Why a Social Security Number is Required for a Merchant Account
A common question among business owners looking to obtain a merchant account with Maverick is the requirement for a social security number when applying for a merchant account. Some merchants, who may have had accounts with their current processor for a number of years, are skeptical of the regulation which came into play in 2001 after September 11th. Unfortunately, the need for a social security number is a Federal requirement in most cases when opening a merchant account, which is a powerful financial instrument. It is also used heavily for underwriting.
Under Section 326 of the USA PATRIOT Act, rules come into play for the identification of a business owner. Merchant accounts, through their very nature, are used to send and receive money through a network of financial institutions, including banks and processors. Card transactions makes it possible to move money from one place to another quickly. Therefore, merchant accounts fall under the same restrictions and “know your customer”, also known as KYC, reporting requirements as bank accounts. Since merchant services involve parties who may not ever have a face-to-face relationship, a higher level of identification is the order of the day.
While very few business owners would even consider using their credit card terminal to launder money or finance illicit activities, the law recognizes the potential for such action. On our end, there is a legal need to verify you as the owner of the company, who is authorizing the creation of a new merchant account. The upshot of this requirement is that it helps prevent others from opening a merchant account under your business name without your knowledge. This reduces the potential for fraud, embezzlement, and huge tax problems.
Because Federal Law mandates the need for a federal identification number in order to open a merchant account, any processor and its associated banking network must have this information to complete an application. Unlike a normal bank account (which also requires social security numbers) a merchant account is tied to a series of financial institutions, all the way up to Visa/MasterCard. Every account application has to be vetted by acquiring banks and underwriters, which are bound by various federal rules.