best rates possible,” she says. “Make sure the merchant account provider you choose is transparent and accessible. A good processing company will help you through the application process, provide quotes, and offer dedicated support.”

Check out these resources to help you find your merchant account provider: 

How to Set up a Merchant Account

Already have the necessary requirements? Great. These are the steps you must follow to set up your merchant account.

  1. Select a merchant services provider/payment processing company. If you haven’t done so yet, do your research on the top merchant services providers in the market. When making a decision, factor in each provider’s offerings, capabilities, pricing, etc. Be sure to confirm the payment options the provider supports. It’s also important to be aware of what fees are being charged. Depending on your provider, this can include:
  • Monthly minimum fees
  • Transaction fees
  • Setup fees
  • Annual fees
  • and more.

2. Prepare the required documents. Go back to the list mentioned above to gather the necessary documentation. 

3. Fill out the application. Next, go through the provider’s application process. This typically involves filling out an online form, though in some cases, you may need to coordinate with the company via phone or email. From there, you’ll go through an underwriting process.

4. Set up your payment gateway (if you’re accepting credit card payments online). You need to have a payment gateway to accept online payments, so be sure to set up your gateway properly. Your payment processing company should be able to help you with this step. 

Get your merchant account up and running in your business. Once you’ve completed the application process and are approved, it’s time to set up your merchant account to ensure it works with your business tools and processes. This stage may involve setting up your point of sale (POS) system, configuring your card reader, connecting software through integrations, etc.

Check out Payment Depot’s Credit Card Processing Services

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If you’re looking for a solution provider to help you accept payments online, in-person, or over the phone, check out Payment Depot. Our membership style model gives you access to interchange credit card processing rates, minus the markup. So instead of taking a cut out of your sales, you simply pay a monthly membership fee and enjoy lower processing costs.

Get in touch with Payment Depot today and we’ll analyze your merchant statement or proposal and recommend ways for you to save.

Quick FAQs about setting up a Merchant Account

Q: What is a merchant account and why do I need one for my business?

A merchant account is a bank account that a business opens to allow its payment processor to deposit received funds from customer transactions. You need a merchant account to accept credit and debit card payments, which can greatly expand your sales opportunities as credit card usage continues to rise.

Q: What are some common requirements when applying for a merchant account?

Merchant account requirements may vary, but you can typically expect to provide the following:

  1. Proof of a business bank account and bank statements
  2. Business and personal credit history
  3. Business license(s)
  4. A physical business address
  5. A completed merchant account application
  6. An Employer Identification Number (EIN)
  7. Articles of incorporation
  8. Compliance with the Payment Card Industry (PCI) Data Security Standards (DSS)
  9. Other supporting documentation, such as business plans, marketing materials, return policies, or inventory reports

Q: How can I prepare my business for a successful merchant account application?

Ensure you have a separate business bank account with sufficient funds, maintain good business and personal credit history, reduce fraud in your business, obtain necessary business licenses, and compile the required documentation. Double-check your application for accuracy and consult with a trusted colleague if needed.

Q: How do I choose the right merchant account provider for my business?

Shop around to find a merchant account provider that offers transparent and accessible services. Compare rates, support, and other offerings, and choose one that best aligns with your business needs and payment options.

Q: What is the process for setting up a merchant account?

Follow these steps to set up your merchant account:

  1. Select a merchant services provider/payment processing company.
  2. Prepare the required documents.
  3. Fill out the application.
  4. Set up your payment gateway (if you’re accepting credit card payments online).
  5. Get your merchant account up and running in your business, including setting up any necessary point of sale (POS) systems or other integrations.

Q: How can Payment Depot help me save on processing costs for my business?

Payment Depot offers a membership-style model, which gives you access to interchange credit card processing rates without the markup. Instead of taking a cut out of your sales, you pay a monthly membership fee and enjoy lower processing costs. Get in touch with Payment Depot to analyze your merchant statement or proposal and receive personalized recommendations for savings.

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