Merchant account – definition, functions, and benefits

When scaling a business, owners typically face rising costs, decreased productivity, and lower conversion rates. Processing payments in new markets can be complex and time-consuming. After creating a website or online store, determining the target audience, and setting up the sales channels, you should take care of ways to accept payments. This article analyzes the kinds of trading accounts, the risks associated with using them, and the types of businesses that should open them.

What is a merchant account?

A merchant account is required to accept non-cash payments through Visa, MasterCard, and other issuers. After a customer purchases a product or service, the merchant account provider holds the money before transferring it to the merchant account of the business. If there are any refunds or cancellations associated with the transaction, they are deducted before the money is transferred.

Why do you need a merchant account?

As the world becomes increasingly cashless, offer customers an alternative to cash or checks. Advantages of a trading account:

• improved cash management;
• accepting regular payments;
• increase in sales;
• reducing potential risks and losses from rejected transactions;
• increased convenience and customer satisfaction.

Features of a merchant account:

• It is required for transaction money during payment processing;
• This kind of account works with Visa, MasterCard, and other payment systems, card issuers (the customer’s bank), card processors (usually the merchant’s terminal provider);
• It is serviced by acquirers or acquiring banks;
• A merchant account has a unique seller identifier;
• It provides an additional level of security when paying by card.

Connecting a merchant account takes 2-3 business banking days from the moment the complete package of documents is submitted.

Conditions for connection:

•  the site has been created and is operational;
• have an active corporate bank account.

This type of account is linked to the seller’s corporate bank account. Client card payments are credited to the merchant account.

Risk categories of business activities

There are two risk categories:

• high risk that transactions may be returned;
• low risk, based on the assumption that the risk of returned transactions is small.

It is more difficult for businesses with a high risk of return transactions to get services from a bank. The identification and due diligence processes take longer and require a big document package.

If your business falls into this category, take advantage of expert support. Specialists will tell you how to reduce the risks of failure and get a working financial instrument

Free consultation on an offshore merchant account

Target audience

This financial instrument is appropriate for international companies, B2C, and businesses structured through foreign companies (online stores, online casinos, and online services).

What is the maintenance cost of a merchant account?

Tariff policy depends on the jurisdiction of the bank or payment system, the client’s type of activity, and the list of services they provide. 

How to open a merchant account in a foreign bank quickly?

The time needed for registration depends on the business model, type of activity, and services of the applicant. Only a legal entity that meets a number of requirements can open this type of account.

The following conditions affect the successful consideration of the application:

• The company is transparent and has an impeccable reputation;
• The company website contains up-to-date and complete information for clients;
• Services and goods are offered on the website or on international Internet platforms;
• The applicant submits a complete set of documents for the company, beneficiaries, and directors;
• There is a clear business plan.

The site must contain the following elements: an SSL certificate, the list of goods and services, the procedures for processing delivery and return of products, information about the company, contact data, and privacy policy. 

Who can get a refusal from the bank?

The compliance control departments never comment on the reasons for the refusal. However, from our experience, we can provide several examples of reasons for refusal:

• The beneficial owner of the company is reluctant to disclose the corporate structure;
• The company provides services to a certain category of persons without proper age control;
• There is no license for conducting a specific activity (Forex, gambling, stock market, online betting, bookmakers, etc.);
• The deliberate inclusion of incorrect information about the company, its owners, activities, and nature of transactions;
• The type of activity the applicant is engaged in does not comply with the policy of the foreign bank;
• The company refuses to maintain an economic presence in the jurisdiction where it is doing business;
• The submitted set of documents is incomplete;
• The documents are completed incorrectly.

Applying for this kind of banking product is not easy. A thorough analysis is necessary. You must select the jurisdiction and correctly connect the company’s bank accounts to the payment system. We advise you to use our bank Pre-Approval service.

Why do merchant accounts get blocked?

There are various reasons why an account may be blocked. Compliance procedures and requirements constantly change, so banks are forced to adapt to them.

The banks put transactions on hold in the following cases:

• A lot of payments are returned;
• The owner is misusing the account;
• Suspicious transactions have been detected.

To prevent the possibility of sudden account blocking or closure, we recommend you meticulously follow the rules of the foreign bank or payment system and provide documents to bank employees on time and after careful checking.

Online payment security

Payment security is vital for businesses that store customer information and process transactions from their payment cards.

Opening a merchant account in a reliable foreign bank or payment system will ensure compliance with PCI requirements. PCI compliance provides an array of data security standards. It mandates the tokenization of payment information and safeguards businesses by offering protective measures against fraud. The personal data and card numbers of the cardholders will be absolutely secure.

Thousands of banking and non-banking institutions offer to register such an account. But you cannot choose the first offer you come across. The risk of fraud in this business is very high. Contact our specialists to learn how to avoid possible risks. You can schedule a consultation with our experts to get a list of reliable banks and payment systems. Another way to connect to us is through the contact form on our website.