As the trend toward cashless transactions has accelerated in recent years, more businesses are starting to accept credit card payments on their e-commerce sites and physical stores.

The first step in adding credit card processing to your business is to undergo merchant screening. Passing this requires some planning.

This article provides a basic understanding of merchant screening for credit card processing, including the benefits of becoming a merchant and the preparations needed before applying.

What’s in this article?

• What is the merchant screening process for credit card payments?
  
• How a business can become a merchant
  
• Advanced preparation required for merchant screening
  
• Smoothly passing the merchant screening process
  

What is the merchant screening process for credit card payments?

Just as an individual must be vetted for membership regardless of whether they apply for a credit card from one or more companies, a merchant is also evaluated when a store initiates credit card processing services.

The screening process determines the financial stability and suitability of businesses seeking to implement credit card payment offerings. It generally examines the type of products and services handled, the nature of the business, the sales format, and the company’s creditworthiness.

Why is merchant screening necessary?

Merchant screening is necessary because the credit card payment flow is the same for card users (customers), merchants (businesses), acquirers, and issuing banks. It is a credit transaction based on trust between them.

The acquirer pays the merchant a temporary advance for the goods and services the customer pays for. However, if the payment cannot be collected due to some circumstance between the merchant and the customer, it would be a significant loss for the acquirer.

To avoid such risks, businesses are subjected to merchant screening when introducing credit card payments; only individuals are screened for membership.

The details of the screening criteria vary among acquirers and credit companies and are not publicly disclosed, but the evaluation is based on a variety of factors, including revenue and business size.

In general, it is assumed that sole proprietorships and small shops can pass the screening process as long as they have obtained the permits and licences from official bodies required for the business, such as sales, operations, etc., and have all the necessary documentation. Still, the screening criteria are more stringent for those with unstable cash flow or credit history problems.

Advantages of becoming a merchant

Credit card payment is a highly convenient and widely used method of pay for various situations, including e-commerce sites. When a business can accept credit card payments as a merchant, it will benefit from the following:

• Attracting new customers
  For example, if a restaurant, hair salon, boutique, or other physical business accepts credit cards, it can expect to attract customers who prefer this method. Therefore, if card payments are accepted, regardless of whether a customer does not have cash when visiting, they will be more likely to use the service.

• Lower occurrence of problems and optimised operations compared to cash
  When credit card payments can be chosen in addition to cash, there is less need for physical money, as is the case with cash payments in physical stores and cash on delivery in e-commerce sites. This reduces problems such as miscounting the amount received or change and lost funds. It also decreases the amount of money that has to be calculated when closing the register at the end of the day, reducing the time and effort spent on cash management.

Main items checked during the merchant screening process

• Type of business and sales

• Products sold and services provided

• Whether you have a web or e-commerce site and how it is operated

• Management performance

Note that it tends to be more difficult to pass the screening if you are in a specific industry or offer particular products or services that fall under Specified Continuous Service Offerings. If your EC shop is still under preparation, you could be accepted for review if you instead submit materials that clearly show the details of your planned website.

How a business can become a merchant

To become a merchant, there are two types of credit card payment agreements, each with different procedures for screening.

Direct contract with the acquirer

In the case of direct contracts, the merchant contracts individually and directly with the acquirer, who holds the licence from the card brand and performs merchant screening and management. In this case, it is impossible to implement multiple card brands simultaneously, and merchants must take individual actions, like going through screening procedures for each card brand they wish to join, which can complicate accounting and information management.

Contract through a payment processing company

The umbrella merchant type of a payment processing company is used when it handles the contractual procedures for multiple credit card payments on behalf of the business.

Using a payment processing company reduces the administrative burden on the business side because the merchant is vetted only once.

Additionally, they offer services that unify various operational tasks, including product payment and management of disbursements, sales, and customer information. Some also introduce payment functionality, allowing you to make credit card payments from your smartphone without purchasing a specialised terminal.

For more information on the ties between operators, payment processing companies, and acquirers in merchant agreements, please refer to the Ministry of Economy, Trade and Industry’s “Relationships among entities involved in merchant agreements (tentative arrangement)”.

A credit card settlement can only be implemented with a merchant screening process through direct contracting or a settlement agent. Because of this, preparing for this well in advance is important, including checking the required documents and preparing the operating environment.

Advanced preparation required for merchant screening

To successfully pass the screening process, you need to prepare beforehand for the introduction of credit card payments. After you have understood the main items checked during merchant screening, thoroughly prepare the following:

Ensure your website is in proper working order

In addition to whether you have a web or e-commerce site, the screening will also look at whether the website is properly managed, including whether each page displays correctly and whether store information can be viewed without problems. For e-commerce sites, alongside clearly listing the products for sale and providing a cart function, clearly state information displayed under the Specified Commercial Transactions Law.

• Displayed under the Specified Commercial Transactions Law: company name, location, contact information, sales price of the goods, time and method of payment, customer costs and fees to be borne by the customer, time of delivery of the goods, whether or not the goods can be returned, and the conditions under which they can be returned.
  

Prepare various documents to be submitted

The main documents required are a company seal impression certificate, qualification documents, a permit (if a licence is needed), a copy of the registration, and bank account information for electronic transfers. However, it is necessary to confirm which documents are needed in advance, as they might differ depending on the type of business or industry. For instance, a photograph of the shop is required if it is a physical store.

Obtaining licences and permits

Licences and permits, which were briefly introduced in the article, are approvals obtained from public authorities, such as national and local governments, to conduct certain businesses. Examples include alcohol licences (restaurants), drug licences (pharmacies), and inn licences (hotels and inns). If you have a website, permit information must also be disclosed there.

Smoothly passing the merchant screening process

This article discussed the merchant screening process, an important step required to start credit card transactions. Understanding the necessary documents, other pre-screening preparations, and being well-prepared to demonstrate your business’s credibility and track record will help you pass the screening.

Furthermore, when using a payment processing company to implement credit card transaction methods, selecting one that matches the size of your business and customer base after thoroughly comparing each company’s different processing fees, service content, and security measures is advisable.

Stripe offers a variety of payment methods, including Konbini payments, bank transfers, and various credit card options. It also provides a range of transaction-related functions and services, from accepting funds to information processing and revenue management. For example, by introducing Stripe Payments, you can create a system that meets all your transaction needs on a single platform, allowing you to smoothly and easily accept customer payments.