Types of Payment Processors

Steps to Obtaining Merchant Services

For Traditional Processors, High Risk Processors and Co-Processors

In order to be accepted to use traditional payment processing services, you generally need three things:

1. A business entity (usually an LLC) registered in your location of residence 

   • (OR registered in a state like Delaware that has excellent privacy rules, if you want extra anonymity)

2. A business checking account

3. A physical mailing address that can be used in public records and on receipts

A few other things you may need:

• For US residents, a free tax ID is helpful in protecting your identity

• For the more “advanced” services, you may need 3-6 months of payment records

• For most services, you’ll need proof of identity and residence. And an ability to explain what you’re selling

• For High Risk Processors, you will need documentation of compliance with age verification laws.

The biggest barrier to entry for all of these services is the mailing address. There are two places where it’s needed:

1. First, when registering the LLC, there must be a name and address of a “Registered Agent,” who receives the annual business registration notice. This can be a person or a business. It’s very often NOT the owner

2. Second, in order to sell anything as a merchant, your receipts must include an address

It’s important to address both of these address problems. Here are some options to handle both at once:

1. Local accountants. Registering business names and receiving mail for clients is a standard service offered by most accountants. You may find the best overall price by going through someone small and local. If you pay an accountant to register an LLC for you, most will let you use their business name and address as your Registered Agent. If you ask nicely (maybe by promising to see them for your end of year taxes) they may also let you use their business office address for listing on your merchant receipts and receiving account statements, as well. Even if they charge a fee for receiving mail, this is often the cheapest overall option

2. Business Registration Services. There are companies that specialize in registering LLCs on your behalf. They will usually list themselves as your registered agent as part of their standard service. Or they may charge extra for an “anonymity” service or mail forwarding package. When using one of these services, it’s very important to find one that has a physical presence in your locality. Many of the online services will NOT. These companies may or may not allow you to use their address as your business address for the purpose of receipts and account statements. Make sure to find out. Attorneys often offer this service as well, and occasionally businesses that specialize in this service will actually be listed as a law firm

3. Do-It-Yourself. A mail forwarding service that gives you a physical address like UPS or iPostal1 (NOT a PO box,), can be used to solve all of the address problems at once. This is also useful if you ship physical products and may occasionally have returns. While this is a great overall solution for the address problem, you still need the name of a person or business as the registered agent. There are a few options for this:

   1. Find a friend or family member who is willing to list their name as your agent

   2. Find a small accountant, potentially one that works out of their home, to have them file for you. Having your own forwarding address makes the “family and friends” option much more feasible. For example, a tax accountant who specializes in only doing end of year filings may not be comfortable using their home address as your registered agent address. But they may be very willing to use their business name. This is one of the cheapest options if you can make it work

   3. Depending on your state, it might be practical to simply create your own registered agent company. For example, the registered agent for Beast.Industries Ltd. Co. is BFI PMT LLC. (And vice versa.) In my case, registering two LLCs was cheaper than paying a company to let me use their name. But this will vary greatly. Also note that there is an annual filing fee after the first year, which is generally much lower than the initial fee. The average registration fee in the US is around $100.00, with an annual filing fee around $45.00

   4. Use the buddy system. BFI PMT LLC is the registered agent for a few good local friends of mine

The process of actually registering an LLC is quite simple. With most states in the US, it’s only a 20 minute application, where a certificate is issued immediately. US residents should also file for a Federal Tax ID/EIN after the LLC registration is complete. This takes only 15 minutes on the IRS website and is free and instant. This tax ID can be used in place of your social security number. This is important because card processors keep a central database of  who they consider “High Risk.” And if you manage to get yourself put into that category, it’s better to have that on an EIN than on your SSN. It also helps with the conversation with the bank, which is the next step

If you aren’t an outgoing person, this next step will be the hardest. You need to walk into a local bank or credit union, and ask to open a new business checking account. In addition to some mandatory paperwork and your ID, it will help to bring some “props:”

1. A printout of the LLC filing and EIN paperwork

2. A paper check issued to your new business name, for the minimum deposit required to open an account

3. A business card (You can get a box at Staples for under $20.00. And it will help a ton in situations like this)

Those three items given to your banker will do most of the talking for you. They will ask questions about your business, who your clients are, and how they pay you. You will want to focus on the fact that your clients pay you directly, for products or services that you provide. You do not need to give precise details about what you do or what you sell, but you do need to be able to explain it in general terms. If they start to pry, it might be that they suspect that you are moving money for third parties (p!mp!ng,) or engaging in some other sort of financial service. Emphasize again that you provide direct products or services to your clients, and they pay you directly. You may find this easier to do at a bank where you already do your personal banking, or one where you don’t already have an account. Don’t be afraid to look around, as fees will vary, and not all will specialize in working with small businesses. Check out credit unions, too

Keep the paperwork that the bank gives you handy, as you will need it for your payment processor. Even if they don’t ask, you should provide it to the processor during the application process, to give yourself legitimacy and get fewer questions asked

Make sure to look at the fee schedule for your new account. Business checking accounts are generally a lot more free and loose with things like overdrafts, but might also charge high fees for that. Most business checking accounts in the US will charge an account maintenance or “withdrawl analysis” fee of around $10 per month for any month where you don’t meet a certain minimum balance. (This is how many personal checking accounts used to be in the US. They are a little more old school with business checking) 

The LLC paperwork, EIN paperwork, and business checking setup documents are your ticket to accessing merchant services. Credit card “co-processors” like Square and Stripe will not need anything else other than this paperwork and your ID to set up an account and get processing immediately. Standard merchant processors like WePay through JP Morgan Chase may ask you for 3 months of statements from a co-processor like square. AND, your local bank may allow you to access merchant services through their partner provider after simply holding your account in good standing for 6 months

In any case, you should always try to maintain more than one payment processor. The Key Concepts section on the Werk.Baby website goes into detail to explain the difference between traditional card processors, co-processors, high risk processors, fan sites, and wishlist sites. It also explains some best practices to avoid getting labeled as “high risk,” which is the problem that continually gets our favorite adult websites shut down

Note that I’m using terms that apply specifically to US residents, but the general procedures here are virtually identical in many other countries. In almost all cases, you will have to obtain some sort of registration from your local government to transact business. Often the fastest and cheapest way to handle this is directly through the government website. If you need assistance, the best place to look is a local accounting professional, and not an online source. And having the proper paperwork ready when you approach the bank makes the conversation easier

To give you an idea of how my own business registration looks, this is how the contact information for Beast.Industries appears on my receipts and in state records:

Beast.Industries Ltd. Co. ℅ BFI PMT LLC

606 W Wisconsin Ave, Ste 202 #1207

Milwaukee , WI 53203 • 608-888-9898