Small Business 101: How to Get an Ecommerce Merchant Account

Maybe you’re a brick and mortar store looking to expand your customer base to people who can’t reach your physical location, or maybe you’re a unique small business that only sells products online. Whatever your situation, having an online business presence is just good sense. Still, whether you’re just getting up and running as a business or are trying to expand your brick-and-mortar sales by offering products online, there are a lot of things to keep track of. There are strategic and operational things to consider when you’re launching a new ecommerce business, and one of the most important considerations is your payments operation.

Maybe you’re a brick and mortar store looking to expand your customer base to people who can’t reach your physical location, or maybe you’re a unique small business that only sells products online. Whatever your situation, having an online business presence is just good sense. Still, whether you’re just getting up and running as a business or are trying to expand your brick-and-mortar sales by offering products online, there are a lot of things to keep track of. There are strategic and operational things to consider when you’re launching a new ecommerce business, and one of the most important considerations is your payments operation.

What is an Ecommerce Merchant Account?

So what exactly is a merchant account? Essentially, it’s what allows you to accept payments online. A merchant account is a special type of business bank account that lets your business accept different types of payment—typically debit and credit card payments — necessary for online purchases. Every time someone pays for something with a credit card, funds are transferred to a merchant account that a merchant holds with a bank. The merchant is responsible for all the transactions on their account, and every bank has its own terms of service.

So you know you need a merchant account — that’s a given. It’s time to go shopping for a provider. You’ll want to have an idea of what kind of services you want your merchant account to provide. What kind of credit cards and currency do you want to accept? How will the payment gateway (a service that authorizes credit card payments, usually set up with the merchant account) be integrated? What sort of authorization process does the provider have? What kind of customer service is available? Finally, you don’t want to skimp on security: make sure the merchant account provider is PCI DSS Compliant, which means they meet certain requirements like protecting cardholder data and regularly updating antivirus software. Depending on the type of business you have, you might also want to look into extra security and fraud monitoring tools. Once you’ve found a merchant account provider that fits your needs, you can begin the application process.

Ecommerce Merchant Account Red Flags

It’s good to have an understanding of what might cause your application to be flagged. These reasons don’t mean you’ll be denied outright, but if you answer “yes” to any of these questions, it’s worth doing a bit of extra research and go the extra mile to ensure your application will be approved. You might also have to pay extra fees or agree to special restrictions.

  • Are you a high risk business? Every time a ecommerce merchant account processes a payment on a credit card for you, there’s a risk, and if you’re in an industry with a higher risk than usual, you might have to look for specialized providers. Examples of these “high risk” businesses include those that involve adult material, gambling, or travel packages.
  • Are you a start-up? Even if you’re not part of one of the high risk industries, up to 70 percent of startups fold. Again, this doesn’t make it impossible to find and be approved for a merchant account, but it might be worth turning to a processor or agent that specializes in helping startups through the approval process.
  • Does your business have a subscription model? These are one of the special, risky industries, because businesses that involve subscriptions have higher than average chargeback and online fraud rates. There’s also a longer rate between when customers pay and receive their product, which can make some merchant account providers skittish. If you show that you have put thought into how to control this so-called fulfillment duration, that’ll go a long way to getting you approved.

Once you decided on an account, you’ll send a cover letter that answers any potential questions or concerns. Elaborate on any steps that you’ve taken to mitigate risk, be straightforward and honest about potential issues, and spotlight any important experience or qualities that make you stand out from your competitors.

Finally, a word of warning: do your homework before applying for an ecommerce merchant account and choose a reputable provider. Be wary of “free” ecommerce merchant accounts or those that offer cash back if you find another deal. Make sure you protect your financial information, read all the fine print, and research everything carefully.

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