Can You Accept Card Payments Without a Merchant Account?

Small and mid-size merchants may wonder whether they really need a merchant account in order to accept card payments. The need to accept debit and credit card payments, however, is clear. Whether your business accepts online payments, in-person payments or a mix of both, customers typically want to pay with a debit or credit card, mobile wallet balance or another digital payment method.

So, can you take card payments without a merchant account? In reality, you can’t. However, there are two important options as far as the way online payment systems and accounts are configured, and merchants need to be familiar with the way these work in order to choose the most appropriate model for their business.

What A Merchant Account Does

A merchant account is a bank account where the funds from card transactions are held until the funds are approved. After an agreed-upon settlement period—usually, 48 hours—the funds are transferred to your regular business bank account. In addition to receiving card payments, merchant account providers process chargebacks and vet transactions that are deemed to be suspicious.

When A Customer Makes a Purchase

When a customer pays for goods or services with a credit or debit card, this is how the process works:

The point-of-sale software contacts the acquiring bank (the merchant account).
The acquiring bank contacts the card network (such as Visa, Mastercard or American Express).
The card network contacts the issuing bank to see if the funds are available.
The issuing bank either approves or declines the transaction.
The result is communicated back through the card network to the acquiring bank.
The funds are transferred to the seller’s merchant account if approved.
The funds are released and transferred to the business owner’s bank account.

As you can see, you can’t take card payments without a merchant account. However, you can accept card payments without an individual merchant account—using instead a merchant aggregator or third-party payment processing service.

How Merchant Aggregators Process Payments

A payment aggregator or credit card processor like PayPal, Square or Stripe handles e-commerce credit card processing for small businesses and sole traders who might have difficulty gaining approval for an individual merchant account.

Instead of requiring each merchant to have a separate account with a unique merchant identification number (MID), payment aggregators have a single merchant account that is shared by all of their members. The aggregator then assigns each member or “sub-merchant” an account ID that is used as a reference for the aggregator.

When you accept online, phone, or in-person card payments via a third-party payment provider, the process is much the same as it is with an individual merchant account. However, there are a few differences:

The Customer May Be Redirected

Because third-party payment providers are made to process card payments with a minimum of set-up, they typically redirect the customer to the payment platform’s virtual terminal to complete the transaction. PayPal is particularly well-known for redirecting customers, whereas Stripe can be integrated into your website’s own payment platform.

Redirection is undesirable because it makes the checkout process more complicated and creates more steps at which something can go wrong due to a technical error—making cart abandonment more likely.

You Will Pay Higher Per-Transaction Processing Fees

A third-party payment processor carries all of the risks of handling card payments for their sub-merchants. This means that they need to charge a higher processing fee to make sure they can cover the highest potential card fees and hedge against the cost of chargebacks. If you take card payments without a merchant account, you will generally pay a fixed fee plus a percentage-based fee that varies according to the nature of the transaction.

For merchants who only process credit card transactions occasionally, these fees won’t break the bank. However, for businesses that process a large volume of card payments or process payments with a high value, a dedicated merchant account will be able to offer the lowest rate.

You May Be Subject to Processing Limits

To protect themselves against fraudulent transactions, credit card processing providers sometimes place limits on the number of transactions or value of the transactions you can process. For example, PayPal has daily and monthly limits on how much money you can add or withdraw.

If you process more than €100,000 in transactions per year, most PSPs require you to register for an individual merchant account rather than using their aggregate service. Transactions with a merchant account are unlimited, a plus for businesses with a high monthly turnover.

It May Take Longer for the Funds to Be Released

The standard holding time for individual merchant accounts is 48 hours from the time of the transaction. However, with a merchant aggregator, you may be waiting for a week or even as long as 28 days for your financial institution to transfer the funds to your personal account.

Today, PayPal and Stripe both offer instant deposit options for an additional fee, or you can wait for several business days to receive the funds in your personal bank account for free.

