Accepting credit cards and electronic payments from customers is a basic requirement for many businesses. In 2024, cash accounted for only 14% of all consumer payments in the US, while credit and debit cards accounted for 35% and 30% of payments, respectively. But setting up the necessary systems to accept these payments can be a daunting task for business owners, especially new ones.

Opening a merchant account can be complex and time-consuming, requiring business owners to provide a range of documents and undergo a thorough underwriting process. Despite these challenges, there are significant benefits to having merchant account functionality. Merchant accounts help businesses increase sales and improve cash flow and enhance the customer experience by offering more convenient payment options.

Obtaining a merchant account can go smoothly if you plan and vet your options strategically. Below is a quick guide on how to open a merchant account so you can navigate the process with confidence and ease.

What’s in this article?

• What is a merchant account?
  
• Who needs a merchant account?
  
• How to set up a merchant account
  
• Merchant account fees and costs
  
• How Stripe Payments can help
  

What is a merchant account?

A merchant account is a specialized bank account designed to hold funds from customer transactions until they are transferred to the business’s primary business account. It acts as an intermediary between the customer and the business, and the funds land in the merchant account immediately after a transaction is processed.

Banks and financial institutions that provide merchant services typically offer merchant accounts. While some of these institutions may offer hardware or software for payment gateways, many simply provide a merchant account and the business must source the remaining components from third-party providers.

Who needs a merchant account?

Most businesses that accept electronic payments, including credit and debit card payments, need a merchant account. This includes businesses of all sizes, from small, home-based businesses to large corporations.

Here are some examples of businesses that typically need a merchant account or access to merchant services through their payment processing provider:

• Ecommerce businesses: Online retailers need a merchant account to process payments from customers who purchase products on their websites.
  
• Restaurants: Restaurants and other food service businesses need a merchant account to accept credit and debit card payments from customers who dine in or order takeout, whether those orders take place in person, online, or using mobile apps.
  
• Healthcare providers: Healthcare providers, such as doctors and dentists, need a merchant account to process payments from patients who pay for services using their insurance card or credit card.
  
• Retail stores: Retail stores need a merchant account to accept payments from customers who purchase products in store using credit or debit cards.
  
• Service-based businesses: Service-based businesses, such as consulting firms, need a merchant account to accept payments from clients who pay for services using credit or debit cards.
  
• Nonprofit organizations: Nonprofit organizations need a merchant account to accept donations from supporters who make contributions online or in person using credit or debit cards.
  

The specific requirements for opening a merchant account may vary depending on the provider and the type of business, so it’s important to diligently research all available options and find the right merchant account solution for your business.

How to set up a merchant account

Before you open a merchant account, you need to set up a few foundational elements of your business. Here’s an overview of how to prepare your business, find the right merchant account for your needs, and open your merchant account:

1. Register your business

Businesses that plan to operate in the US need to register with the relevant government authorities before opening a merchant account. This involves obtaining any necessary licenses, permits, and tax IDs. The specific requirements for registering your business can vary depending on various factors, including your location and business type.

2. Get an EIN

You will also need to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). An EIN is a unique identifier assigned to your business, like a Social Security number for businesses. It’s used for a variety of banking and tax purposes.

3. Open a business bank account

Merchant accounts are not the same as regular business bank accounts. Merchant accounts are used exclusively for receiving funds from customer transactions, while regular business bank accounts can be used for a broader scope of financial and banking activities. It’s not enough to just open a merchant account—you will need to open a business bank account to receive payments from your merchant account. Choose a bank that offers the features you need, such as low fees, easy online banking, and good customer support.

4. Research merchant account providers

Next, you’ll need to choose a merchant account provider. Not all merchant account providers are the same, so it’s important to carefully research the most suitable one. Here are some factors to consider when selecting a merchant account provider:

• Fees
  Merchant account providers charge fees for each transaction, including a percentage of the transaction amount and a per-transaction fee. Some providers may also charge additional fees for setup, monthly maintenance, and other services. It’s important to carefully review the fee structure of each provider to understand the total cost of using the service.

• Processing time
  If your business relies on quick turnaround times—for example, an ecommerce store that needs to ship products quickly—it’s important to choose a provider that can process payments quickly.

• Customer support
  Look for a provider that offers multiple ways to contact customer support, such as phone, email, and chat.

• Security features
  With risks of fraud and cyberattacks, security features are critical. Look for a merchant account provider that offers strong security measures, such as encryption and fraud detection.

• Integration with your business
  Consider the ease of integrating the payment processing software with your existing systems, such as your website or point-of-sale system.

• Reputation
  Check for reviews from other businesses to see if they have had positive experiences with the provider.

Many businesses opt not to open a merchant account at all; instead, they access the functionality of a merchant account through a merchant services or payment processing provider, such as Stripe. Businesses that use Stripe to process customer payments enjoy the full functionality of a traditional merchant account without having to find, vet, apply for, and integrate with a separate merchant account.

