05 Aug Why Are Merchant Account Applications So Long?
If you are applying for a merchant account for the first time, you might be wondering just why the application is so long and why so much documentation is required by the processing bank. You might assume that getting set up to accept credit card and electronic payments will be easy, but after you look at the long list of required documents you realize that setting your business up for credit card processing will not be as easy as you might have thought. Before you can understand why banks tend to be fussy about what is collected during the application process, you must take the time to understand what merchant accounts are and the responsibility of the processing bank.
What Does the Processing Bank Do?
You do not have to understand the technical aspects of how an electronic payments is sent to understand why a processing bank needs so much information on your business. When a processing bank approves you for a merchant account, they are basically approving you for a line of credit in the amount of a payment minus the fees. The payment is automatically deposited into your account, and the processor will file a request with the card issuer to receive the payment.
The processing bank takes on the risk of an issuing bank refusing to process the payment and may have to pay back disputes up to 6 months after a payment is deposited. Because this risk is present, bank processors must verify the creditworthiness of merchants before accepting an application. This is solely to minimize the risk that the processor takes on.
Some Ways the Application Will Minimize Risk
As you are looking over an account application, there are specific document requirements that will help bank processors assess the risk of a merchant. Here is a breakdown of how specific documents required at the time of application can help the bank:
* Tax returns: 2 years of tax returns to show filing status
* Business financials: Profit and Loss statements to show 2 years worth of performance
* Prior Processing Statements: If a merchant already has an account, they must provide prior processing statements with other processors to show that payments were legitimate
Once a processor has everything they need, they will use electronic verification tools to check the applicant’s credit. The processor will also check the MATCH database to see if the business has has a terminated account in the past. If the business is located on the database or deemed to be too big of a risk to the processor, the application will be denied. As you can see, bank processors go to long lengths to verify a merchant is a legitimate merchant to protect their interests in the process of accepting credit card payments.