PayPal and other small, automatically approved merchant accounts are designed to help startup entrepreneurs begin accepting payments online almost immediately. Most e-merchants start accepting payments with companies like PayPal, Stripe or Square, to begin establishing history as a business and enabling merchants to forgo an extensive underwriting process—at least at first. Once the e-commerce business outgrows PayPal in terms of volume, or perhaps by operating in a “high-risk” industry, their account can be frozen or funds can be placed on hold. At this point, e-commerce merchants may need to apply for a more specialized merchant account that can handle a larger business with higher volume. This process can yield few results for some businesses. So, how do you know when to begin applying for a specialized merchant account?
A merchant account underwriter is ultimately looking at the risk of approving your application. If you cannot meet your financial obligations, your account provider then becomes liable for your losses. The underwriter determines the likelihood of your business failing before services are fulfilled or your business bank account being overridden with chargebacks. The more thorough your application, the better, and this is where you should start in considering applying for a merchant account or upgrading to a better provider.
Here is your basic checklist to complete before applying for an e-commerce merchant account.
Your website should be an accurate, comprehensive representation of your business and be able to demonstrate that your business is fully operating. An underwriter should be able to access your refund policy and any recurring payment policies should be disclosed to the consumer up front. E-commerce websites must have Terms and Conditions and a secure checkout page.
There will be many fees associated with your merchant account. Depending on the merchant account provider, some of fees can include:
Depending on the business, some merchants will have to pay other special fees to further mitigate the risk of approving your application. Some of these can be negotiated after your merchant account has been in operation for long enough to argue that you shouldn’t need to pay extra money. These charges can include:
Make sure you understand the costs associated with opening any merchant account and realistically assess whether you can afford to maintain an account based on your current profits and expected growth.
If your e-commerce business is in a high-risk industry, you may have trouble getting approved for a standard-risk merchant account. Instead, you’re better off saving yourself from rejection after rejection and applying for a high-risk merchant account. This usually means paying higher fees, but it also means working with a provider who knows how to help you mitigate risk. After all, better risk management is a win-win situation for all parties involved! Examples of high-risk industries include:
If you have processed credit cards in the past, provide at least three months’ worth of statements for a standard-risk merchant account application and be prepared to provide up to two years’ worth of statements for a high-risk application.
A business’ chargeback ratio is a defining characteristic when trying to open a merchant account. If you get approved for a high-risk account, your provider will be able to help you manage chargebacks, but the better prepared your company is to face chargebacks, the more likely you will be approved for a merchant account.
Finally, some merchant account providers will deny your application based solely on the length of history of your company. In this case, be patient, continue developing your business and strategies to prevent chargebacks. High-risk merchants will need a longer company history to be approved by a reputable merchant account provider.
Once you know that you’re ready to find a better merchant account provider, apply for a merchant account that will fit the needs of your business. Some providers will only offer you one type of account and others may automatically deny your application based on your industry. Will your business need to process high volumes? High tickets?
National ACH processes ACH, cards and e-checks from one place for simplified management and offers extensive fraud fighting and chargeback prevention tools.