5. Complete an application

The merchant account application form will typically ask for the following information about your business:

• Company name
  
• Company’s tax ID number (EIN)
  
• Contact information
  

Some merchant account providers may require additional information, such as which industry you’re in, your business structure, your estimated monthly processing volume, and your processing history. The application may also ask you to provide details about the types of products or services you sell and the payment methods you plan to accept. You may be asked to indicate whether you will be processing transactions in-person, online, or both.

In addition to basic business information, you may also need to provide personal information about yourself as the business owner, such as:

• Your name
  
• Your home address
  
• Your Social Security number
  

This is because the merchant account provider may conduct a credit check on you as part of the underwriting process.

When completing the application, it’s important to be accurate and thorough. Providing incorrect or incomplete information can delay the approval process and may even result in your application being rejected. It’s also important to read the terms and conditions carefully and understand the fees associated with the account, including setup fees, transaction fees, and monthly maintenance fees.

6. Provide supporting documentation

Submitting documentation and the underwriting process are important steps in opening a merchant account, as they verify the legitimacy and credibility of your business. Here is what you can expect to happen:

• Submitting documentation
  After completing the application for a merchant account, you will need to submit supporting documentation to the provider. The specific documents required may vary depending on the provider and your business type, but typically include business registration documents, bank statements, and tax returns. Make sure you submit complete documents that contain accurate and current information.

• Underwriting process
  Once the provider has received your application and supporting documentation, they will begin underwriting, which is the process of evaluating the risk associated with your business. The goal is to ensure that you are a legitimate and trustworthy business. Underwriting can take several days to several weeks, depending on the provider and how complicated or high-risk your business might be.

During the underwriting process, the provider may conduct a credit check on you as the business owner. They may also review your processing history, sales volume, and other factors to assess the risk of fraud or chargebacks. Depending on the provider, they may also contact you to ask for additional information or clarification.

The underwriting process helps protect both you and the provider from fraud and other risks. While it can be time-consuming, it’s important to be patient and provide any additional information or documentation that the provider may request.

7. Wait for approval

After you submit your application and documentation, you’ll need to wait for the provider to review your application and approve your merchant account. This process can take several days to several weeks, depending on a few factors—including the provider, the type of business, and the completeness of the application and documentation provided. Some providers offer expedited approval for businesses with good credit and a low risk profile.

Factors that may delay the approval process include:

• Incomplete or inaccurate information provided on the application
  
• Discrepancies in supporting documentation
  
• A high risk profile for the business
  
• Provider requests for additional information or documentation
  

In addition, providers may also conduct a review of your processing history, sales volume, and other factors to assess the risk of fraud or chargebacks. If your business is in a high-risk industry, such as online gambling or adult entertainment, the approval process may take longer due to increased scrutiny.

To help ensure a smooth approval process, it’s important to provide accurate and complete information on the application and to respond promptly to any requests for additional information or documentation. By being proactive and responsive, you can help speed up the approval process and get your merchant account up and running as quickly as possible.

8. Set up payment processing

Once your merchant account is approved, you will need to set up payment processing with the provider. Exactly which tools and services you will need will depend on which payment channels you’re using and whether you’re setting up payment processing for just your business or enabling payments for users on your platform. This step typically involves, at minimum, integrating payment processing software with your website or point-of-sale system.

9. Test the system

Test the payment processing system to ensure that it is functioning properly and to find any problems, before you start using it to accept customer payments. You can learn more about how to test your Stripe integration here.

10. Start accepting payments

Once the system has been tested and is working correctly, you can start accepting payments from your customers.

Merchant account fees and costs

A merchant account typically comes with certain fees that businesses should understand before committing to a payments provider. First is the transaction fee, which is often charged as a percentage of each sale plus a small flat fee per transaction. The specifics vary depending on factors such as card type, whether the transaction is in person, and the pricing model.

Beyond transaction fees, merchants may also encounter application or setup fees when opening the account, a monthly or annual gateway fee for access to the payment processing infrastructure, chargeback fees when a customer disputes a transaction, or monthly minimum fees if the merchant’s processing volume doesn’t meet a threshold set by the payments provider.

How Stripe Payments can help

Stripe Payments enables businesses to set up and accept 125+ payment methods, including ACH Credit Transfers. It provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world.

Stripe Payments can help you:

• Reconcile payments automatically: Easily reconcile ACH Credit Transfers to a specific payment or invoice with an automatic reconciliation engine that uses virtual bank accounts for each customer and tools for troubleshooting.

• Simplify refunds: Make refunds or return excess funds to the customer.

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs and Link, Stripe’s digital wallet.

• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.

• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalize interactions, reward loyalty, and grow revenue.

• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.

• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.