How to Apply for a Merchant Account — And Get Approved!

Does your business need a merchant account? Here’s a step-by-step guide on how to apply for a merchant account, get approved, and maintain it as your business grows.

If you haven’t already created a business plan, this should be a top priority — especially if you are a new business with no processing history.

To get a merchant account, you have to prove to the prospective acquirer or processor that your business:

• is viable
• is legitimate
• has enough capital
• has a strong go to market strategy.

A business plan can help with that.

In most jurisdictions, you have to register your business with the local governing body. You’ll want to obtain standard company documents such as articles of incorporation, proof of your physical operating address, your appointment of local directors, etc.

And if your business is in a regulated industry — like health care, gambling, etc. — you’ll need to know whether your business requires a license or legal opinion in all areas you plan to operate.

It’s important to take the official steps before doing anything else, because you’ll need to provide a copy of these documents when you apply for your merchant account.

A business plan can help with that.

Your merchant account is a specialized bank account. It is the connector between payment card transactions and your business income.

Merchant accounts only hold funds temporarily until they can be deposited into a business bank account. As you generate revenue with your merchant account, funds will move to your business bank account so you can, in turn, pay for the goods and services your business uses — rent, inventory, advertising, etc.

Most banks offer business bank accounts. Depending on your preferences, you could start by inquiring at the bank that currently holds your personal bank accounts.

Ideally, your business bank account will be located in the country where your company is domiciled.

How do you intend to use your merchant account? Start thinking about these things:

• Will you use recurring (subscription) transactions or straight (single) sales?
• Will you only accept debit and credit card transactions or will you offer alternative payments like Apple Pay and local bank transfers?
• Will you only sell online or do you want to process in-person transactions too?
• Will you sell locally or globally?
• How many transactions do you anticipate processing each month and what is your anticipated sales volume?
• What will be your average ticket amount? What will be your highest ticket amount?

All of these factors can impact the type of merchant account you qualify for. Figure out which capabilities are absolutely essential and which are negotiable — at least for right now.

Not all merchant accounts are the same. And not all providers would be a good fit for your business.

Some acquirers and processors specialize in certain types of merchant accounts — like accounts for high-risk merchants, start-ups, recurring transactions, or international sales.

Do some research and create a list of places you’d like to apply.

As you look at options, consider these things:

• When is underwriting completed? Before or after the application approval? Some merchant account providers give instant approval and then investigate your business. In these situations, it’s common for the merchant account to be later revoked and any funds within it held. It’s best to complete the underwriting process before you start processing transactions.
• What industries does the provider typically work with? Each industry has unique nuances. And it’s important for your merchant account provider to understand those characteristics so you aren’t constantly explaining and justifying your actions. Plus, you want to be able to ask experts for advice and guidance.
• Where is the acquirer located? Typically, you want to work with an acquiring bank that is in the same region as your customers. This helps keep fees low and authorization rates high. And again, you want a support team with regional expertise to guide you through any roadblocks.
• What is customer service like? Payments can be complicated. You want to work with a company that can help you simplify those complexities — not a company that will leave you to fend for yourself.

When you apply for a merchant account, the acquirer or processor will conduct an in-depth investigation into your business — a process called underwriting.

Underwriting requirements can vary from one application to the next, but all applications require some form of supporting documentation.

At AltoPay, we typically ask for copies of the following documents:

• The official, legal document filed with your local government agency
• Valid passport for all shareholders, owners, or directors
• A recent utility bill from all shareholders, owners, or directors
• Proof of physical presence in the country you are applying for (tenancy agreement for physical office space, home address of a director or shareholder, etc.)
• A voided check for your business bank account or a bank letter with account information for deposits
• Proof of website domain ownership
• VAT or tax registration or certificate
• Business bank statements showing your last six months of processing history if you are an established business (or your business plan if you are a startup)

If you sell physical goods, you’ll also need a few additional documents:

• If you outsource fulfillment, you’ll need to provide your fulfillment or content agreement.
• If you fulfill orders in house, you’ll need your manufacturing agreement, paid invoices, or purchasing order.

In either situation, you’ll probably also need to provide an example of the email sent after an order is fulfilled.

If your industry requires a license — for example pharmaceuticals, gaming, CBD — you’ll need to provide a copy of your license.

There are a lot of steps that need to be taken before you can actually apply for a merchant account!

Once you get to this point, there aren’t many universal guidelines. Each account provider handles the application differently. But here are a couple of tips that should be helpful regardless of who you work with.

• Be honest. Don’t try to hide anything or gloss over past indiscretions. Usually, the truth will come out eventually. And if you aren’t forthcoming with important details, the acquirer or processor will likely have a bad impression of your business.
• Be prompt. Some supporting documents have a shelf life. For example, a utility bill usually has to be less than 60 days old. And you’ll have to have statements from the most recent six months of processing. If the merchant account provider asks you for something, respond quickly.
• Be flexible. A single merchant account probably can’t give you everything you want. For example, you can’t expect to have low processing fees if your chargeback rate is high. Or no reserves if you have a long future delivery on products sold. Aim for a merchant account that is a good fit — but not perfection. It might take more than one account to get everything you want.

Once you submit your application, it will go into underwriting. Underwriting timelines vary drastically between regions. For a USA merchant account, you can usually expect to hear an initial response within 2-3 business days. In Europe, it’s closer to 5 – 7 business days. Usually, that first communication is to ask clarifying questions or request additional documents.

Depending on how quickly you respond to questions and requests, a final approval or decline can be issued in as little as 3 days or as much as a month or two.

If your application is approved, the merchant account provider will share a merchant service agreement.

A merchant service agreement outlines the terms of the account including topics like settlement timelines, fees, reserve amounts, and other expectations.

Be sure to review this document carefully. If you have questions about any of the terms, be sure to ask before signing.

This is what you’ve been waiting for — the ability to launch or grow your business!

Once your MID is activated, run a couple of test transactions on different cards (debit and credit, Mastercard and Visa, etc.). Check to make sure your billing descriptor appears the way you want it to. Note any descriptor variations (different descriptions used for different cards and brands) in case you want to add chargeback prevention solutions like alerts.

Gradually ramp up your volume, keeping an eye out for any issues that pop up.

Review your fees each month so you understand what you are being charged and why. Our processing fees guide can help.

Payment fraud and chargebacks are an ever-present concern for online businesses. If you didn’t add protection to your account when you set it up, be sure to do so as soon as it goes live.

Here are just some of the tools you should consider using to protect your merchant account:

• Address Verification Service (AVS)
• Checks for card security codes (CVV, etc.)
• 3D Secure
• A third-party fraud detection and prevention solution
• Chargeback prevention solutions (including prevention alerts, RDR, etc.)

Our AltoShield product can help protect your merchant account — whether you get it from us or someone else. Reach out to our team today to learn more.

Let’s get started! Fill out our interest form and tell us a bit about your business. We look forward to helping your business grow!