A merchant account is established so a business can accept debit and credit card payments. Each time a transaction is processed, the card information is transmitted by a secure server to a bank. If the customer’s account contains sufficient funds, the bank authorises the payment.
The money is then transferred to the merchant account of the seller. If the funds in the customer’s account are insufficient, the bank declines the payment.
Money from processed debit and credit card payments are temporarily held in the merchant account before being transferred to the main bank account of the business. The bank charges a fee for each transaction. Fees vary based on the type of card used for payment and the transaction amount.
What Type of Credit Check is Necessary?
Major banks usually require satisfactory results of a background check, credit check, and trading history when a business applies for a merchant account.
Most credit checks have two components:
- Business credit history
- Personal credit history
You usually can obtain a merchant account if you have experienced personal credit issues in the past.
The decision will depend upon:
- Number of defaults
- Frequency of defaults
- How far back defaults extend
- Amount owed
- Whether debts have been settled
Business credit history applies to both sole traders and limited companies. The bank usually reviews the credit history of the business and each of its partners. If the business has poor credit history or does not meet the other eligibility requirements, a merchant account may be available from another source.
Popular Merchant Account Alternatives
PayPal — Though this is not strictly a merchant account, it is one of the most popular alternatives. Anyone with an email address can create a PayPal account in minutes without being subject to a credit check.
PayPal allows you to invoice customers so they pay upon receiving their bill. Your administration responsibilities are reduced because a receipt is automatically generated and sent to the customer upon payment.
Money can be submitted via PayPal at no charge. However, a fee of 1.9 to 3.4 percent of the purchase price plus 20p is imposed for each payment received. PayPal has more than 70 million registered users worldwide and is integrated into many online stores.
Nochex — This is a UK-based company that does not require registration. The fee is 2.6 percent of the purchase price plus 20p. Automated payment confirmation is provided, there are no chargeback fees, and payments are guaranteed. However, there are spending limits that could affect usability: non-members may send up to £100 per day and members may send no more than £300 daily.
Other Merchant Accounts For Bad Credit Options
Chronopay — This is one of the most popular options for bad credit. Chronopay supports most major payment options and can process most types of currency. There are no monthly charges and transaction fees are low. Free fraud screening is available.
Durango Merchant Services — This company charges relatively high fees but accepts 99.99 percent of applicants. Customer service is excellent. This could be the perfect solution if another provider is not an option.
Paypoint — A new business that has not yet developed a credit history but wants a credit card processing system may find this the best choice. Fees are in the low range and approval rates are high. Plans may be tailored to fit business needs.