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How to open a merchant account

Saturday, August 19, 2023

Opening a small business is likely one of the most exciting things you’ll do in your lifetime. Creating your menu, selling products you’re passionate about, carving out a place in your community, winning over customers’ hearts … There’s a lot to love about the early stages of starting your business.

While these things are important, the less exciting details of opening a business are equally crucial. Details like deciding what kind of payment options you plan to accept.

Setting up the infrastructure for accepting payments is an integral part of starting a business —you can’t make money without it. But if you’re thinking you can skip the hassle and get away with only accepting cash, we’d urge you to think again.

We get it. The thought of avoiding all the fees associated with taking card payments is appealing. But in the long run, the sales you’ll miss out on as a result will hurt your bottom line more than cutting out fees would help. There are certain payment types beyond cash that your customers expect you to offer — and if you don’t have them, it’ll be really tough to succeed.

Today, we’re talking about how to accept one of those popular customer payment types: credit and debit card payments. If you’re looking to start accepting debit and credit card transactions at your business, you can’t do it without a merchant account. Not sure what that is? Just keep reading.

Check out our guide covering the key things you need to know about opening a merchant account, including:

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The basics of merchant accounts

If this is the first you’re hearing of merchant accounts, don’t worry. Chances are you aren’t the only one. That’s why we’re going over all the basics below to bring you up to speed in no time.

What is a merchant account?

A merchant account is a type of business account that allows businesses (aka merchants) of all sizes to process electronic payments like debit and credit card payments from card networks like Visa, Mastercard, American Express and Discover. A merchant account is essentially a type of holding account for the funds generated via electronic payment processing. That just means when a customer makes a purchase, the payment goes to a business’ merchant account. From there, the money gets deposited from the merchant account into the company’s business bank account. So it “holds” the funds for you in between transaction and deposit.

Why do businesses need a merchant account?

Most successful businesses, including ecommerce businesses, rely on credit and debit card payments. No matter how you slice it, the simple fact is that without a merchant account, there’s no way for your business to collect credit card payments. And without credit card payments, there’s no way for you to maximize your earning potential. You get the picture.

How does a merchant account work?

While merchant accounts might seem intimidating, in reality, it’s actually a pretty simple concept: When a customer pays with a debit or credit card, a payment processor collects the card transaction funds from the card networks and issuers. After settlement, the money goes into the business’ merchant account.

How much does a merchant account cost?

Ever heard the saying "You have to spend money to make money"? Well, that idea applies here. No matter what provider you use to obtain a merchant account, you’ll need to plan for some fees. As a business owner, credit card processing fees are simply part of the cost of doing business.

Here are a few of the most common fees associated with merchant accounts:

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Setup fee

One-time fee you pay upfront to set up a merchant account

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Monthly or annual fee

Ongoing fee you pay to the merchant account provider to utilize their services

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Monthly minimum fee

Minimum amount you must pay in processing fees each month — you'll often be charged the difference if you don’t meet your monthly minimum

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Batch fee

Flat fee you pay when all your transactions from the day are batched together and sent to a merchant account or payment processor

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Chargeback fee

Fee you pay when a customer disputes a charge on their credit card

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Early termination fee

Fee for breaking any terms of an agreement or ending a contract early

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Statement fee

Fee for having your statements mailed to you each month instead of opting to receive them electronically

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Security fee

Fee you pay your provider in exchange for bolstered security measures

It’s important to know what you’re paying for. When selecting your account provider, you want to work with one who’s transparent with you about their fee structure. If a provider is trying to make their rates seem more attractive by hiding information about the associated fees, it’s a red flag that they won’t be a good partner. Look for providers who will treat you with honesty and respect.

How to open a merchant account in 7 steps

Now that you know how a merchant account works and how it can help your business, it’s time to find out how to open one. Here are the steps you’ll need to follow:

1. Register your business

First, register your business with the proper authorities at the local, state and federal levels. During this stage, you’ll need to obtain the proper business licenses, permits and tax identification documents. These credentials can vary based on your location and industry, so be sure to double-check your specific requirements!

2. Get an EIN

Once you have these documents, the next step is to get an employer identification number (EIN). It works a lot like a Social Security number for your business and helps identify your business to the IRS. It’ll come in handy for paying business taxes, opening a business bank account and more.

3. Open a business bank account

In order to receive funds from your merchant account and perform other business banking activities, you need a business bank account. To be clear, a business bank account is separate from your merchant account. It’s a traditional checking account for your business that you use to pay employees, pay off business credit cards, pay taxes and more. When researching banking options, look for ones that provide low fees, good customer service and online banking services that are easy to navigate.

4. Look into merchant account providers

Let’s set the record straight: Not all merchant accounts are created equal. Your merchant account will be part of your everyday life as a business owner. So be sure to do your homework and research the account provider that best suits your business. It’ll save you time, money and headaches down the road. Here are some crucial factors to consider when comparing one account provider against another:

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This is a big one: Investigate how each merchant account provider handles fees. Most charge per transaction, including a percentage of each transaction and a per-transaction fee. However, that’s not universal. Others may charge flat-rate fees. These fees can also vary based on the payment method (in-person versus card not present, etc.). Be sure to evaluate the cost of additional fees too, such as monthly fees and setup fees. If the provider isn’t being forthcoming about their fee structure, it’s a good sign you should move on. You deserve transparency.

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Processing times

This refers to the time it takes to authorize a transaction after a customer swipes their card. The industry standard to process payments is typically one to three seconds. So if the merchant account provider you’re considering is known for lagging processing times, know that’s not the norm and you can find better.

