A merchant account is the connection between your business bank account and the credit card networks. When a customer swipes a card, the money moves through this account before it arrives at your bank. Setting one up seems like it should be straightforward: apply, get approved, start processing.
What makes merchant accounts surprising is that approval is not a government process at all. There is no federal license, no agency that issues permission, no regulator who reviews your application. The bank decides, using its own underwriting standards, inside the private rules that Visa and Mastercard write into their contracts with banks.
This matters because it means two things. First, the legal rules are the same for a U.S. person and a non-resident. Second, the practical rules are not. Banks apply stricter underwriting standards to non-residents even though no law requires them to.
What the law actually requires
We looked for a federal rule that sets standards for who may open a merchant account. There is none. The two federal rules that come closest are about something else.
16 CFR § 310.3(c) is part of the FTC's Telemarketing Sales Rule, and it bans what the FTC calls credit card laundering. The text prohibits a merchant from depositing into the card system "a credit card sales draft generated by a telemarketing transaction that is not the result of a telemarketing credit card transaction between the cardholder and the merchant." In plain terms: you cannot run someone else's sales through your merchant account. The same paragraph also bans causing a merchant to do this, and bans getting access to the card system through an affiliation with a merchant when the merchant agreement does not authorize it. Two limits matter. The rule applies only to telemarketing transactions, and it says nothing about who may open an account.
12 CFR Part 235, called Regulation II, is the Federal Reserve's rule implementing the Durbin Amendment, which Congress passed in 2010. It is a fee rule, not an approval rule. Under 12 CFR § 235.3, an issuer's interchange fee on a debit transaction may be no more than 21 cents plus 5 basis points (0.05%) of the transaction value. Under § 235.4, the issuer may add up to 1 cent more if it meets fraud-prevention standards. Under § 235.5, issuers with assets under $10 billion are exempt from the cap. This affects what you pay to process a card. It does not govern whether you can open an account.
Beyond these, there is no federal law that sets approval criteria for merchant accounts.
Instead, Visa and Mastercard publish their own network rules, which are contract terms that bind every acquiring bank that wants to process their cards. These are not laws and they are not in the CFR. They describe the compliance checks and monitoring that banks must run. A bank that ignores them can be fined by the network or lose its registration to process.
In 2023, the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation issued joint guidance called "Interagency Guidance on Third-Party Relationships: Risk Management." This guidance describes supervisory principles that banks should follow when they work with payment processors and other third parties. But this guidance is written to banks, not to merchants. It tells banks what risk-management practices they should adopt. It does not create approval standards that merchants must meet.
🇺🇸 If the IRS counts you as a U.S. person
You apply for a merchant account with a bank, credit union, or payment processor. The bank reviews your application using its own underwriting standards, which it sets inside the card networks' rules.
Here is what the bank typically looks at:
- Business identity. The bank wants to see that you have a real business. This usually means documentation: a business registration, a domain name, or a record of sales.
- Processing history. If this is not your first account, the bank checks whether you have processed payments before, and whether that history is clean. A high chargeback rate (disputes filed by customers) or previous terminations will work against you.
- Financial risk. The bank looks at your bank statements and credit history to decide whether you are likely to disappear or cause them to lose money.
- Type of business. Some industries are considered higher risk. The bank may require more documentation or charge higher fees.
None of these standards are written into law. The bank sets them, inside the card networks' rules.
The bank also screens you against sanctions lists, because the bank is the one that has to comply with U.S. sanctions and anti-money-laundering law. That obligation runs to the bank, not to you.
🌏 If it does not
The legal standard for approval is the same, because there is no legal standard for approval. The same card network rules apply to your bank.
But in practice, banks apply stricter interpretation of those standards. The reason is that non-residents pose higher operational risk: they are harder for the bank to monitor, harder to reach by phone or mail, and harder to pursue if a dispute arises.
As a result, non-residents often encounter additional requirements:
- U.S. bank account. Most acquirer banks will not open a merchant account for someone who does not have a bank account in the United States. Some will allow it if you are opening a U.S. bank account at the same time. Others simply decline.
- U.S. business address. Many banks require a street address (not a mailbox) inside the United States. A virtual office address is often rejected. Some banks accept a registered agent's address.
- U.S. representative. Some banks require you to name a person who is a U.S. resident and can sign documents and handle disputes.
