Applying for a Merchant Account? Here Are 8 Facts You Need to Know


Applying for a merchant account gives your business the opportunity to scale that’s incomparable to popular 3rd-party processors. This is especially true for high-risk merchants who are subject to higher rates, monthly processing volume caps, and the possibility of having their store shut down if using a standard merchant account.

The merchant account application is not overly complicated, but there are certain matters you either need to meet, prove, or provide right away. Being prepared will get the application processing flowing smoothly and can increase the odds of approval, even granting you debit card and credit card processing for your e-commerce store sooner than the typical 2-week timeframe.

Be prepared by following our 8-step guide to make your high-risk merchant account application as appealing as possible.

1. Be Prepared for the Underwriting Process

Merchant accounts, whether high risk or low risk, are a direct connection to the bank which will process your customers’ payments. Because of this, there is a vetting process that you most likely weren’t subject to when applying for simpler payment solutions like Stripe or Square.

In this underwriting process, you should have several documents prepared to submit either immediately with the application or upon request. In fact, it’s a good idea to have a packet with all these details ready to go (e.g., a digital folder on your desktop).

The bank will ask for both personal information and business information, including your business license, Employer Identification Number (EIN), and a voided check. As we’ve outline in previous posts, you should have a one-page cheat sheet that outlines your business as simply and reader-friendly as possible. The bank needs to know who you are before it can offer merchant services to you. The best way to convince them that your business will pose little risk and high earning potential is clearly outlining your company. To do that, outline your one-pager with the following:

  • A short blurb about your business
  • What products or services you sell
  • Pricing breakdown and subscription model outlines (if applicable)
  • To whom you sell
  • How you sell (i.e., online-only; physical store)

This cheat sheet is a way for banks to get info about your company briefly so they can more quickly decide if they can support your business model. This is also handy for speeding up rejections so you can more quickly move on to the next bank.

You’ll also need to provide business bank account statements for the last 3 months that show all transaction history (e.g., credit card transactions, refunds, chargebacks) and account balance. In line with this, banks will perform a credit check on your company and you, personally. The check is to get a better glimpse towards reliability if a chargeback occurs and gives them insight into your credit card payment activity and credit history.

Get your business under PCI compliance sooner rather than later. Some processors require it, others will give you a hefty fee for not being PCI-compliant. It’s better to just go ahead and do it so you can avoid any trouble or surprises on your bill in the future.

2. Banks Will Always Request Personal Information When Applying for a Merchant Account

Aside from the credit check, banks will ask for personal information including your home address, social security number, tax ID, and personal bank account information.

You are the signer for the company needing merchant services, therefore you are will without a doubt be asked for personal information. You reflect the company as much as the company reflects you and banks need to gain a sense of your trustworthiness. Personal information will be asked no matter what type of business you run: LLC, S-Corp, sole proprietor—it doesn’t matter.

Supplying this information without pushback or delay can get your account approved faster. And the fact that it’s required should eliminate the need for any resistance towards submission.

3. 3rd-party Processors Are Not the Same as a Merchant Account

It’s comparing apples to oranges. 3rd-party payment processors (e.g., Stripe, PayPal, Square) are more of a middleman or an aggregator whereas merchant accounts are a direct connection.

The previous two points circle around providing information. With a 3rd-party solution, you won’t have to provide all of these “extra” details because you’re not applying to the bank, you’re applying to the middleman. The trade-off is faster approvals with higher rates and non-negotiable processing fees or contracts.

Merchant accounts are a much more secure solution. The less parties involved, the safer your payment gateway is. Applying for a merchant account gives you the ability to connect customers directly with the bank. No one meddles with the transaction during transfer.

4. One Merchant Account Should Only Be Used for One Business

Obtaining a merchant account for your small business can feel like opening the floodgates for customers to come pouring in. Many business owners want to keep that flow steady by funneling another company’s transactions through one single merchant account. Do not use the same account for multiple businesses.

When you apply for a merchant account, your business gets categorized by the bank or processor. These are SIC Codes (Standard Industrial Classification) and NAICS Codes (North American Industry Classification System), otherwise known as Merchant Category Codes (MCC), that tell the bank what type of business you’re doing. Each business should only have one code assigned to it and each merchant account should only have one business associated with it. It’s a 1:1 ratio.

