How do you get a merchant account?

To get a merchant account, you must submit an application to an acquiring bank or payment processor, providing your business license, financial statements, processing history, and a voided check. The underwriter will evaluate your business model, credit history, and risk profile before approving the account and setting your processing rates and terms.

Securing a merchant account is a critical milestone for any growing business. While payment aggregators like Stripe or Square offer quick setups for startups, scaling businesses inevitably need the stability, lower costs, and dedicated support of a true merchant account. This guide walks you through the exact steps to get approved, especially if you operate in a high-risk industry.

Table of Contents

  1. How do you get a merchant account?
  2. Step 1: Determine Your Business Risk Profile
  3. Step 2: Gather Your Required Documentation
  4. Step 3: Optimize Your Website for Approval
  5. Step 4: Choose the Right Payment Processor
  6. Step 5: Submit the Application and Navigate Underwriting
  7. Step 6: Review the Terms and Set Up Your Account
  8. Why Startups Struggle to Get Merchant Accounts
  9. Frequently Asked Questions (FAQ)

Step 1: Determine Your Business Risk Profile

Before applying, you must understand how banks view your business. Acquiring banks categorize businesses into two main buckets: low-risk and high-risk.

Low-Risk Businesses typically have:

  • Low average ticket sizes (under $50)
  • Low chargeback ratios (under 0.5%)
  • Card-present transactions (retail stores)
  • Standard industries (restaurants, clothing stores)

High-Risk Businesses typically have:

  • High average ticket sizes (over $500)
  • High chargeback ratios (over 1%)
  • Card-not-present transactions (ecommerce, MOTO)
  • Subscription billing models
  • Regulated or heavily scrutinized industries (CBD, adult, gaming, travel, SaaS)

If you fall into the high-risk category, applying to a standard low-risk processor (like your local bank) will likely result in a swift rejection or, worse, an approval followed by a sudden account freeze a few weeks later. You must seek out a specialized high-risk payment processor [1].

Step 2: Gather Your Required Documentation

Underwriters need to verify your identity, your business’s legitimacy, and your financial stability. Having a complete “KYC” (Know Your Customer) package ready will significantly speed up the approval process.

Prepare the following documents:

  1. Business Identification: Articles of Incorporation, Business License, or EIN (Employer Identification Number) document.
  2. Personal Identification: A valid government-issued ID (driver’s license or passport) for all principal owners (usually anyone with 25%+ equity).
  3. Financial Statements: 3-6 months of recent business bank statements. If you are a startup, you may need to provide personal bank statements or a letter from a CPA.
  4. Processing History: If you have processed payments before, provide 3-6 months of processing statements showing your volume, average ticket size, and chargeback ratio.
  5. Voided Check: A voided check or a bank letter from the business account where you want your funds deposited.
  6. Supporting Documents: Depending on your industry, you may need specific licenses (e.g., a pharmacy license for supplements) or a detailed business plan.

Step 3: Optimize Your Website for Approval

Underwriters will thoroughly review your website. A non-compliant website is a common reason for rejection. Ensure your site includes:

  • Clear Contact Information: A visible phone number, email address, and physical business address.
  • Transparent Policies: Easily accessible Refund/Return Policy, Privacy Policy, and Terms & Conditions.
  • Secure Checkout: An active SSL certificate (HTTPS).
  • Accurate Product Descriptions: Clear descriptions and pricing for all products or services.
  • No Prohibited Content: Ensure you are not selling anything explicitly banned by the card networks (Visa/Mastercard).

Step 4: Choose the Right Payment Processor

Do not just apply to the first processor you find. Compare your options based on:

  • Industry Expertise: Do they specialize in your specific vertical?
  • Pricing Model: Look for Interchange-Plus pricing, which is the most transparent and cost-effective model for established businesses. Avoid tiered pricing if possible.
  • Contract Terms: Beware of long-term lock-in contracts with hefty early termination fees (ETFs). Look for month-to-month agreements.
  • Integration Capabilities: Ensure their payment gateway integrates seamlessly with your ecommerce platform (Shopify, WooCommerce, Magento) or CRM.
  • Customer Support: Test their support before signing. You need a dedicated account manager, not a generic call center.

Step 5: Submit the Application and Navigate Underwriting

Once you submit your application and documents, the underwriting process begins. The underwriter’s job is to assess the financial risk of giving you a merchant account.

They will look at:

  • Personal Credit Score: Yes, your personal credit matters, especially for small businesses or startups. A score above 650 is generally preferred.
  • Chargeback History: If your previous processing statements show a chargeback ratio above 1%, you will face intense scrutiny.
  • Business Model Viability: Does your business make sense? Are you likely to generate a high volume of refunds?

The Underwriting Interview:

The underwriter may call you to ask clarifying questions about your business model, your fulfillment process, or your marketing strategies. Be honest, transparent, and prepared to explain how you mitigate risk.

Step 6: Review the Terms and Set Up Your Account

If approved, you will receive a Merchant Processing Agreement (MPA). Review this document carefully before signing. Pay close attention to:

  • Processing Rates: Confirm the agreed-upon rates (e.g., Interchange + 0.10% + $0.10 per transaction).
  • Account Fees: Note any monthly statement fees, gateway fees, or PCI compliance fees.
  • Funding Schedule: Confirm when your funds will be deposited (e.g., 24 hours, 48 hours).
  • Reserves: If you are high-risk, the processor may require a rolling reserve (e.g., holding 5% of your volume for 90 days) to cover potential chargebacks [2].

Once signed, your processor will provide you with your Merchant ID (MID) and the necessary credentials to connect your payment gateway or configure your POS terminals.

Why Startups Struggle to Get Merchant Accounts

Startups face a “chicken and egg” problem: they need processing history to get a good merchant account, but they need a merchant account to get processing history.

If you are a brand-new business with zero processing history, you have two main options:

  1. Start with a Payment Aggregator: Use Stripe, Square, or PayPal to build 3-6 months of processing history. Once you have a track record (and assuming your chargebacks are low), apply for a dedicated merchant account to lower your rates.
  2. Apply as a Startup: Some processors specialize in startups. You will likely need strong personal credit, a solid business plan, and perhaps a larger cash reserve in your business bank account to compensate for the lack of processing history.

Frequently Asked Questions (FAQ)

How long does it take to get a merchant account?

For low-risk businesses, approval can take 1-3 business days. For high-risk businesses, the underwriting process is more rigorous and typically takes 3-7 business days, depending on how quickly you provide the required documentation.

Can I get a merchant account with bad credit?

It is possible, but difficult. Underwriters use personal credit as an indicator of financial responsibility. If your score is below ￾￾￾, you may need a co-signer with better credit, or you may be required to accept a rolling reserve or higher processing rates to offset the risk.

What is the difference between a merchant account and Stripe/Square?

Stripe and Square are payment aggregators; they pool your transactions with thousands of other businesses under their own master merchant account. A dedicated merchant account is an account specifically under your business’s name, offering greater stability, customized pricing, and dedicated support, but requiring a more thorough underwriting process.