Opening a merchant account for eCommerce in 2022

Merchant accounts are essential for those businesses that want to accept card payments. Yet, their entity is not that simple, and the way they work even more. This article is dedicated to accounts, the way they work, and how and where to open one.

What is a merchant account?

A merchant account is a type of bank account for business owners that allows them to collect electronic payments online or in retail. For a retail business, an account brings the opportunity to set up a point of sale terminal and accept card payments. For an eCommerce business, a merchant account means an authorization to get almost any type of electronic payment online. 

A merchant account differs from personal and business ones. A personal account is something almost all of us can relate to. Banks issue them to let people participate in financial actions. A personal account basically allows you to keep money, transfer international payments and local ones, make savings, perform card payments, withdraw cash, and so on. The list of functions does depend on the bank itself.

A business account is sort of the next level of a personal account. It includes all the functions of a personal bank account but also adds some vital business features on top. These features serve as a package of valuable tools for supporting business activities. For instance, a business account may include such treats as multi-user accounts managing, invoicing, automated tax reports, analytics, and many more. Notice that a business’s size matters: it can be an account for a freelancer with no employees, and it can be an account for a multinational company. The range of features would differ indeed.

In fact, we started to talk about all of these differences not just to highlight significant parts but also to mention that a merchant account is the last level of a banking account. It means that whoever wants to issue it first must obtain a personal account, then a business one, and only at last a merchant one. Why? We are about to explain that in the next part, along with how actually the whole thing works.

How does a merchant account work, or what is the payment processing?

Payment processing is equal to a transaction flow; this is the way electronic money travels from a customer’s wallet to a merchant’s account. There are several parties involved in this process, and they create the transaction chain.

A payment gateway, here we describe it in detail, is a web-based tool that connects a selling website with the payment processor. A payment processor is responsible for the transaction environment, as it connects all the parties needed. To understand the difference, imagine an aquarium. So the top of it, the open part, would be a payment gateway, the water in it would represent a payment processor, and all the fish and cute houses would be other parties we are about to describe. Yet, there is an article where we explain this difference deeply without any fish involved.

The other parties concerned a merchant and customer. An acquiring bank is a special type of bank that issues merchant accounts, yes, the one and only (well, almost). A card brand is a company that issues payment cards, like Visa, MasterCard, or American Express, easily. And the bank issuer is the bank of a customer.

So what happens when a client is pressing that button of purchase on your website? Well, actually, a lot of things. The payment and shipping (if needed, of course) data first travel all the way to a payment gateway to the bank issuer, being checked for fraud, and only then the information goes all the way up to send a notification of an approved or declined payment. Check the table below to see the ”travel route.”

If payment is declined for such reasons as purchase limit or payment verification failure, both a customer and business will be provided with the reason. But if the payment is approved, the customer’s funds are authorized to be redirected to a merchant account.

But not that easy dear business. First of all, money will drop down on the account is not the same amount as a customer paid. Why? Because there are fees for any given transaction in this world, and it is you who will pay them, so don’t be surprised to receive a bit less. 

Then, mind that a merchant account is like a piggy bank where money can be only collected:

• You can’t make payments.
• You can’t transfer international payments.
• You can’t create a deposit.

The only thing you are permitted to do is to transfer money to your own business bank account. And from there on, you will be free as much as a business can be.

Parties	Processes
Payment gateway	encrypted the shipping and billing data, and connect the website with a payment processor
Payment processor	manages the transaction flow within banking networks, redirect the data to an acquiring bank
Acquiring bank	contacts the card brand of a particular transaction
Card brand	contacts the bank issuer of the customer
Bank issuer	verifies the customer’s identity, checks the payment limit and fund availability; sends a transaction approval or denial up to a payment gateway

High-risk vs. low-risk accounts

All businesses belong to a high-risk or to low-risk category. The difference is there in the name: a high-risk business potentially causes more risks to a bank acquirer that issues a merchant account, while a low-risk business does not.