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Funding deposits

In addition to processing times, you’ll also want to take deposit speed into account. This is the amount of time it takes for the funds from your transaction to reach your business bank account. A three to five day timeline is pretty standard, but many providers also offer next-day, same-day and instant deposits (often for an additional fee).

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Another key thing to consider is how the payment processing software will integrate with your other systems, like your point of sale (POS) tech or website. Some merchant account providers offer point of sale systems, card readers, payment gateways for accepting online payments (and more) that all play together without requiring any manual data transfers or mental gymnastics on your part. These connected, all-in-one solutions can help simplify and streamline your small business. (Hint, hint — we can help with that.)

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Customer support

As a small business owner, you have a lot on your plate. And you likely don’t have time to wait on hold for hours — or worse — resort to trying to figure out a complicated payments issue on your own. Make sure your payment processing solution has excellent customer support and offers multiple ways to contact them. If you run into a problem, you deserve to get the help your business needs fast. Don’t settle for fair-weather providers.

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Protecting your customers and your business’ data is critical to keeping your doors open and customers streaming through them. The financial and reputational hit of a data breach is one many business owners struggle to recover from — and a good portion never do. That’s why it’s so important to look for merchant account providers with robust security features like encryption, EMV-enabled technology, fraud detection and PCI compliance support.

5. Fill out an application and submit documents

After you select a merchant account provider, you’ll start the application process. This application contains your company name, tax ID and contact information. Be prepared to explain your industry, processing volume or sales volume, average transaction amount, goods and services and whether you’ll be processing payments online, in person or both.

A word of warning: During this process, the merchant account provider might ask for additional documentation, including business registration documents, tax returns, financial statements and credit history. Make sure you have that information handy before starting the application to avoid major hold-ups in the middle of the process.

6. Wait for approval

After you submit all your documents, it’s time to kick your feet up and wait. The provider will begin the underwriting process, which is just a fancy way of saying they’re evaluating the risk your business poses to them. Depending on the provider, the underwriting process could take days or weeks to complete. The nature of your business can draw out this process, as well. We know it can be nerve-racking, but you’re almost done.

7. Connect your payment hardware and start processing payments

If you've already purchased a point of sale solution with integrated payment acceptance functionality, you'll be ready to start processing payments once your merchant account has been approved and activated. If you’re not going to use a POS system, you'll need a card acceptance device also known as a payment terminal.

Most payment providers offer a selection of hardware devices to choose from. A very basic terminal may come included with your merchant account at no additional cost, or be leased to you for a small monthly fee. Upgraded terminals with additional functionality like NFC for digital wallets and contactless payments may be purchased as well. It's a good idea to ask about hardware options when picking the right merchant services provider.

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Ready to work with a partner who knows what it’s like to start a business?

That’s a wrap on merchant accounts! We hope this guide helped you better understand the ins and outs of the importance of merchant accounts and how to choose the best one.

Whenever you’re ready to open your own account and start accepting card payments at your business, we’re here to help. With Heartland as your merchant services provider, you can count on transparency. We’ll always be upfront with you about your fees, support you every step of the way with robust customer service and ensure your payment processing software integrates seamlessly with your point of sale tech for a frictionless, all-in-one solution.

Reach out anytime to learn more about how we can help you accept card payments with confidence and unlock growth for your business.

Frequently asked questions (FAQs)

The cost of setting up a merchant account depends on multiple factors. Your sales volume, risk level, business and credit history all play a role. Reach out to a merchant account provider directly for a personalized estimate.

You’ll need to work with a merchant account provider or payment services provider to set up your own merchant account.

To open a merchant account, you’ll need to have a registered business, an EIN, a business bank account, estimated processing volumes and more. Read back through our guide for more details.

Setting up a merchant account to receive payments is a straightforward process that involves seven key steps. We go over each step in detail above.

Yes. Many merchant account providers offer online applications to secure a merchant account. Look back through our guide to make sure you have everything you need to apply.

A merchant account is a dedicated account for receiving funds from credit or debit card purchases. Your payment processor will deposit the money from your sales into this account. Then, once the account settles, the money moves from your merchant account into your business bank account. To accept credit and debit card payments, you’ll need both merchant and business bank accounts.

No, you can get a dedicated merchant account through a payment services provider, or join a shared merchant account provided by a payment facilitator or pay-fac.

With a dedicated merchant account, you receive an individual merchant account assigned to your business and only your business. With merchant accounts provided by a pay-fac, you join the pay-fac’s master merchant account, which boards multiple businesses as submerchants to the same account.

There are a few things to consider when choosing between a dedicated merchant account provided by a payment processor or a submerchant account provided by a pay-fac.

A dedicated merchant account might be the right option if you need more personalized customer service from your account provider, if you have a high sales volume and need lower pricing with discounted transaction fees or if your business belongs to a high-risk industry.

Boarding as a submerchant to a pay-fac’s master merchant account might be the right option if you’re looking to quickly qualify for an account so you can start accepting payments as soon as possible, or if you’re looking for simple pricing structures that might be higher, but are easy to understand and help you better predict your expenses. Just be aware that because formal underwriting processes slow down the onboarding process, they’re often skipped with this type of account. And there is a higher risk of 30-90 day funds holds being placed on your account while the provider investigates unusual or suspicious transactions.

Disclaimer: The information provided in this document does not, and is not intended to constitute legal advice; instead, all information, content, and materials available are for general informational purposes only. Information provided may not constitute the most up-to-date legal or other information, and readers of this information should contact their attorney to obtain advice with respect to any particular legal matter, in the relevant jurisdiction. All liability with respect to actions taken or not taken based on the contents here are hereby expressly disclaimed.

Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at