Do I need a merchant bank account to accept credit card payments?

In this article:

• Accepting credit card payments without a merchant account
• Pros and cons of using a third-party payment facilitator
• Additional resources for credit card processing

In this day and age, it is absolutely essential for your business to have the ability to process credit card payments, no matter what type of business you have or how small it is. Customers expect the ability to just swipe their cards or run their credit card numbers to easily pay for your products or services. 

The traditional method of running credit card payments is to apply for a merchant account through a bank, and/or get set up for accepting credit cards via a merchant processor. This can take anywhere from a few days to several weeks to get the account approved and have the ability to start processing payments. However, you can possibly get better rates and more personalized service via a traditional merchant processor, so keep that in mind.

If you choose not to get set up with your own merchant account and/or processor in order to accept credit card payments, today’s third-party payment facilitators are good option, particularly for truly small, one-person businesses. 

How to accept credit card payments without a merchant account

Third-party payment facilitators or “aggregators” (like Square, Stripe, etc.), allow you to get set up to accept credit cards quickly and usually will give you a basic card reader for free. These third-party companies generally offer simple, flat-rate processing, which some businesses prefer, though you should be aware that you’ll generally pay about 20% more for flat-rate processing than if you go throught the hassle of getting set up with a traditional payments processor and use “interchange plus” pricing.

One reason that you don’t need a merchant account to use a third-party payment facilitator is that each facilitator has their own large merchant account that all of the funds go through. 

So, funds from your customers’ credit cards go through your payment facilitator, into your payment facilitator’s large merchant account, and then into your bank account. 

One of the largest problems that business owners face with third-party services is deciding which one to use. There are dozens of options out there to choose from, so narrowing it down can quickly become overwhelming. 

Not sure if a third-party service is right for you? We’ll go over some of the pros and cons to help you make an informed decision. 

Pros of using a third-party payments facilitator

Third-party payment processors have gained popularity with new business owners in particular because of the following:

• Quick and simple set-up process that doesn’t require extensive documentation
• Easy-to-understand, flat-rate transaction fees (but remember, you may be paying more for this convenience)
• Capabilities for customers to pay online or in person
• Usually no long-term contracts

Cons of using a third-party payments facilitator

While third-party solutions are simpler to set up and understand than some merchant processor accounts, there are several drawbacks to the third-party facilitators:

• There is little to no flexibility on rates, and you will probably pay a little more for processing. Traditional merchant processors will often negotiate their rates and fees, while third-party services keep it simple with one rate system for everyone (but again, you may pay more for the convenience)
• Service interruptions or cancellations can occur for businesses in specific industries (For example, some third-party facilitators don’t allow clients to sell firearms or related products—they may even let you set up an account but then cancel it when the first order goes through)
• Limited customer service; not all third-party providers offer free customer support or 24/7 support which can be a problem if your system has a malfunction late in the day. In addition, you may prefer interacting with a real person, such as your processor’s merchant-level service agent, who can talk you through the process, explain and modify your processing agreement, help with any issues, and become a trusted business advisor

Just be sure to do your research and find the payment processor or facilitator that best suits your needs. 

Check out this articles for more information about credit card processing fees: Credit card processing fees: what small businesses need to know

With almost too many credit card payment processing solutions to choose from, this task can quickly become a burden on any small business owner. We want to help make that process a little easier for you.

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