How to Accept Credit Card Payments Without a Merchant Account

Updated on January 30, 2020
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With all of the different payment methods available to consumers—physical debit and credit cards, wallet payments, digital payments, and more—it’s becoming more and more necessary for businesses to accept credit cards in some shape or form. Due to this necessity, the merchant services industry is constantly growing and evolving, offering new methods to accommodate business owners in ways that work best for them. Therefore, if you’re a business owner looking for a payment solution, you’ll want to explore all of the options that are available to you to find a provider that has the features, pricing, and structure that you need.

Along these lines, if you’ve started researching different payment solutions, you may be wondering how to accept credit card payments without a merchant account. After all, merchant account providers have a reputation for complexity—requiring an application and lengthy contracts as well as charging a variety of fees. Although there are certainly benefits to working with one of these providers, you might also consider choosing a provider that does not require a dedicated merchant account. 

How does the process of accepting credit card payments without a merchant account work? What are the options for your small business? We’ll answer these questions and more in this guide—providing you with all the information you need to know about how to accept credit card payments without a merchant account.

How to Accept Credit Card Payments Without a Merchant Account: Overview

Essentially, if you’ve ever wondered if it’s possible to accept credit card payments without a merchant account, the short answer is yes.

It would be more accurate, however, to say that you can accept credit card payments without a dedicated merchant account—meaning without a merchant account that’s unique to your business. In order to discuss further, let’s briefly explain what a merchant account is and how the process of accepting credit card payments works. 

In short, a merchant account is a bank account that allows you to accept credit card payments from customers. More specifically, a merchant account fronts your business funds from credit card payments until your customers pay off their credit card bills. Typically, when you’re looking to accept credit card payments, you work with a merchant account provider, first applying for a merchant account and receiving one after going through the underwriting and contract negotiation process. 

Once you have a merchant account, therefore, when you accept a credit card payment—whether in-person, online, or using a virtual terminal—the process looks like this:

  • After you’ve accepted a credit card payment, your payment processing company transmits the data to your merchant account.
  • As this is happening, your payment processor consults your customer’s bank, the issuing bank, before the payment information is accepted or denied.
  • If the customer’s bank approves the transaction, then you can accept the payment and complete the transaction.
  • Once the transaction is approved, your payment processor will deduct any fees and then deposit the funds in your merchant account. 

As you can see then, the merchant account plays a core role in the process of accepting credit card payments—so how do you function without one? 

Ultimately, as we briefly mentioned above, you do need a merchant account to be involved in this process, however, it doesn’t have to be a merchant account dedicated to your business. Instead, you have the option to work with a payment service provider, sometimes referred to as a third-party payment provider, payment facilitator, or processing aggregator. 

With these providers, like Square or PayPal, a merchant account is built into their service, as opposed to you having to apply for and receive a unique merchant account. This means, then, that the payment service provider has one merchant account where they aggregate all of their customers’ funds, assuming the risk associated with accepting credit card payments on behalf of their merchants. 

Accepting Credit Card Payments Without a Merchant Account: Using a Payment Service Provider

With this overview in mind, let’s discuss how to accept credit cards without a merchant account using a payment service provider. As we mentioned, when you work with a payment service provider, you don’t receive a merchant account that’s dedicated to your business. Instead, your payment service provider has a merchant account where they aggregate all of their clients’ funds—and the funds are then transferred to each merchant within one to two days of the transactions. As we’ll explain shortly, there are certain benefits and drawbacks of working with a payment service provider, as opposed to a merchant account provider. First, however, let’s break down more specifically what working with a payment service provider looks like. 

If you think you’d prefer to accept credit card payments without a merchant account using a payment service provider, you’ll want to explore the different providers on the market to find the one that will work best for your business. 

On the whole, however, payment service providers give you the ability to accept credit card payments in a variety of ways—thereby accommodating a range of businesses and their needs. Whether you need to accept credit cards online, or in-person, using an ecommerce platform integration or point of sale system, you’ll want to look for the payment service provider that will fulfill that specific need.

Generally, many payment service providers will include some kind of hardware or software with their service, in addition to payment processing. Payment service providers will also typically charge flat-rate transaction fees and very limited additional fees. 

Therefore, if you’re looking for a payment service provider, you’ll want to compare your options in terms of both features and pricing. Once you’ve found your preferred provider, however, you’ll more than likely be able to apply for an account online and depending on your payment acceptance method, start accepting credit cards almost immediately. 

