An Entrepreneur's Guide to Opening Your First Merchant Account

If you’re the founder of a startup, you’ve got a lot on your plate. You’re probably running most of the business entirely on your own and, in all likelihood, you have a list of to-do’s longer than your arm.

If setting up a payments system is on your list, you’ve come to the right place. Unfortunately, not many first-time entrepreneurs put much thought into their payments system. Most opt to partner with their bank or select one of the many quick setup systems; it’s only natural that busy entrepreneurs would choose the quickest, easiest option.

These quick options aren’t bad. In fact, they're really good at what they do. However, entrepreneurs who pursue these routes quickly discover that credit card processing eats up a lot more revenue than they thought it would. Paying 2.9% and 30 cents per transaction adds up really quickly, especially when you’re trying to get your business off the ground.

If you’re working to set up your first merchant account, it’s best to take the time to evaluate a variety of options. Finding a solution that fits your business at a reasonable rate can be the difference between a thriving startup and one struggling to stay afloat.

Here are a few steps you should take when opening your first merchant account:

1. Create a quick summary of your business

Before you can decide on a credit card processing provider, you first need to understand what your business needs. Here are just a few questions that will have a big impact on the processor you pursue:

• Are you operating online? Brick and mortar? A mixture of both?
• Will your business have multiple locations? How many checkout areas do you need?
• Does it matter how quickly you receive funds from credit card transactions?
• Are you offering a subscription service?
• Do you anticipate chargebacks from customers?
• Will you be operating only during normal business hours, or will you require after-hours support?
• Do you want to offer a rewards program?
• Do you have a point-of-sale system selected already?
• Do you need your system to integrate into an accounting software?

Before you start seeking out a payment processor, it’s important to know the answers to these questions. Use them to create a summary of your business that you can show to processors. By knowing what features you require, it’s much easier to weed out providers who won’t meet your needs.

2.  Seek out a processor that fits your vision

Unfortunately, the payments industry has made finding a good processor a veritable obstacle course. The biggest issue with the industry is that salespeople for most organizations are commission-based. This means that providers often aren’t concerned about selling you the right solution at the right price. That’s why your business summary is so important. If you don’t know exactly what you need, processors will sell you whatever they want at a price well above what you need to pay.

Don’t be afraid to shop around. There are dozens of providers waiting for your call and one of them is bound to fit what you want. As always, a good place to start is by reading customer reviews and contacting those who offer customized solutions. In all likelihood, you’ll find a group of three or four processor that fit you pretty quickly. Your decision now should come down to price -- leverage quotes against one another to get that perfect solution at the lowest rate possible.

3. Fill out a merchant application

Once you’ve found your processor, it’s time to open that merchant account. The first step in opening that account is submitting your merchant application, which is essentially an agreement between you and the processor that establishes rates, duration of the partnership, and other terms.

Like many other legal agreements, a merchant application will be full of complicated language and fine print, some of which could have major repercussions for your business. Despite their complicated nature, you’ll find that merchant applications are pretty easy for you to fill out. You’ll only need to provide basic information about your business and ownership.

One of the most important pieces of the application is the pricing section. Whatever you do, never sign a merchant application that requires tiered pricing. Make sure that processor rates do not increase based on the type of card used. It’s important to understand the difference between processor rates and interchange rates. Interchange is the cost of completing a transaction for your processor, so high-rewards cards have higher interchange rates. Your concern is whether or not your processor’s rate (the margin charged above interchange, often referred to as processing fees or markup fees) increases depending on the type of card.

If you’re having trouble with your merchant application, take a look at our article outlining how to fill out a merchant application.

4. Keep your eyes on prize (and the statements)

Once your merchant account is open and your processor has provided the necessary payments hardware, you’re ready to go. You can start swiping cards as soon as the doors to your business are open. Your tailored payments solution should make this stage much easier and free up time to complete everything else on your to-do list. That said, there’s one more thing you should do every month: watch your monthly processing statement.

It’s easy to toss these into a pile with other bills, but your payment processing statement can provide you with valuable information. Not only will you be able to see how much you transacted over the month, but you’ll also be able to see all of the fees you paid. Payments providers are notorious for sneaking in little fees here and there, so keep your eyes peeled. Some can be removed with a phone call, while others might require a little more legwork. Failing to review your monthly statement opens the door for unnecessary fees, so make sure to stay vigilant.
If you’re still feeling overwhelmed by the process, don’t hesitate to reach out to our payments experts at SwipeSum. Our goal is to help every merchant find the best solution for their business at the lowest rate. We can connect you with a processor that fits your needs and act as your payments advocate as you get your business up and running. Best of all, we do it for free, so you’ve got nothing to lose.