|Opening a merchant credit card account is easier than you think-once you understand
Like ANY good business owner,
when John Greenlee's customers talk, he listens. "We were doing festivals, and
customers asked if we took credit cards," says Greenlee, who sells leather handbags
and accessories at festivals, expos and home shows. "I started keeping count, and at
six different events, [a total of 25] people asked. That's 25 customers I lost because
they didn't have cash, and I'm leery about out-of-state checks."
The solution to his problem seemed simple-establish a merchant credit card account.
Companies offering merchant status seemed plentiful, and Greenlee found one whose program
sounded good. But when he read the contract, he found some glaring omissions the sales
representative had neglected to mention: "I had to sign a four-year contract,"
he says, "and if I didn't do at least $2,500 a month in [credit card] sales, I would
have to pay an additional charge."
So Greenlee approached Pittsburgh-based Mellon Bank, where he had his personal and
business accounts. The bank asked for proof of his fictitious business name filing, a copy
of his product catalog and his return/refund policy; they also did a credit check. All
this presented no problem for Greenlee. There was only one hurdle the Glenside,
Pennsylvania, entrepreneur could not overcome-the request for two years of business tax
"I had just started my business [in May 1996] and didn't have these," says
Greenlee, who was eventually turned down. The story was the same at another bank he
Debra Rossi, senior vice president of electronic payment solutions for San
Francisco-based Wells Fargo Bank, offers insight on the denial. The first thing a merchant
needs to understand about accepting credit cards is that the bank views this as an
extension of credit, explains Rossi.
"When we give you the ability to accept credit cards, we are giving you the use of
funds before we get them. By the time the money actually arrives in the cardholder's
account, it could be another 30 days," says Rossi. There is also the real concern
that if a company goes out of business before merchandise is shipped to customers, the
bank will have to absorb any losses that might result.
When you go to a bank to open a merchant card account, there are some basic items you
should be prepared to present.
While requirements vary from bank to bank, in general a business does not have to be a
minimum size [in terms of sales]. The longevity requirement varies from bank to bank: Some
require nothing, others as much as three years.
What you will need in all cases is to provide bank and trade references, estimate what
kind of credit card or debit card volume you expect to have, and what you think the
average transaction size will be. Some banks also require financial statements.
Rossi says the bank's goal is to find out if your business is profitable and if it will
be around for a long time to come. "We approve a lot of start-up businesses, and, in
those cases, we rely on the personal financial picture of the business principals,"
says Rossi. "We look at tax returns and where they got the money to start. We'll also
look to see if you're a customer of Wells Fargo and look at your relationship with
Wells Fargo evaluates a business's product or service to see if there might be the
potential for a lot of returns or customer disputes. Other factors that will strengthen
your package in a bank's eyes, continues Rossi, include demonstrating your longevity in
the industry, presenting your marketing plan to show who your customers are and how you
will reach and sell to them, and giving your Internet address, if you have one, so
officials can check out your site.
The approval process can be a major hurdle for businesses that banks consider risky.
According to Rossi, these include companies where a high percentage of business is done by
phone or mail, as well as industries where there is a delay between the time merchandise
is paid for and received by the consumer.
While being considered a risky business is a key reason a bank may deny your merchant
card account request, the most common reason for denial is poor credit. Rossi says Wells
Fargo has established a procedure to enable otherwise qualified high-risk entrepreneurs to
obtain credit card acceptance privileges. "We approve you [provided you put up]
security such as a certificate of deposit, which you keep at the bank for one year."
WHERE TO GO
Once you understand how the merchant card approval process works, the next step is
finding a place to apply. Look for a credit card processor in your own backyard, advises
William Murray of Network Consulting Service. "Your banking relationship is what
you've got going for you if you deal with a commercial bank," says Murray, whose
Sterling, Virginia, company publishes a newsletter on the credit card industry.
If your bank, like Greenlee's, turns you down, consider independent
companies. After being turned down by two big banks, Greenlee went
to Commonwealth Bank, a 55-branch institution based in Norristown,
Pennsylvania. By this time, he was disillusioned with the whole
process and about to give up. "They told me they didn't do
merchant card processing themselves but could refer me to Credit
Card Processing Services, who did it for them. All
I needed to do was open a business account at the branch,"
In addition to proof of business ownership and a credit check, Greenlee showed his
product catalog and verbally explained his marketing plan. He got a rush approval in five
days with cheaper rates and no long-term contract.
Although he has not done a formal survey, Greenlee estimates his sales have jumped 20
percent to 25 percent since he began accepting credit cards. He thinks it's something
every entrepreneur should explore but offers these tips: "Go to a smaller bank. Also
have a game plan; don't go into it half-cocked."
Rossi stresses remembering the process is an extension of credit. Even if they don't
ask for it, give the bank your financial and marketing information, and make sure your
product has good or proven selling potential.
If you can pull all these pieces of the puzzle together into an attractive financial
package, then it's just a matter of time until you hear the two words that will bring a
smile to your face: "Charge, please."