Can You Accept Credit Cards Online Without a Merchant Account?

Credit cards really do make the world go round. Whether you’re shopping online, dining in a restaurant, or booking a flight – swiping your credit card gives you the product or service you desire – very quickly. 

Likewise, if you’re selling goods through an online store, or building a Web-based service business, you want to make it easy for your customers to purchase what you offer. From that perspective, your customers’ credit card orders really are the lifeblood of your business.

To get those credit card funds flowing into your company, you must set up a merchant account to receive them. You must also work with a payment processing provider, a business that interfaces with the customer’s bank and (ideally) gets a green light for the payment. 

When the payment goes through, the payment processor deducts the transaction fees and routes the remaining funds to your merchant account. In most cases, this entire process is completed within seconds, and both parties get the desired result.

But to get your own merchant account, you need to go through an application and underwriting process, which can take days, even weeks to complete. And depending on the nature of your business and finances, there is a chance that your application will be declined. 

In the event that you’re unable to get a merchant account, will you still be able to take credit card payments? The short answer is yes. Read on below to learn more about how to do it.

How to accept credit cards without a merchant account

You can still accept credit cards online without a merchant account. To do that, you engage the services of a third-party payment processing provider. Essentially, these companies process multiple customers’ credit card payments and funnel the proceeds into one single merchant account. 

After deducting your transaction processing fees, they route your business’ net funds to your business bank account. This transfer generally occurs within one to two days after each credit card transaction. Third-party payment providers include PayPal, Square, and Stripe, among others.

Pros of not using a merchant account

Easier Sign-up Process

If you’re looking for a streamlined account sign-up process, you’ll likely find it with a third-party payment processing provider. You won’t need any extensive documentation, and the lead time will be mercifully short. Best of all, after completing your account set-up work, you can quickly begin to accept credit cards online without a merchant account.

Simplified, Understandable Fee Structure

By using a third party payment processing provider, you’ll pay a standard transaction fee that often varies with the transaction type. Just note that the fee will likely be a bit higher than you’d encounter with a bank-based merchant account. 

The good news? You likely won’t have to deal with a set-up fee, monthly service fee, Payment Card Industry (PCI) fee, security fee, refund fee, or early contract termination fee. 

No Long-Term Contracts

Working with a payment processing provider means you’ll deal with some form of contractual structure. However, you won’t be stuck with a long-term contract that locks you in even if your business needs change. If you decide to cancel the contract, that’s generally a simple online process. 

In contrast, bank-based merchant account terms typically require you to sign a long-term contract (generally for three years). The contract likely includes an automatic renewal provision that extends the contract for another year. And, if you close the account early, you’ll pay a hefty termination fee. 

The cons of not using a merchant account

Less Rate Flexibility

A payment processing provider’s one-fee rate plan can be a blessing and a curse. If your business doesn’t process many transactions, you won’t be penalized for generating a lower business volume. 

However, the opposite is also true. A business with more customer transactions won’t receive any savings from its increased business volume. In that case, a dedicated merchant account with rate plans catering to higher-volume businesses would be a better choice.

Service Interruptions or Cancellations

Payment processing providers often accept higher-risk business clients that wouldn’t qualify for a bank-based merchant account. That translates into increased risk for the payment processor. If your business falls into that category, you’re more likely to experience an account hold for certain transactions. 

When the payment processor decides they no longer want to assume that higher risk, they can simply cancel your account. Now, you’re scrambling to find another payment processing service before your customers take their business to a competitor.

Questionable Customer Service

If you want 24/7 customer service that solves your immediate problem, a payment processing provider might not be the best choice. Yes, the payment processor might offer online chat and/or telephone service during certain hours. However, the customer service representatives may not be available when your system goes haywire at 2 a.m. 

Even if you reach someone, you might not get the resolution you need, especially regarding an account hold or cancellation. Here’s where a bank-based merchant account provider might prove helpful. These larger, better-staffed businesses are more likely to employ knowledgeable associates who can actually help you.

How to Make the Best Decision for Your Business 

So, should you sign up with a third-party payment processing provider, giving you the ability to quickly accept credit cards online without a merchant account? Or, should you apply for a merchant account?

Before making that decision, consider what’s most important at this stage of your business. 

Let’s say you’re about to launch your company, or you’ve only been in operation for a short time. You want to get up and running with no sign-up delays, no excessive fees and restrictions, and no long-term contracts. In that case, a third-party payment processing provider might be the answer. 

If you’re a techie who can generally “make things work,” the third-party processor’s less-than-stellar customer service might not be a big concern. If you’re happy with those conditions, signing up enables you to quickly accept credit cards online without a merchant account.

However, those positive points might not compensate for the payment processing provider’s downsides. First, you’ll pay higher transaction fees, and your established business won’t receive the lower rates that a bank-based merchant account might offer. 

If you operate a higher-risk business, you could be impacted by an account freeze or even a cancellation, potentially putting a severe crimp in your business operations. And, after all that, you might not receive adequate customer service when you need it most.

Like most business decisions, putting the Pros and Cons down on paper (or the computer screen) will help to view the issue objectively. Then, you’ll be prepared to decide how your business will accept credit cards online without a merchant account.

Still need help deciding? 

Payment Depot can point you in the right direction. Get in touch with our payment specialists to discuss your business and your needs. If you already have a payment provider, send us your statements. We’ll analyze it for free to determine if you’re getting the most bang for your buck.