To accept major credit cards from customers, your business mustestablish merchant status with each of the credit card companieswhose cards you want to accept. You’ll probably want to start byapplying for merchant status with American Express or Discover. Forthese cards, all you need to do is contact American Express orDiscover directly and fill out an application.
However, chances are you’ll want to accept Visa and MasterCard,too, since these cards are used more frequently by consumers. Youcan’t apply directly to Visa or MasterCard, however; becausethey’re simply bank associations, you have to establish a merchantaccount through one of several thousand banks that set up suchaccounts, called “acquiring banks.”
The first thing you need to understand about accepting creditcards is that the bank views this as an extension of credit.There’s also the real concern that if your company goes out ofbusiness before merchandise is shipped to customers, the bank willhave to absorb losses.
While the requirements vary among banks, in general a businessdoes not have to be a minimum size in terms of sales. However, somebanks do have minimum requirements for how long you’ve been inbusiness. This doesn’t mean a startup can’t get merchant status; itsimply means you may have to look a little harder to find a bankthat will work with you.
While being considered a “risky business”–typically a startup,mail order or home based business–is one reason a bank may denyyour merchant status request, the most common reason for denial issimply poor credit. Approaching a bank for a merchant account islike applying for a loan. You must be prepared with a solidpresentation that will persuade the bank to open an account foryou.
You will need to provide bank and trade references, estimatewhat kind of credit card volume you expect to have and what youthink the average transaction size will be. Bring your businessplan and financial statements, along with copies of advertisements,marketing pieces and your catalog, if you have one. If possible,invite your banker to visit your store or operation. Banks willevaluate your product or service to see if there might be potentialfor a lot of returns or customer disputes. Called “charge-backs,”these refunds are very expensive for banks to process. They aremore common among mail order companies and are one reason why thesebusinesses typically have a hard time securing merchant status.
In your initial presentation, provide a reasonable estimate ofhow many charge-backs you will receive, then show your bank why youdo not expect them to exceed your estimates. Testimonials fromsatisfied customers or product samples can help convince the bankyour customers will be satisfied with their purchases. Another wayto reduce the bank’s fear is to demonstrate that your product ispriced at a fair market value.
The best place to begin when trying to get merchant status is byapproaching the bank that already holds your business accounts. Ifyour bank turns you down, ask around for recommendations from otherbusiness owners who accept plastic. You could look in the YellowPages for other businesses in the same category as yours (homebased, retail, mail order). Call them to ask where they have theirmerchant accounts and whether they are satisfied with the way theiraccounts are handled. When approaching a bank with which you haveno relationship, you may be able to sweeten the deal by offering toswitch your other accounts to that bank as well.
If banks turn you down for merchant status, another option is toconsider independent credit card processing companies, which can befound in the Yellow Pages. While independents often give the bestrates because they have lower overhead, their application processtends to be more time-consuming, and startup fees are sometimeshigher.
You can also go through an independent sales organization (ISO).These are field representatives from out-of-town banks who, for acommission, help businesses find banks willing to grant themmerchant status. Your bank may be able to recommend an ISO, or youcan look in the Yellow Pages under “Credit Cards.” An ISO can matchyour needs with those of the banks he or she represents, withoutrequiring you to go through the application process with all ofthem.
