How to Set Up a Merchant Account for Credit Card Processing

Establishing Merchant Services for Small Businesses

Customer paying barista with credit card in cafe
Photo: Hero Images/ GettyImages

Small businesses must have a merchant account so they can offer their customers the opportunity to pay with credit and debit cards. In order to offer credit and debit card services, your business must get approved for a merchant account as part of your merchant services. This process will allow you to set up credit card processing and accept mobile payments.

Small businesses must decide to whom they are going to extend credit. Are they going to sell their products only to those who pay in cash and checks? This may make their payment processing easy, but it will severely limit their customer base.

If small businesses choose to extend credit to their customers at a brick and mortar store, it is a little more complicated than just allowing cash sales. But if they have a merchant account, it will expand their reach into the marketplace and expand their customer base. If a small business has an online presence, then offering merchant services is necessary. Home-based businesses can also offer merchant services in order to sell services and products online.

What Are Merchant Services?

Merchant services are a group of financial services that are used by businesses to enable transactions for their customers by credit and debit cards.

Merchant services may be offered by your bank, by specialized merchant services firms, or by providers in independent sales organizations that offer payment processing. If you go through a merchant services provider rather than a financial institution, you will have access to more services than if you go through a traditional bank.

In order to choose the best merchant services provider, there are several factors to consider.  You want to find a provider that offers a pay structure that suits your business. Many offer a variety of pay structures. Besides pricing, other important factors for your merchant services needs are ease of use and how well the system works with your hardware and software. You also must consider the features that you need such as point of sale or payment gateways.

Independent Credit Card Processing Companies

If you cannot obtain a merchant account from a bank, there are other routes to try. You can approach an independent credit card processing company. Independent sales organizations do accept high-risk businesses and those with less than perfect credit ratings. They may charge higher fees than banks and you have to be careful and watch the fee structure, but they are an option for higher-risk businesses that want to accept credit and debit cards in their business operations. They also usually offer more merchant services than do banks.

If you are going to operate an e-commerce business, then you need an Internet merchant account. An Internet merchant account is simply designed to process online credit or debit card payments.

Most independent credit card processing companies offer both merchant accounts and internet merchant accounts.


The most important thing to do is shop around, both for your regular merchant account and your Internet merchant account. Talk to local banks, independent sales organizations, and payment processing organizations online.

Get all the facts and fee structures before you make a decision. Most people who shop, either through traditional stores or online, prefer a variety of payment options and will keep coming back to your store if you offer them this service.

Mobile Payments

You can empower your customers, and expand your customer base, by offering any of a variety of mobile payment services like Amazon Pay.  Amazon Pay gives your business access to the entire customer base of Amazon if you place Amazon Pay on your website. Other similar mobile payment providers are Google Pay and PayPal Pay.

What Is a Merchant Account?

A merchant account is a business account through a bank or merchant service provider that allows the business to accept payments from customers by credit and debit cards. The merchant account also includes an agreement between the payment processor and the retailer involved for settlement of the debit or credit card transaction.

For start-ups, very small businesses, or home-based businesses, it is not always a given that your business will be granted a merchant account. It may be best to apply for merchant account status with the bank with which you already do business. Banks view granting a merchant account as an extension of credit and will evaluate your business as such. Your business generally must have been in business for about six months.

With all of these requirements, however, the usual reason a bank will deny your application for a merchant account is bad credit. Since the bank views granting a merchant account as an extension of credit, your credit report must be good, your credit score high, and your presentation to the bank excellent. When you develop your business plan as a start-up, you should devote a section to obtaining merchant status.

Steps to Get a Merchant Account

Following these steps can help you secure a merchant account for both your offline and Internet transactions.

  1.  Gather your financial information – this includes your firm’s financial statements. You should put together copies of your bank statements, income statements, balance sheets, and cash flow statements for at least the last year. If you have not been in business for one year, then put together these documents for as long as you’ve been in business.
  2. Choose your credit card brands – Visa is, by far, the most popular credit card brand. You can also offer MasterCard and American Express. You will want to check the merchant fees for each of the cards you choose to offer.
  3. Processing history – If your business has any processing history, you will need to get those records together. You should provide your transactions, refunds, and chargebacks history.
  4.  Choose a payment processor – Determine if you want to go with a local bank or an independent payment processor based on the services offered and fees assessed.
  5.  Complete an application – Include the financial documents you gathered and submit them along with the application, along with a cover letter if allowed. 


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  1. Square. Products Page. Accessed April 4, 2020.

  2. Product Page. Accessed April 4, 2020.

  3. Amazon Pay Page. Accessed April 5, 2020.

  4. Lenders Product Page. Accessed April 5, 2020.

  5. Steps to Get a Merchant Account. Accessed April 6, 2020.

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