- Stricter review. Some banks scrutinize non-residents more heavily: they may ask for additional business documentation, proof of U.S. customers, or explanation of why you are processing in the United States.
These are not legal requirements. They are business policies adopted by individual banks or payment processors. They vary from one bank to another, and they can change.
Where the real difference shows up
This is the table that matters. Both groups follow the same legal rules. But the practical requirements differ sharply:
| What you need | 🇺🇸 U.S. person | 🌏 Not a U.S. person |
|---|---|---|
| Federal law approval | No such thing | No such thing |
| U.S. bank account | Routine | Commonly required by the bank |
| U.S. business address | Routine | Commonly required; virtual offices often rejected |
| U.S. representative or signatory | Not required | Sometimes required by the bank |
| Underwriting scrutiny | Standard | Typically stricter |
| Chance of decline | Lower | Higher |
We do not publish an average approval time. Banks and processors do not disclose one, and any figure we could give you would be invented.
The bottom line: the law does not distinguish between you. The bank does.
Common mistakes
🇺🇸 If the IRS counts you as a U.S. person
- Thinking a merchant account is a government license. It is not. Approval comes from your bank, using private underwriting standards.
- Assuming that because the legal rules are the same everywhere, the practical rules are too. Some banks decline certain industries or refuse customers with low credit scores, and these decisions vary.
- Waiting for a merchant account that will let you process high-risk categories (gambling, adult content, third-party sellers) without shopping around. Different processors have different tolerances.
🌏 If it does not
- Assuming you can open a merchant account without a U.S. bank account. Many banks will require one, though some payment processors are more flexible.
- Using a mailbox or PO box as your business address. Banks almost always reject this. A virtual office address is often rejected too, though you may find processors that accept it.
- Applying through a single bank and giving up if declined. Different banks and payment processors have different criteria. It is worth asking multiple acquirers.
- Leaving the card network rules to chance. Visa and Mastercard publish their rules. Your merchant agreement passes many of them down to you, even though your bank is the party the network contracts with.
FAQ
Is there a government agency that approves merchant accounts?
No. There is no federal license for merchant accounts. Approval is entirely a private matter between you and the bank or payment processor. The government does not review applications or issue permission.
Which federal rule comes closest to regulating merchant accounts?
16 CFR § 310.3(c), part of the FTC's Telemarketing Sales Rule. It bans credit card laundering: depositing into the card system a sales draft from a telemarketing transaction that was not a transaction between the cardholder and you. It applies only to telemarketing, and it is a conduct rule, not an approval rule. It does not say who may open an account.
Can a payment processor require a U.S. address if I am not a U.S. person?
Yes. We found no federal rule that forbids it. The processor's own risk policy sets the standard, and it is free to set it where it likes.
What if my merchant account is terminated?
If the bank terminates your account, your recourse is whatever your merchant agreement gives you. Banks have broad contractual freedom to decline or terminate. The outer limit is general law, not banking law: 42 U.S.C. § 1981 gives all persons in the United States the same right to make and enforce contracts, including the termination of contracts.
Termination can also follow you. The industry keeps a database of merchants terminated for cause, the Member Alert to Control High-Risk Merchants (MATCH) list, which the OCC names in its Merchant Processing handbook for banks that do merchant processing. Being on it makes approval elsewhere harder.
Can a non-resident open a merchant account?
Yes, but it is usually harder. Many banks require a U.S. bank account, U.S. address, or U.S. representative. Some payment processors that work with international businesses have more flexible standards. It is worth contacting multiple processors to compare their requirements.
What if I am processing through a third-party seller platform like Amazon or Stripe?
You usually do not open a merchant account yourself. The platform holds the merchant relationship with an acquiring bank, and you process as a sub-merchant under it. The platform is not the acquirer. The acquirer is still a bank. What changes is who underwrites you: the platform does, using its own standards, and those vary widely.
Does my credit score affect merchant account approval?
Possibly. The bank will usually review your personal credit history and your business financial history as part of underwriting. However, there is no legal minimum credit score. Different banks have different thresholds.
Can I be denied a merchant account because of my industry?
Yes. Banks make business decisions about which industries they will serve. Some avoid certain categories (adult content, gambling, firearms, high-chargeback businesses) as a matter of policy. Your industry is not a protected characteristic, so the usual anti-discrimination statutes do not reach the decision.