But what exactly does the risk mean? Well, in this particular case, it means that a high-risk business may generate a high amount of chargebacks. A chargeback is the money return that a client launches via his or her issuing bank but not via the seller’s website. That is why a chargeback is different from a refund; read here why. By the way, there is chargeback protection that you should know about.

Generally, chargebacks are not good either for banks or for companies, but they are not the only reason for an online business to be labeled as high-risk. There are industries that automatically go there, and they are not limited to adult services or gambling. For instance, travel agencies, streaming services, and social networks are labeled high risk as well. 

And there is more to it; companies with bad or no credit are also in the category of businesses that operate in certain countries with certain currencies. Well, there are a lot of conditions. The main point is that it is not bad to be a high-risk business; it just requires special agreements with acquirers and, to be honest, higher fees.

What are merchant services for online businesses?

Well, and here we are coming to the interesting part. So you have your online merchant account; how to make it function well, and how to benefit from it? It is what merchant services are for. 

Merchant services are those offers that providers give to a company in order to support an electronic transaction process. In simple words, these services sustain and enhance the electronic money flow. 

There are merchant services that are essential for purchase processing, like setting up a payment gateway and payment processor. For retailers, for example, it would include the set up of the point of sales terminal. And also, there are services that play a role in healthy support for the business, such as fraud prevention, chargeback protection, advanced analytics, and many more.

In the second category, we can also include personalized customer support. Do not underestimate it. A good quality client support is crucial when it comes to operating your online account, and when this support is personalized, it is especially valuable. Imagine if there would be a dedicated manager with you from the beginning that would follow all the processes, and the company’s development, knowing your business as you do. Isn’t it precious?

Where to open a merchant account for eCommerce?

Well, as we said already above, there is a specific financial entity that is called an acquiring bank, and it issues merchant accounts and provides additional services. An acquiring bank is the only banking institution that can open merchant accounts. But not the only one that can issue them. 

In fact, there are two more types of entities that can issue merchant accounts on behalf of acquiring banks. Those are payment service providers and payment gateway providers. Both exist online and support mostly eCommerce. But there are also some that work for both the retail sector and online businesses. Let’s see how all the three providers are different from each other and what the deal they can propose.

3 types of account providers

Acquiring bank

An acquiring bank is the first kind of bank that opens merchant accounts from the very start of credit and debit card usage. We can surely say that it has lots of experience and advanced structures for retailers and eCommerce companies. But as any oldish bank institution, it does inherit lots of disadvantages.

Be prepared from the beginning with an account opening and onboarding process. To submit an application, an acquirer would expect you to supply lots and lots of documentation about the company, you personally, your employees, and their mothers (the last one is a joke, hopefully). The period between application submission and actual account usage is quite long, almost equal to a headache.

Acquirers do not welcome high-risk, especially if it is small. They are not much in favor of high-risk businesses, requesting even more paperwork from them and demanding a way to high fees. And if a business is small, it might just easily spend all the profit on the account running.

Another flower in the bouquet is contracting. Acquirers love contracts and love them long. So partnering with them would mean a long-term agreement that would not be that easy to break. Sure thing you can stop any moment, but pre-term termination causes charges.

At last, as from any traditional bank, do not expect here a nice smile and a personal approach. Acquirers mostly prefer papers over people, and their replies contain the best official cliches you can hope for.

So who on earth would partner with acquiring banks, you would ask. Well, there is a little trick in the system. In fact, the more transaction processing businesses have over a month, the fewer fees they pay and so the more valuable for an acquirer they are. Basically, huge corporations have very good deals with acquirers that support the whole business infrastructure, no matter the retail nature of it or eCommerce.

Payment service provider

A payment service provider or PSP offers account issuing and other merchant services to companies in a more simple manner. If we compare acquirers with payment service providers or payment gateway providers, it would be the same as comparing old-school banks with neobanks. The first one is famous for its bureaucracy, while both others offer a human-like approach to every process, even the most complex ones. 