You May Lose Access to Your Money Without Warning

Payment aggregators have strict protocols in place to protect their sub-merchants from fraudulent activity. If the PSP notices anything that seems suspicious, they might freeze your account without warning. Unfortunately, not every “suspicious transaction” is actually fraudulent, and you may lose access to your account when you need it most. For instance, you may be flagged for:

A season with an especially high volume of orders
A customer who is placing an order from overseas
A customer who is purchasing several identical pieces

In contrast, you can personalise an individual merchant account to the level of fraud scrub that you deem appropriate and make customised exceptions for trusted overseas customers and clients who tend to make especially large orders.

Taking Card Payments With a Merchant Account

If you decide to open a merchant account, you will need:

An ecommerce website
A Secure Socket Layer (SSL) certificate
A certificate of incorporation
A business number and VAT-ID
Documentation relating to your financial status and credit rating

From the time that you present this documentation, it should take around one day for your account to be approved and get your payment system up and running. When you apply for a merchant account, many merchant service providers require long-term contracts of one month to three years and some ask for account set-up fees in addition to the ongoing monthly fee. It’s a good idea to shop around for a merchant service provider that:

Is up-front about their contract period and pricing structure
Offers the lowest fees for your business’ processing needs
Can integrate their payment gateway for you

As an industry-leading merchant services provider, Unicorn Payment bundles each merchant account with a secure payment gateway and provides the set-up process for free. The integration process is taken care of in-house so that you can stay focused on running your business.

Taking Card Payments Without a Merchant Account

If you decide to use a third-party payment service provider for processing card transactions, the process is very simple:

Open an account with a username and password
Order payment hardware if desired (especially if you’re working with Square)
Start accepting card payments

You can get set up with a PSP in as little as five minutes and add their payment button to your website. There are no contracts with PSPs and you can cancel your account at any time, however, it’s still a good idea to compare the pricing plans of the major PSPs to see which one would be the most cost-efficient for your business model.

Should You Take Card Payments Without a Merchant Account?

If you’re still in doubt about whether your business should take card payments without a merchant account, consider the following scenarios:

You only do business during particular months of the year

Small businesses that only trade during the summer, winter, or leading up to a special event (like a themed food truck) may be better off using a merchant aggregator. While the per-transaction fees are high, you won’t pay fees in the months that you don’t trade.

Your business is more of a hobby

Hobbyists who sell products or services every now and again may be better off using a merchant aggregator. The small volume of transactions wouldn’t justify paying a monthly fee.

You don’t have a business number

It goes without saying, but you can’t open a merchant account if you don’t have a business number with which to register. If you are an independent contractor, affiliate marketer or someone who sells virtual courses online, you probably won’t have a business number and will need to take card payments without a merchant account.

Your sales volume has exceeded €100,000 per year

If your business has grown to the point that you’re making more than €100,000 per year, you need to open an individual merchant account. Even if you’re not quite up to the threshold, it’s still a sensible idea to open a merchant account before you reach it to ensure that your earning capacity isn’t limited.

You want to accept international transactions

Businesses that sell to people around the world need a dedicated merchant account and international payment gateway that is capable of accepting debit and credit cards from countries that are deemed “high-risk.” Without this kind of capacity, you may be limiting your potential income.

You need around-the-clock support

If you are a serious business with a significant financial turnover, you need a merchant account provider with 24/7 customer service just in case anything goes wrong. Due to the number of customers they serve, PSPs are only able to respond to enquiries via email or through a help centre and they might be too late to deal with an urgent issue.

You want more than just a payment gateway

Merchant service providers—the companies that manage merchant accounts—provide several additional services that can help you drive your business forward. Some of these merchant services include:

Integration with your e-commerce platform
Sales reports and data tracking
Merchant statements
Adjustable fraud scrub
Chargeback mitigation tools
E-wallets

It’s Worth Investing in a Merchant Account

For most businesses, opening a dedicated merchant account ends up being a far superior option to taking card payments without a merchant account. Even if your business is small and locally oriented, merchant service providers can work with you to establish a low-cost program that fits your specific business model.

As your business grows, your merchant service provider makes it easy to scale up and even transition to global sales. All the while, you will be protected from fraudulent transactions, brand-damaging chargebacks, account freezes, and held-up funds. Above all, look for a merchant service provider that has low fees and will work with you to help you maximise your business potential.