How to Choose and Apply for a Merchant Account

A Step-by-Step Guide to Finding the Right Merchant Acquirer

Starting up a new venture can be a confusing process for first-time eCommerce entrepreneurs, but choosing the right service provider is not a question to take lightly. There are a number of matters to consider before making a final decision, all of which will impact the organization’s long-term profitability, security, and potential growth.

What is a Merchant Acquirer?

An acquirer is essentially a bank operating in support of a merchant which provides the necessary functions for merchants to accept payment card transactions.

• Acquirers contract with merchants to receive credit and debit card transaction funds from the cardholder’s issuing bank.
• The acquiring bank helps collect and distribute the applicable fees payable to the various entities involved in processing the transaction.
• The bank essentially provides the merchant with a line of credit to cover transactions until the chargeback time limit has expired.
• Acquirers will also typically hold a portion of the merchant’s funds in a reserve account. Acquirers do this as a means of insulating themselves against loss.

Things to Consider When Choosing a Merchant Account

Given that there are a number of acquiring services to choose from, each accompanied by various benefits and drawbacks, what factors should a merchant keep in mind when deciding on an acquirer?

Processing Volume

First, merchants will want to make a realistic projection of what is likely to be their monthly processing volume. Some acquirers may charge higher processing fees to smaller businesses, due to their lower volume of sales.

Merchants should make sure they understand how each bank will access fees, as well as how sales are likely to fluctuate throughout the year. Otherwise, the merchant may end up paying exorbitant fees that turn out to be much higher than they initially anticipated.

Method of Payment

Not all card-not-present transactions are considered equal. Merchants must disclose all payment methods, including online, phone or mail, as well as any currencies they will use if they decide to accept international orders. Merchants should also consider how alternate payment options would be integrated with standard merchant accounts, such as PayPal, Apple Pay and Android Pay.

Different accounts may be needed to accommodate different payment structures and customer countries of origin. Additionally, merchants also need to consider their sales strategies, as some acquirers won’t work with merchants who utilize affiliate marketing or provide recurring transactions.

High-Risk or Low-Risk

There are various factors that influence the business’s perceived level of risk. Higher risk levels will make certain processing agreements off limits, while lower risk accounts are often accompanied by limited growth potential.

• Certain merchant category codes, or MCCs, are automatically dubbed ‘high risk.’ Such industries include online gaming, auctions, supplements and nutraceuticals, subscriptions, collection agencies, and more.
• Also, any merchant who has previously been placed on the MATCH list will automatically be considered high risk.
• The currency the merchant accepts and the countries sold to could define the merchant as high risk.
• Anyone with very little payment processing history or bad credit could be considered high risk.
• High transaction volume, high average ticket price, and sporadic sales are considered suspicious—and therefore, high risk.

High risk merchants are typically levied increased fees and more restrictions than standard merchants, meaning that a high risk designation could make business much more difficult.

Security and Services

Every party involved in electronic transactions is required to abide by security protocols defined the Payment Card Industry Data Security Standard (PCI DSS).

In addition to the provisions mandated by the PCI DSS, merchants should consider the feasibility of integrating risk mitigation services such as 3D Secure, AVS, blacklists, whitelists, velocity limits and more within each acquirer’s framework.

Customer Support

It would be highly advisable for merchants to take the level of customer service offered by prospective acquirers into account. Because eCommerce transactions can be processed at all hours of the day and night, merchants need reliable access to assistance when problems arise.

Acquirers should provide customer and technical support 24 hours a day, seven days a week in order to prevent or at least minimize the negative consequences on their business.

Requesting a Processing Agreement

Once merchants select their preferred candidate for an acquirer, they will need to fill out an application. It’s important that merchants are extremely thorough and truthful when filling out this application in order to avoid declined service or other potential problems down the road.

Merchants should have a clear outline of their business plan and previous processing history, and all of the requested documentation should be present in proper form. The specific information a merchant will need in order to apply includes:

• Processing Volume: Monetary amount the processor will allow merchants to charge through each card network per month
• Average Transaction (Ticket) Volume: The projected dollar amount of an average payment card sale
• Highest Anticipated Ticket: The highest anticipated amount for any single card sale the merchant is likely to receive

Each of these factors helps the acquirer determine the kind of account for which a merchant is eligible, as well that merchant’s risk level. They can also serve as a guideline for acquirers to decide when to close your account due to excessive risk.

Understanding Processing Restrictions

When merchants exceed any of their projected figures, the acquirer may grow suspicious. This can result in the withholding funds for a period of time or even closing the merchant’s account. Any of the following conditions or behaviors can lead acquirers to withhold merchant funds:

• Transactions in excess of declared monthly volume or average ticket amount
• Chargeback-to-transaction ratio temporarily exceeds card network thresholds
• Selling products outside of the MCC stated in the application
• Selling products not allowed by the processor or acquirer

Maintaining any of the above conditions for multiple months or allowing sudden, dramatic upticks in any of the above conditions may lead the acquirer to permanently close the merchant’s account.

Submitting a Cover Letter

A cover letter can help potential acquirers better understand the purpose and functionality of a business.

Acquirers want to take on merchants as new clients, but not if those merchants represent too great a risk. The cover letter’s purpose is to address anything which might make the acquirer apprehensive about accepting the merchant’s application.

Rather than trying to hide potentially unflattering characteristics, merchants should acknowledge them and suggest possible remediation efforts.

Important Decisions for a Business’s Future

When running a business, people tend to think more of the process of actually interacting with customers and growing the organization.

More dry and formal decisions like choosing a merchant acquirer may not be what people think of when launching a new business, but these are the decisions which can ultimately impact the merchant’s profitability.