How to Set Up a Merchant Account (Without Losing Money or Your Sanity)
If you’re launching a business and need to accept credit card payments, setting up a merchant account is a key step. But between confusing fees, hidden requirements, and shady providers, it’s easy to feel overwhelmed.
This guide walks you through what a merchant account is, how to set one up, how to compare providers, and how to avoid common mistakes that cost businesses time and money.
What Is a Merchant Account?
A merchant account is a special type of bank account that holds funds from credit and debit card transactions. Once approved, those funds are briefly held before transferring to your business bank account.
Merchant accounts often work in tandem with:
- Payment Gateways: Authorize transactions (e.g., Authorize.net)
- Payment Processors: Move money between customers and merchants (e.g., Fiserv, Stripe)
Some services like Stripe, Square, and PayPal bundle all three functions into one.
đź’ˇ Quick Note: If you’re using Shopify, Stripe, or Square, you’re technically not getting a standalone merchant account — but you are getting a turnkey solution that functions like one.
Step-by-Step: How to Set Up a Merchant Account
1. Determine Your Business Type & Risk Profile
Providers classify businesses by risk level:
- Low-Risk: Retail, restaurants, digital services
- High-Risk: CBD, adult, coaching, travel, firearms, subscription boxes
Your classification affects approval odds, fees, and funding timelines.
2. Choose the Right Type of Provider
| Provider Type | Best For | Example Providers |
|---|---|---|
| All-in-One Platforms | New/small businesses | Stripe, Square, PayPal |
| Traditional Merchant | Established or scaling brands | Chase, Elavon, TSYS |
| High-Risk Specialists | Regulated or chargeback-prone | PaymentCloud, Durango |
3. Gather Required Documentation
You’ll typically need:
- EIN or SSN
- Business license or incorporation documents
- Business checking account
- Website with a privacy policy and terms
- Processing history (if switching)
4. Apply and Complete Underwriting
For traditional providers:
- Approval may take 3–10 days
- Expect credit checks and site reviews
For platforms like Stripe or Square:
- Instant setup, but may freeze funds with suspicious activity
🧠Real-World Example: Jane runs an online pet supply store. She signs up with Stripe, enters her EIN and bank details, and starts accepting payments in 10 minutes. A high-risk supplement company wouldn’t be so lucky.
5. Connect to Your Storefront or POS
Use plugins or integrations to connect your merchant account to Shopify, WooCommerce, Wix, or physical point-of-sale (POS) systems.
Merchant Account Fees: Know Before You Commit
| Fee Type | Description |
| Setup Fee | One-time fee to create the account |
| Monthly Fee | Charged regardless of sales |
| Transaction Fee | % + flat fee per sale (e.g., 2.9% + 30¢) |
| PCI Compliance | Annual fee for maintaining security standards |
| Chargeback Fee | Fee for disputed transactions |
| Termination Fee | Charged if you exit the contract early |
🔎 Tip: Always request a full fee schedule before signing.
Best Merchant Account Providers (By Category)
âś… Small & Low-Risk Businesses
- Stripe – Great developer tools, transparent pricing
- Square – Ideal for retail and local service businesses
- PayPal Business – Easy setup, but slightly higher fees
🏛️ Traditional Merchant Accounts
- Chase Payment Solutions – Strong support, trusted name
- Elavon – Excellent for healthcare and hospitality
- TSYS (now Global Payments) – Enterprise-ready with custom options
⚠️ High-Risk Merchant Accounts
- PaymentCloud – Excellent onboarding and support
- Durango Merchant Services – Transparent terms for high-risk niches
- Soar Payments – Caters to firearms, coaching, and more
Merchant Account vs. Payment Gateway: What’s the Difference?
| Function | Merchant Account | Payment Gateway |
| Purpose | Holds and transfers money | Authorizes credit card data |
| Required? | Yes (unless using Stripe/Square) | Yes for online transactions |
| Example | Chase Merchant Account | Authorize.net, NMI |
Some businesses use both separately; others (like Shopify Payments) get both in one place.
Avoid These Common Merchant Account Mistakes
- ❌ Signing up without understanding your industry’s risk level
- ❌ Skipping fee comparisons
- ❌ Choosing a provider that doesn’t integrate with your store
- ❌ Ignoring fraud prevention and chargeback tools
- ❌ Overlooking contract length and termination clauses
Frequently Asked Questions
Can I get a merchant account as a sole proprietor?
Yes. Many providers accept SSNs and basic licensing info.
Is Stripe a merchant account?
Not exactly. Stripe combines a processor, gateway, and pseudo-merchant account into one platform.
How long does it take to get approved?
Third-party tools = instant. Traditional accounts = 1–10 days.
What if I’m in a high-risk industry?
Use a specialist like PaymentCloud, Soar, or Durango. Don’t use Stripe/PayPal or you may get banned.