In this case, the actual procedure involved in accepting and processing payments will look exactly as we described above, except the merchant account in question will belong to your payment service provider. Therefore, once the funds are deposited in your payment service provider’s merchant account, they’ll then transfer the appropriate funds to your business bank account. 

how to accept credit card payments without a merchant account

Payment Service Providers vs. Merchant Account Providers

So, now that we know more about how payment service providers allow you to accept credit card payments without a merchant account, let’s dive deeper into the possible advantages (and disadvantages) of doing so, compared to working with a traditional merchant account provider

Working With a Payment Service Provider

Why would you choose to accept credit card payments without a merchant account by using a payment service provider as opposed to receiving a merchant account dedicated to your business? We’ve alluded to some of the top reasons businesses choose payment service providers over merchant account providers, but let’s specify further.

First, the process of signing up for and receiving service from a payment service provider is usually much more quick and easy compared to a merchant account provider. With merchant account providers, you generally have to go through an underwriting process, as the provider wants to ensure that you’re not going to pose substantial risk for them by granting you a merchant account. Comparatively, as a payment service provider is working with a larger group of merchants within one single merchant account, although they’re assuming the same risk, it’s not as influential if something goes wrong—therefore, enabling them to offer a faster and simpler qualification process.

Another benefit of accepting credit card payments without a merchant account, aka using a payment service provider, is that payment service providers usually offer an all-inclusive platform where you can choose the specific solution you need. As an example, if you work with Square, you can choose from their multitude of payment options: Square Point of Sale, Square Invoicing, Square Payments, Square Virtual Terminal, depending on how and where you need to accept credit card payments. Moreover, regardless of the particular solution you choose, you receive access to the Square dashboard, as well as their PCI compliance and other security measures. Plus, with Square, as with many other payment service providers, you can sign up for an account for free, and access certain tools, without paying a monthly fee. 

Along these lines, another of the top reasons that business owners choose to work with a payment service provider is that compared to merchant account providers, payment service providers charge significantly fewer fees—and the fees that they do charge are much more transparent. Most payment service providers will charge a flat-rate transaction fee based on the type of transaction, but won’t charge contract or early-termination fees, setup fees, refund fees, or PCI compliance fees. Any fees that they charge are typically laid out clearly on their website. 

Although merchant account providers may be able to offer interchange-plus pricing for processing (arguably the most affordable type of pricing), they also generally require complex contracts, charge a number of additional fees, and aren’t completely clear with said charges. 

All of this being said, however, on the other hand, working with a payment service provider to accept credit card payments without a merchant account has its downsides as well. 

Overall, the biggest drawback you’ll see with payment service providers is you’re more likely to experience account holds or termination. Although you can much more easily apply and receive payment service from this kind of provider, the provider reserves the risk to monitor your account and freeze or cancel it if they deem your business too risky. Therefore, one of the biggest criticisms of providers like Stripe or Square is these types of service interruptions. 

Similarly, another of the most notable downsides you’ll see with payment service providers is issues with customer service. Even when payment service providers offer customer support solutions in a variety of different ways, business owners often report that they’re not particularly accessible or helpful, especially in situations regarding account freezes or closures. On the other hand, when working with a merchant account provider, you typically have greater access to support representatives who know about your specific business and activity.

how to accept credit card payments without a merchant account

Working With a Merchant Account Provider

Although we’re first and foremost exploring how to accept credit card payments without a merchant account, it’s also worth mentioning why some business owners ultimately choose to work with a merchant account provider, like Fattmerchant or Payment Depot, instead of a payment service provider. The benefits of working with a merchant account provider are essentially the opposite of the downsides of working with a payment service provider. Let’s explain. 

First, whereas payment service providers are often criticized for account freezes and closures, if you’re working with a merchant account provider, you’re less likely to suffer these types of issues. Overall, your account is more stable in this case because of the more in-depth qualification process you went through when signing up for a dedicated merchant account through this kind of provider.

Additionally, with merchant account providers, you generally receive a more personalized service. This not only applies to customer service, but to pricing and scalability as well. As we mentioned earlier, many merchant account providers offer interchange-plus pricing, as opposed to flat-rate pricing. Although this pricing model may not be as clear on the surface, it’s typically considered the best for merchants and offers the cheapest credit card processing fees. Plus, many merchant account providers will allow you to negotiate your rates and pricing structure. 

Moreover, because working with a merchant account provider means you’re receiving your own dedicated merchant account, you’re less likely to see limits on processing volume or transaction amounts, which you will see with some payment service providers. 

Accepting Credit Cards Without a Merchant Account: Top Payment Service Providers to Choose From

Ultimately, it will be up to you to decide whether to work with a payment service provider or a merchant account provider depending on which solution will best fulfill your business’s needs. This being said, however, it’s worth looking into some of the top payment service providers—as they are, in fact, some of the most popular small business payment providers on the market—to see what they can offer. 

