Setting up a merchant account is a foundational step for businesses that want to accept debit or credit card payments online or in-store. Whether you’re launching an eCommerce store, a subscription-based service, or a brick-and-mortar shop, choosing the right merchant account can directly affect your payment processing efficiency and cash flow.
Yet, many businesses rush through the setup or underestimate the process, leading to costly mistakes such as unexpected fees, rejected applications, delayed approvals, or even account suspension. This blog will help you identify the most common mistakes when setting up a merchant account, explain their consequences, and offer practical tips to avoid them. Let’s make sure your payment system is built on a solid foundation.
Why Getting a Merchant Account Right Is So Important
The Role of a Merchant Account in Modern Payments
A merchant account is a type of business bank account that enables companies to accept payments via credit and debit cards. When a customer makes a payment, the money first goes into the merchant account before being transferred to your business bank account, typically within 1–2 business days.
In the modern payment ecosystem, a merchant account acts as a bridge between the customer’s card issuer and the business’s bank, handling authorization, clearing, and settlement. Without a properly configured merchant account, your business may face processing delays or compliance issues.
What Happens If You Set It Up Incorrectly?
Mistakes during setup can trigger a range of problems:
- Delayed or denied applications from payment processors
- Higher processing fees due to incorrect risk classificatio
- Chargeback issues and financial penalties
- Account suspension if terms are violated
- Reputational damage with customers or banks
Avoiding these issues means taking a strategic, informed approach from the start.
“An incorrectly set up merchant account can increase your chargeback ratio, which not only costs money but may also cause search engines and review platforms to flag your site for poor customer experience.”
Top Mistakes Businesses Make When Setting Up a Merchant Account
1. Not Understanding Your Business Type and Risk Profile
Merchant service providers assess the risk level of your business based on your industry, processing history, product type, and chargeback potential. High-risk businesses—like CBD, adult content, travel, or crypto—often face higher scrutiny and fees.
Mistake: Assuming all merchant accounts are the same or not disclosing your business category.
Solution: Be transparent and work with a provider experienced in your industry. High-risk merchants should seek specialized high-risk merchant account providers.
“High-risk businesses typically face higher reserve requirements, higher fees, and stricter compliance rules. Providers like PaymentCloud, Durango Merchant Services, and eMerchantBroker specialize in these sectors. Knowing this helps you choose the right provider without surprises.”
2. Choosing the Wrong Merchant Account Provider
Selecting a provider solely based on low transaction fees or fast onboarding can backfire if the provider lacks proper support or robust infrastructure.
Mistake: Prioritizing cost over long-term reliability.
Solution: Compare providers based on:
- Reputation and reviews
- Industry specialization
- Customer support availability
- Settlement time and fraud protection tools
3. Ignoring Fee Structures and Hidden Costs
Many businesses get blindsided by charges they didn’t anticipate: setup fees, monthly minimums, PCI compliance fees, or early termination penalties.
Mistake: Not reviewing the full fee schedule or understanding pricing models.
Solution: Ask for a transparent breakdown of:
- Interchange rates
- Markup fees (e.g., percentage markups or per-item fees)
- Monthly and per-transaction fees
- Chargeback and refund fees
Prefer providers that use interchange-plus pricing for transparency.
4. Providing Incomplete or Inaccurate Information
Applications with incorrect or missing information can cause significant delays or rejections.
Mistake: Rushing the application or using outdated business details.
Solution: Double-check:
- Business registration documents
- Bank account information
- Website URL and product descriptions
- Estimated monthly sales volume
Have tax ID numbers, bank letters, and proof of address ready.
5. Overlooking Payment Gateway Compatibility
A payment gateway facilitates the secure transmission of card data to the merchant account. But not all gateways are compatible with all merchant accounts.
Mistake: Assuming any gateway will work with your account.
Solution: Confirm integration options before signing:
- Does the merchant account provider offer a built-in gateway?
- Can it integrate with your eCommerce platform (e.g., Shopify, WooCommerce)?
- Is it compatible with mobile or POS systems?
Example: Shopify merchants often prefer providers with native Stripe or PayPal integration to ensure seamless checkout experiences.
6. Failing to Set Up Fraud Protection Measures
Security is critical, especially for online transactions where fraud risk is higher.