When partnering with a payment service provider, an online business can expect a fluent onboarding that requires light documentation and a fast verification process. PSPs are high-risk friendly; they will discriminate against neither traveling companies nor gambling. 

Fees and charges are also way simpler with PSPs and usually less. And when it comes to contracts, these providers are not as strict as acquirers. Also, they provide human-like support and develop useful solutions fast according to business needs.

In general, payment service providers are more suitable for small and medium businesses, both in retail and eCommerce. They are easier to work with, and they evolve fast, providing a great user experience to the clients.

Payment gateway provider

A payment gateway provider or PGP does not differ much from a payment service provider, except that its main focus is on such a merchant service as a payment gateway. A PGP can issue online accounts and offer other services as well. The deal would be as simple as with a PSP: low fees, simple contract, fast onboarding, and fluent usage.

Now when we have walked through all the providers, we better figure out how to actually choose one and which factors are important to consider when we make that choice. Let’s go.

Factors to take into consideration when opening a merchant account

We recommend starting with highlighting the most important feature of the account for your business. Maybe you need to open a company quickly, so fast onboarding would be the key. Or maybe you are a high-risk business, and chargeback protection would matter a lot. Or perhaps, you are a new merchant, so support is crucial for you. Define your needs, and follow from that.

• Application. In the application bloс, you might include the application process with required documentation, onboarding, and the contract conditions. This group would influence how fast an account would be ready to function and on which terms.
• Implementation. Implementation refers to the technical setup process of a payment processor and payment gateway. Also, some providers offer you IT support, and some would require you to have a team of professionals. Implementation affects how fast you would be able to accept payments on your account.
• Fees. Nothing in the banking world is for free, but prices do differ. Depending on your business type, you should select a suitable pricing type and rate. Fees influence how much profit you will actually get from each sale.
• Merchant services. There are a lot of them; you should choose those that are needed the most for your business. You might request, in any case, chargeback protection and fraud prevention in order to secure your business. Merchant services affect your business’s well-being.
• Support. As we have mentioned already, support is crucial. It might seem like an unimportant thing until you really need it. And that moment would come sooner or later. Support influences your ability to keep a business on track.

How to open a merchant account with Maxpay

Maxpay is a reliable provider that has experience in working with all-size businesses. It issues merchant accounts and provides other services such as chargeback protection, fraud prevention, advanced accounts analytics, multiple merchant IDs, compliances, and personalized support.

Onboarding steps of the merchant account opening

1. Fill in the request on the website.
2. Receive and fill in the application form by inputting company data, owner’s information, and the website link.
3. Pass the KYC (Know Your Customer) verification of the website to check its content, functionality, traffic, and other parameters.
4. Pass the check for website compliances such as domain ownership, copyright, privacy policy, and so on.
5. Provide legal documents to verify business papers, and check for fraud.
6. Proceed to financial check for bank and chargeback statements and processing.
7. Pass the verification of the compliance.
8. Provide data about the risk, such as reputation risk, content risk, merchant category code history, and so on
9. Benefit from the ongoing monitoring of the launched business.

FAQ

What is an eCommerce merchant account?

It is an account that allows a company to accept card payments. To get an account, we recommend Maxpay, The provider partners with businesses in the USA, UK, and European Union, including France.

How can I open a merchant account online?

First, fill out the request form on the Maxpay website. Then fill out the application form and pass certain verifications. After that, your account will be ready to accept payments.

How do I create a merchant account?

Follow the form on the Maxpay website. Then after a little chat, you will be able to apply for an account. The procedure would require you to fill out the form and then pass some verifications.

How much does it cost to set up a merchant account?

Charges vary for different types of businesses and within providers as well. We advise you to contact the team of Maxpay to figure out how much exactly the cost would be for your business.