Don’t credit cards seem simple? Swipe here, type in shaking hands a few numbers there, and ta-da! The payment appears to have gone through immediately. However, the actual process behind payment processing is more complex and risky.
Processing payments requires several behind-the-scenes communications.
First, the merchant services provider must verify that the purchasing customer has enough funds for the purchase. In a brick-and-mortar store, credit card point of sale (POS) terminals fetch information from the credit card companies to verify fund availability. In online transactions, online transactions are verified by payment gateways.
After the purchase has been cleared, the merchant services provider creates a sort of bank account where funds from credit card and debit card sales can be held. Within a day or two, these funds are transferred from customers’ bank accounts and credit card accounts into the merchant’s accounts.
As the merchant services provider (sometimes called the payment processor) is effectively “floating” the purchases before final payment, the relationship between the provider and the merchant is important. If a merchant does not follow through on promised services or products, and customers demand refunds, the payment provider could be legally responsible for reimbursing funds. Therefore, a merchant services provider typically requires business owners to sign a legally binding contract limiting risk. There is also an application process business owners must pass to set up payment processing.
Credit card payment processing is critical to modern business success. To accept credit cards, business owners must set up a merchant services account, or a high-risk merchant services account if their company falls into the high-risk category. Let’s take a look at the steps involved in setting up merchant accounts.
Applying for Merchant Services Accounts
1. Obtain and review the merchant agreement. Be wary of too-rosy agreements. Also, avoid service providers who promise no/little paperwork. Due to the legal issues of payment responsibility, it is inevitable that you will need to fill out a few forms. Anyone who tells you differently may not be trustworthy.
2. Gather Company Financial Statements and Review Payment History. If you are a new startup, this data may not be available.
3. Write the Cover Letter and Fill Out the Application. Think about the cover letter as you would when applying for a job. Describe your business model and policies and address the weaknesses in your company’s application head-on.
Depending on which merchant services provider you select, you will need to gather certain documents as part of the application process. These documents may include:
• Proof of identification, such as a driver’s license
• A voided check for the account where merchant account payments will be deposited
• Social Security Number or Federal Employer Identification Number
• In-depth statement of business activities
• Financial statements, bank statements, and tax returns for the business
• Website and secure online checkout system (if your business operates online)
Depending on the merchant services provider you select, you may pay an application fee and other upfront costs. Going forward, you can expect ongoing monthly or annual fees to maintain the account.
High-risk merchant accounts don’t have to be difficult.
This process can be difficult for traditional businesses, but high-risk firms can face additional complications. Your business likely qualifies as high risk if you operate in an inherently risky field, you have a poor credit history or high incidence of chargebacks, you take advance or remote payments, or your financial history can’t be verified. Many traditional merchant account providers will not accommodate high-risk businesses.
Bankcard Brokers specializes in business and financial services for all high-risk industries. We can help you accept card payments, even if other merchant account providers have rejected your application. While providing high-risk merchant services, we promise to provide transparency, credibility, legitimacy, and world-class support. Call us today to take the first steps toward a high-risk merchant account.