Therefore, if you’re interested in accepting credit card payments without a merchant account, you might consider working with one of these providers: 

Square

As we’ve briefly discussed already, Square is a payment service provider with a variety of options—in fact, it’s perhaps one of the most well-known payment service providers. By working with Square, you can accept credit card payments without a merchant account in the way that works for your business. Square offers a POS system with different hardware and software options, an online payments platform, a virtual terminal, and more. 

You can sign up for a Square account for free online and start taking payments almost instantly. Square charges flat-rate pricing, with Square fees for in-person payments starting at 2.75% using a card reader terminal. Additionally, when you work with Square as your payment service provider, you receive a free Square magstripe reader, access to the Square dashboard and app marketplace, PCI compliance, security and fraud monitoring, and customer support. On the whole, Square only charges transaction fees and doesn’t require a long-term contract or charge setup fees, account fees, batch fees, refund fees, or chargeback fees.

Overall, Square is known for their flexibility, variety of options, and ease of use. Therefore, as a payment service provider that allows you to accept credit card payments without a merchant account, Square is always a top option to consider.

Stripe

Another top option for payment service providers is Stripe. Whereas Square offers much greater solutions for businesses that need a POS system, Stripe is more-focused on online payments. Nevertheless, with Stripe, you can sign up for a free account online and start accepting payments in minutes. 

Stripe’s payment platform allows you to accept credit card payments (as well as other payment types) without a merchant account. You can accept payments online with an embedded checkout, payment page on your website, recurring invoices, and even in-person with the Stripe terminal. For all online payments, Stripe charges 2.9% plus $0.30 per transaction. Like Square, Stripe does not charge monthly fees, setup fees, or refund fees—they do, however, have a $15 chargeback fee

On the whole though, Stripe’s service includes data security, PCI compliance, reporting, dashboard access, a developer platform and integration options, and 24/7 customer support. Moreover, like Square, Stripe is known for their usability, flexibility, as well as advanced technology. This being said, Stripe is certainly a top payment service provider to consider, especially for online payments. 

how to accept credit card payments withouthow to accept credit card payments without a merchant account a merchant account

PayPal

Finally, you might also consider PayPal as a top option for accepting credit card payments without a merchant account. As one of the most well-known names in online payments, PayPal provides a number of business solutions that allow you to accept the full range of payment methods.

You can use PayPal to accept payments on your website, to connect to your ecommerce platform, by invoicing customers, as well as accept in-person payments using PayPal Here. Like Stripe and Square, PayPal makes it simple to get started, allowing you to sign up online and accept payments quickly. Additionally, PayPal charges flat-rate transaction fees, 2.7% for in-person payments and 2.9% plus $0.30 for online payments and invoicing.

Once again, just like Square and Stripe, PayPal does not charge setup, termination, or other monthly fees—unless you choose to utilize one of their specialty services, like PayPal Payments Pro. Moreover, regardless of the method you choose to accept payments with PayPal, you’ll receive fraud protection tools, hundreds of integration options, customer support, and more. 

With all of the different options Paypal can offer, they’re a particularly noteworthy payment service provider for online-based businesses, as well as those who typically accept payments online but would benefit from an occasional in-person payment option. 

How to Accept Credit Card Payments Without a Merchant Account: The Bottom Line

At the end of the day, as a core element of your business processes, it’s of the utmost importance that you choose the right payment solution. Therefore, it’s worth knowing you have the option to accept credit card payments without a merchant account and how to do that. As we’ve explained, by working with a payment service provider instead of a merchant account provider, you can get the payment tools you need to be able to accept and process credit cards and do so without applying for and receiving a dedicated merchant account.

However, there’s nothing to say that using a payment service provider, like Square, Stripe, or PayPal, is objectively better than working with a merchant account provider—ultimately, it all depends on your specific business and your needs. Therefore, whether you decide that you do or don’t need a unique merchant account to accept credit cards, you’ll want to thoroughly research different providers and compare their services, so that you can choose the payment solution that will best serve your business. 

Randa Kriss

Randa Kriss is a senior staff writer at Fundera, where she specializes in reviewing small business products, software, and services. Randa has written hundreds of reviews across a wide swath of business topics including ecommerce, merchant services, accounting, credit cards, bank accounts, loan products, and payroll and human resources solutions. She has also written for PeopleKeep, Zoho, KNF&T Staffing, and Planted. Randa has a bachelor’s degree in English and Spanish from Iona College. Email: randa@fundera.com.
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