Merchant Account Set-Up

Merchant accounts are necessary to receive funds from credit card sales. The following organizations offer merchant account services:

  • Banks: Banks are secure, reliable, and provide a professional outlook for the business to the customer; however, banks come with more rules and regulations.
  • Independent Sales Organization (ISO) or Third Party Merchant Account Providers: These have fewer regulations and provide a good option for smaller businesses and start-ups with little to no credit history.
  • Merchant Service Providers: They provide merchant account facilities and take care of credit card processing.


A merchant account may have multiple associated fees, so you should select one based on expected transaction volumes. Below are some of the fees charged by banks:

  • Application Fee: Charge for applying for an account, regardless of whether the application is approved or not.
  • Setup Fee: Fee associated with establishing your account once the application has been approved.
  • Discount Rate: Percentage amount deducted from each credit card sale, which is typically 1% to 3% of the sale amount.
  • Statement Fee: Monthly charge for issuing statements on all transactions.
  • Mid-qualified & Non-qualified Rate: This rate is usually applied when AVS (Address Verification System) is not checked or card is keyed in by the merchant. It is a higher rate for transactions that don’t qualify for the discount rate.
  • Transaction Fee: Flat rate for each transaction added to the discount rate.
  • Monthly Minimum Fee: Amount charged each month regardless of level of sales.
  • Chargeback: The fee which may cost you for each false transaction. This is charged when a client disputes transaction successfully.
  • Reserve: To cover chargeback fees, some providers require you to maintain a certain amount in the account.

Instead of opening a merchant account with a bank, you have the option of using payment processing service such as PayPal, 2Checkout, or ClickBank. These typically roll merchant accounts and payment gateway together into one function.