What Is Required To Get A Merchant Account?

You’re almost ready for the grand opening of your new business. All that’s left is to find a way to accept credit card payments. You did your homework, you found out what is required to get a merchant account that seems to fit your needs, and you submitted an application.

You gave them your company name, address, phone, fax and website information.
You also provided your name, social security and contact information of the officer(s) of the business. You provided your business bank account information, TIN (Tax Identification Number), and the type of Business or Merchant Category Code (MCC).

Now what? It really doesn’t seem like a lot of information, but what is required to get a merchant account from the processing company could get you approved in 48 hours or less. Although it may not seem like a lot of information to you, the credit card processing company can learn almost all they need to know to approve you – or not – with the basic information they get by using your social security number to do a personal credit check. Your credit history is very important, because when you sign with a credit card processing company, you’re actually agreeing to their terms for borrowing money.

How Credit Card Processing Works

A credit card payment transaction goes through a series of borrowing and lending steps until the money finally reaches the seller’s account. When your customer swipes his credit card at your store, the bank that issued the card checks to see if there’s a sufficient balance left on the card to cover the purchase. If so, the issuing bank is actually loaning the purchase amount to their cardholder by authorizing the charge. When the sale settles, that money is loaned to your credit card processor who in turn loans it to you when they deposit the balance, after fees, into your merchant account. That ends the money trail for the seller for the time being. Meanwhile the issuing bank bills their cardholder for the purchase and collects their money when the cardholder pays his monthly statement. That closes the borrowing loop.

Simple, right? Well, most of the time, the process runs smoothly. However, once the proceeds of the sale are deposited into the seller’s account, the issuing bank and the processing company assume the risk that the merchandise is acceptable to the buyer and won’t be returned. In other words, what is required to get a merchant account include good credit to reduce the risks of the merchant account provider and the issuing bank take when they lend you the money in the event there is a problem with the sale. That’s why the credit card processing company does a personal credit check. Your credit score is an indication of your financial stability and your ability to cover transactions that may be reversed at a future date.

Does this mean if you have low or bad credit you’ll be turned down by the credit card processing companies? Not always. If you have a low credit score, provide the processor with a short message about why your credit rating will show up as low. Perhaps you have recently gone through a divorce. Or maybe you lost your job due to a downturn in the economy and decided to start your own business. Whatever the case, give the person reviewing your application some facts to help to better understand your credit score number. This may help you get approved, though you may be subject to higher processing fees to justify the risks, or you may be asked to set up a reserve account as insurance against the possibility of charge backs due to returns or other purchase disputes.

Why Do They Ask For A Merchant Category Code (MCC)?

After your credit standing, the type of products and/or services you offer is the biggest factor of what is required to get a merchant account. Credit card processing companies and other merchant account providers use merchant category codes to identify high-risk businesses.

Some high-risk businesses include:

  • Companies that sell adult products or provide adult services.
  • Companies that provide travel services.
  • On-line gambling sites.
  • Companies with automated, recurring billing for annual memberships (i.e. on-line dating services, or fitness centers).
  • Telemarketing companies.
  • Companies that only sell a few high ticket items.

Though high-risk businesses can be very profitable, they often have a higher number of chargebacks, a disproportionate ratio between sales volume and available cash, or a higher risk of fraudulent charges. Any one of these complications poses certain financial risks for the credit card processing company or merchant account bank, as well as the issuing bank involved in processing their credit card transactions. Credit card processors rely on MCC’s to establish the nature of a business, and to determine if they need to charge higher transaction and service fees to cover the increased risk for any financial losses.

However, understanding what is required to get a merchant account and finding the right credit card processing company, your bad credit and other business risk factors will not keep you from being accepted for a merchant account. The key to finding the best rates will be to find the credit card processing company that will look at you as an individual and not just a credit score number.