If you have another business, you’ll need to file another merchant account application. Funneling through one single account will surely get it shut down.

SIC Codes can be looked up easily and during the application process, you can even convince the bank that your business falls into a more preferred category. Each category follows with different rates, transaction fees, contracts, etc., so you should do a bit of research and find the category that fits your business model best.

5. There Is a Difference Between High-risk Merchant Accounts and Low-risk Accounts

At this point, you most likely have a good understanding that your business is high-risk. To quickly recap, high-risk includes sellers of CBD products, nutraceuticals, health programs, travel agencies, dropshippers, and adult content. It’s not limited to these products or services, but these are some of the most popular. In contrast, a low-risk merchant is one that sells something like clothes, home goods, and physical books.

Don’t tiptoe around being a high-risk merchant in your application. Banks will discover you and the results might not be so favorable. This is one reason why there’s so much merchant frustration about 3rd-party solutions shutting them down. These providers don’t request enough information at the beginning, are quick to get your store running, and then realize they’re providing payment services to a high-risk business and immediately shut it down. Be upfront about your business type and you’ll absolutely be better for it in the long run.

When you provide bank statements and credit reports to the acquiring bank, you can use it to your advantage and negotiate monthly fees. Those fees reflect the risk your business imposes onto the bank; therefore, trustworthiness lower risk equals lower fees.

6. There Are 3 Main Types of Merchant Accounts

Retail, online, and mobile are the three main types. Within these, hybrid accounts are possible. For example, a merchant selling the same product online and in stores will have a hybrid account of retain and online. Be aware that this type of business can use the same merchant account in both places because it’s the same business selling the same products.

Online businesses, in general, have higher rates because of Card Not Present (CNP) risk. Since the card is not physically being handled by you, the merchant, there’s an increased risk for fraud.

7. Payment Processing Rates and Contracts Are Negotiable

We’ve stated this before: rates are negotiable. But don’t expect a huge amount of savings. Merchant account rates are already lower than 3rd-party processing company rates, so that’s the biggest saving you find regarding rates. The simple breakdown is that 90% of fees are paid to the bank, and this is non-negotiable. The remaining 10% can be negotiated.

The bigger priority for negotiations is in the contract. The contract should reflect your expectations as much as possible. You can choose a long-term agreement if that suits you or you can go for a month-to-month agreement. You’ll also want to pay attention to things like cancellation fees, auto-renew, and other items that might come up in the fine print.

The relationship you have with your merchant account provider is important, so you shouldn’t feel stuck or taken advantage of in any way. Nor vice versa.

8. Benefits Differ Between Merchant Account Providers

It is in your best interest to compare features of different merchant account providers. Some may have attractive pricing but don’t offer much besides an account and a POS device that lets you process Mastercard and Visa payments. Others might ask you to pay a bit more but give you a plethora of features like fraud protection and chargeback management

Take the time to do some research so you can find the provider that fits your business needs best. If you’re a high-risk merchant, you’ll likely want one that goes the extra miles and gives you features that help you combat the elements that make your business higher risk.

Prepare Your Merchant Account Application Now to Get the Services You Need ASAP

Though the application process can take up to two weeks, preparing it can take much longer. Starting the prep for your merchant account application now will help your application look more appealing to banks and credit card processors. You might even get your application approved sooner.

DirectPayNet is a leading merchant services provider for high-risk businesses. We provide features that protect your business from fraud, chargebacks, and termination from banks. Don’t choose a provider that could put your business at risk, choose one that’s here to help you scale. Get in touch with our agents for more info.

About the author

As President of DirectPayNet, I make it my mission to help merchants find the best payment solutions for their online business, especially if they are categorized as high-risk merchants. I help setup localized payments modes and have tons of other tricks to increase sales! Prior to starting DirectPayNet, I was a Director at MANSEF Inc. (now known as MindGeek), where I led a team dedicated to managing merchant accounts for hundreds of product lines as well as customer service and secondary revenue sources. I am an avid traveler, conference speaker and love to attend any event that allows me to learn about technology. I am fascinated by anything related to digital currency especially Bitcoin and the Blockchain.