How to Choose the Right Merchant Bank Account: 5 Steps
Establishing a merchant bank account enables your business to become a solid player in the brick-and-mortar retail and ecommerce arenas. Companies of all shapes and sizes use these accounts, which provide the framework for your business to efficiently accept credit and debit card payments.
Take a few minutes to learn how a merchant bank account works, and how to choose the right one for your business’ needs.
What Is a Merchant Bank Account?
A merchant bank account functions as a short-term repository for your customers’ credit or debit card sales proceeds. When your customer purchases a product or service, and swipes their credit or debit card to complete the transaction, those funds are immediately deposited into your merchant bank account.
After deducting the processing fees, the net proceeds are funneled into your business bank account, usually several days to a week afterward.
Each merchant account agreement involves three parties: the retailer, the card-issuing merchant bank, and the bank-affiliated card payment processing provider. Besides providing a quick method of processing transactions, using this network transfers card fraud and security risks to the payment processor.
Choosing a Merchant Bank Account: 5 Considerations
To find the right merchant bank account, research payment processing provider candidates using five objective criteria. Collectively, each provider’s responses should hint at the type of experience you’ll have with the company.
Familiarity with Your Business
Ideally, your merchant account provider should have other clients in your business niche (e.g. crafts, athletic apparel, or kayak rentals, for example). At the very least, the company should have other same-sized business clients so they’re generally familiar with the challenges you face.
As part of your research, request a payment processing package that addresses your specific operating needs and budget. A business-savvy provider will identify with your concerns and recommend a targeted solution.
Net Transaction Funds Availability
Getting your transaction funds into your business checking account quickly is important. If you’re operating on a tight budget, you may even depend on this money to fund other operating expenses.
Here’s some good news: Most bank-affiliated merchant account providers turn funds around very quickly, often depositing the funds into clients’ accounts on the next business day. However, two to three days is not uncommon, and some providers take up to a week to make the transfer.
You deserve an ironclad answer to this question.
Existing Merchant Account Compatibility
Let’s say you currently operate a brick-and-mortar retail store, and you take credit and debit cards via a merchant account provider. Currently, you’re considering the addition of an ecommerce component to your business.
First, understand that you’ll likely need a second merchant bank account for your online business. Before jumping in with both feet, confirm that your chosen payment processing platform is compatible with your existing merchant account software.
Merchant Account Provider Adaptability
Look for a merchant account provider that can adapt to your changing business needs. For example, let’s say your business really begins to gain traction, triggering a significant rise in your monthly transaction volume.
You want to be rewarded with a more advantageous fee structure, as you’re bringing more money into the card companies’ (and merchant account provider’s) bank accounts. You certainly don’t want to incur higher fees, or even have your account temporarily disabled, because you exceeded your agreement’s monthly processing cap.
Customer Service Quality and Accessibility
Chances are, your business will eventually experience a hardware or software problem that hampers your ability to process a customer’s transaction. When that occurs, you don’t want an automated voicemail with “leave a message” instructions.
Regardless of the time of day (or evening), you want to speak with a real human being who’s completely up to speed on the company’s products and services. Equally importantly, the customer service associate should have superb communication skills, enabling them to calmly address your problem and provide a workable solution.
Typical Merchant Bank Account Fees
Establishing (and maintaining) a merchant bank account involves numerous set-up fees and ongoing expenses. Expect to encounter some of these common merchant bank account fees:
- Application Fee
- Account Startup Fee
- Per-Transaction Fee
- Batch Fee
- PCI Compliance Fee
- Customer Service Fee
- Cross-Border Fee (for international transactions)
- Credit Fee
- IRS Fee
- Monthly Maintenance Fee
- Statement Fee
- Annual Fee
- Contract Termination Fee (for early cancellations)
A note on interchange fees
The credit card companies assess an interchange fee for each card transaction. The card-issuing bank and credit card networks split this fee, which consists of a per-transaction charge plus a transaction percentage. The transaction percentage varies with the card type, card issuer, nature of the product, and other criteria.
