If you have been reading my blog thus far, you should have a basic understanding of what a merchant account is and where to get one. In this post, I will explain why there is a merchant account application and what you can expect during the review process.
The Merchant Account Application – It All Comes Down to Risk
Previously, I explained how merchant account providers (i.e. acquiring banks and ISO’s) assume the risk of the transactions that their customers’ process (click here to read). Therefore, merchant account providers vet every prospective customer since their money is on the line.
The review process is called underwriting. Every business has a different level of risk associated with its credit card processing. Some key risk factors include the potential for chargebacks (i.e. customer disputes), credit history, legitimacy (e.g. online reviews), business type, and length of time accepting credit cards.
Before underwriting can begin, business owners fill out a brief merchant account application. You provide info regarding how you plan to accept credit cards (e.g. 100% face-to-face), sales projections, ownership information, etc.
Once complete, the underwriting process can begin. However, the merchant account application is not all.
Required Documents to get a Merchant Account
In addition to a merchant account application, further verification is needed for the underwriting process. No matter which provider you go with, they will almost always request the following documents:
- Valid Driver’s License (or Passport)
- Voided Pre-Imprinted Check (or Bank Reference Letter)
- Social Security Number
- Employer Identification Number (EIN)
- Website or Marketing Material (online businesses only)
Federal laws require merchant account providers also conduct this underwriting process. Without it, fraudsters can end up opening a merchant account in someone else’s name, launder money, or even finance illegal activities through their merchant account. You would be surprised how often this occurs.
Merchant account providers approve each application on a case-by-case basis. Therefore, underwriting may ask for more documents. For example, bank statements or tax returns if you process large volumes. Keep that in mind. All of this is needed to prove your businesses legitimacy.
Wait – Underwriters need my Social Security Number?
This is probably one of the most common questions. There is a legal need to confirm the identity of the business owner when opening a merchant account. Furthermore, a strong credit history increases your credibility and makes you more favorable to underwriters. So yes, you need to provide your social security number. You can even use your strong credit history to negotiate lower rates too.
You can read more about social security requirements here.
How Long Does Underwriting Take?
Every merchant account provider is different, but the underwriting process takes a few business days. If you own a lower risk business, such as a restaurant, the review process is shorter. Or, if you request a smaller monthly sales volume, this, too, will make the review process quicker.
Conclusion
In conclusion, merchant account providers need to screen their customers before they can start accepting cards. Before you even approach a merchant account provider, gather all the documents (listed above) first. Having the required documents handy will help expedite the review process, allowing more to time to collect additional documents that may be required by the individual provider. The best part about all of this is that you can apply for your merchant account from the comfort of your home.
So hopefully by now, you understand the underwriting process. If you need any help, please send me a note in the Contact Me page.
In my next post, I will discuss some of the standard rates and fees. Thanks for reading!