Six steps to take in deciding when to upgrade from Etsy or PayPal to operating out of your own merchant account.

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.

1. Make sure your website fully represents your business

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.

2. Understand the costs of a merchant account

There will be many fees associated with your merchant account. Depending on the merchant account provider, some of fees can include:

  • An application fee. If you can’t afford this or don’t want to pay an application fee, there are plenty of E-commerce merchant providers who will review your application for free.
  • Monthly minimum fees
  • Setup fees
  • Cancellation fees
  • Statement fees
  • Customer service fees
  • Chargeback fees. Chargebacks cost. Not only does a chargeback—money taken out of your account because a customer claimed the payment to not be authorized—cost you in fees, but you can even be blacklisted by MasterCard for having too many chargebacks.
  • Interchange fees. Paid by the merchant to the customer’s bank for the privilege of being able to accept credit card payments.
  • Volume caps. If you need more transactions processed than your merchant account allows, you may have to open another. There are costs associated with this, but your assets will be more protected through diversification, and your business can keep processing payments as it grows. National ACH specializes in high volume merchant accounts.
  • Batch fees.
  • Annual fees.

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:

  • Some of your funds may be placed on hold for a temporary period.
  • A rolling reserve. A rolling reserve is a withheld portion of your incoming funds used as insurance against financial issues your company may face—including chargebacks. After a certain amount of time, this money will be released into your account over a period of months.
  • A daily processing fee. Instead of a monthly processing fee, your account provider may charge you daily, at least until you prove yourself capable of managing chargebacks, processing a certain amount of transactions each month and paying your bills.

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.

3. Know what kind of merchant account you need

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:

  • Adult products and services
  • Dating Services
  • Digital Content
  • E-cigarettes & Tobacco Products
  • Magazine Subscriptions
  • Online Gambling and Gaming
  • Nutraceutical Products

4. Be able to demonstrate reliable payment processing history

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.

5. Develop strategies to control and prevent chargebacks

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.

6. Establish your business’ history

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.