Mistake: Leaving fraud settings at default or ignoring compliance tools.
Solution: Enable fraud tools like:
- Address Verification System (AVS): Confirms the billing address matches cardholder records.
- Card Verification Value (CVV): Ensures the customer has the physical card by requiring the CVV number.
- 3D Secure authentication: Adds an extra layer where customers must verify their identity with their bank during checkout (e.g., Verified by Visa, Mastercard SecureCode).
- Chargeback prevention systems
Note: Increasing online fraud means these tools are essential, particularly for cross-border payments and digital goods.
7. Not Reading the Merchant Account Agreement Carefully
Many important terms are buried in the fine print, from reserve fund requirements to termination clauses.
Mistake: Signing the agreement without reading or understanding it.
Solution: Watch for:
- Rolling reserves: A portion of your sales held back as a security deposit, often released after a defined period.
- Early termination fees
- Payout frequency
- Chargeback liability
Ask questions if any term is unclear, and don’t hesitate to request changes.
Related Reads: How to Choose the Best Merchant Account for Your Business
How to Avoid These Merchant Account Setup Mistakes
Work with Reputable Providers and Consultants
An experienced provider can guide you through setup and compliance.
Tips:
- Ask for case studies or client references
- Ensure 24/7 customer service availability
- Check Better Business Bureau and Trustpilot ratings
- Consider providers with experience in your geographic market (e.g., if in India, ensure compliance with RBI regulations and popular payment gateways like Razorpay or PayU).
Compare Offers Based on Features, Not Just Pricing
Low-cost options may lack essential tools or have poor support.
Features to prioritize:
- Real-time dashboards and analytics
- Easy refunds and recurring billing
- Industry-specific features (e.g., ticketing, invoicing)
- Developer APIs for custom integration
- Chargeback analytics and reporting
Ensure PCI Compliance and Security Upfront
Being PCI DSS compliant is mandatory if you store, transmit, or process cardholder data.
Checklist:
- Choose a provider that assists with PCI compliance
- Use tokenization and encryption
- Perform regular vulnerability scans
For more details, see our PCI Compliance Guide.
Bonus Tips for a Smooth Merchant Account Application Process
- Prepare all documents in advance to prevent delays.
- Provide honest estimates for sales volume and ticket size.
- Have a refund policy clearly stated on your website.
- Ensure your website is live and professionally designed—it’s often reviewed during application.
Consider printing this as a downloadable application checklist to stay organized.
Final Thoughts: Get Your Merchant Account Right from the Start
Setting up a merchant account isn’t just a technical step—it’s a business-critical decision that can impact your revenue flow, customer trust, and legal compliance. Avoiding common mistakes means investing the time to research, plan, and partner with the right providers.
Whether you’re a startup or an established brand, taking the right steps now will ensure secure, smooth, and scalable payment processing in the future.
Call to Action: Need help choosing the right merchant account? Explore TheFinRate’s expert-rated merchant account providers [here].
Key Takeaways
- Understand your business risk profile and choose a suitable provider.
- Always review fee structures and watch out for hidden costs.
- Ensure your payment gateway is compatible with your merchant account and platform.
- Implement strong fraud prevention tools like AVS, CVV, and 3D Secure.
- Read and understand all contract terms before signing.
- Work with providers experienced in your industry and geography.
- Maintain PCI compliance and prioritize security from day one.
FAQs
- What documents are required to open a merchant account?
You’ll typically need a business license, bank account details, identity proof, and processing history. High-risk businesses may need additional documentation. - How long does it take to get approved for a merchant account?
Approval can take anywhere from 1–7 business days, depending on your business type and documentation completeness. - Can I switch merchant account providers later?
Yes, but check your contract for termination clauses and data migration processes. - What is the difference between a payment processor and a merchant account?
A merchant account holds the funds from card transactions before deposit, while a payment processor handles the data transmission and transaction approval process. - What happens if my merchant account gets suspended?
Account suspension can halt your payment processing and damage your reputation. Quickly contacting your provider and resolving the issue is critical. - Can I have multiple merchant accounts for different business models or geographies?
Yes, many businesses maintain multiple accounts to manage different product lines or operate internationally.