Find the Right Merchant Bank Account: 5 Steps
Choosing the best merchant bank account for your business’ needs can help to provide a solid foundation for future growth. To find the right fit, identify merchant account providers that serve your market or region. List the Pros and Cons of each company, and then decide on the provider that offers the best overall service and fee package.
Search for Bank-affiliated Providers
Look for a merchant account provider that’s aligned with a respected bank. This option should provide you with access to a broad range of service packages.
Equally importantly, the provider will likely operate a 24/7 customer service network staffed by associates with in-depth product knowledge and superb communication skills. The provider should also offer extended-hour technical support services.
Seek Favorable Contract Terms
All bank-aligned merchant account providers operate within a contractual framework. However, each company typically offers its own service packages, each of which includes specific contract lengths and terms.
Typically, longer-term contracts will offer better overall pricing, which at first glance sounds very attractive. However, your business needs may unexpectedly change during the contract period, leading to your contract cancellation (and a hefty financial penalty). So, consider a shorter-term contract with added flexibility (but with higher rates).
Take Off Your Rose-Colored Glasses
Merchant bank account contracts are often difficult to navigate, and some service fee descriptions may appear somewhat vague. To avoid unwelcome surprises, get all your questions answered before you commit to using the company’s services.
Don’t get ambushed by “too good to be true” offers from questionable providers. These offers frequently expire after an introductory period, leaving you with higher rates and other undesirable provisions.
Look for Satisfied Customers
Seek out merchant account providers with several years of market experience and numerous satisfied customers. Call several listed businesses, and ask for honest feedback on the provider’s services.
Better Business Bureau is also a good resource. Although you’d ideally find a provider with no prior complaints, consider those businesses that have successfully resolved past service disputes.
Prepare to Apply for Your Merchant Account
Whether you’ll operate your business as a sole proprietorship, partnership, LLC, or corporation, you must complete several organizational steps before applying for a merchant bank account. Each step should take only a few minutes, and they’ll collectively set the stage for more streamlined business operations.
Obtain a Business License
Most cities and towns require a business license, with additional certifications required for specific types of companies. Your merchant account underwriter will regard the license as proof of your business’ legitimacy, and it will also be useful for other purposes. Obtain the business license through your state’s Secretary of State website.
Get Your Employer Identification Number: If you’re a sole proprietor with no employees, your Employer Identification Number (EIN) will be your Social Security Number. If you’ll operate as a different type of entity, you should apply for an official business EIN through the IRS website.
Open a Business Checking Account: After obtaining your business license, open a business checking account at a local bank with which you already have a relationship. Your business account will receive your product or service sales proceeds (less any transaction fees). Your processing fees and monthly service charges will also be debited from this account, so maintain a substantial balance at all times.
Complete the Merchant Account Application
Applying for a merchant bank account is similar to applying for an insurance policy. You’ll complete a standard online application form, and then wait while your application goes through the underwriting process. Simply put, the provider will evaluate your business’ legitimacy, along with its operational and financial condition. Then, they’ll decide if your company presents an acceptable business risk.
Before beginning the application, get your hands on the right merchant account requirements. Gather relevant business data that includes bank routing and account numbers, EIN number, and estimated sales and card processing volumes. Be prepared to provide documentation for your estimates, and know that a larger estimated volume means more extensive backup data.
Focus on Financial Data Safety and Security
Ensure that your business is ready to comply with the mandatory Payment Card Industry (PCI) Data Security Standard requirements. These rules and regulations, set by the card companies, are designed to protect customers’ personal information while completing a business transaction.
To enhance your business operations security, shred all documents with card numbers, update your computer virus protection, and implement stringent User ID and password requirements.
When you receive underwriting approval, and your merchant bank account is activated, be aware that the provider will consistently monitor your processing volumes. By avoiding monthly volume overruns, you won’t incur financial penalties, and you’ll stay off the provider’s radar.
Need Help Navigating the World of Merchant Bank Accounts?
If you’re in the process of finding a merchant account, we can help. Get in touch with our payment processing experts and we’ll help point you in the right direction!