Every business owner wants to get the lowest credit card processing fees they can, but it isn’t always clear how to do it. Do you need to open a merchant account or a business bank account? Or can you lower your transaction fees another way, such as using a payment service provider to handle your transactions?

For large businesses, opening a merchant account may be a better deal, but for small businesses, a payment service provider will offer better rates and more flexibility. 

Here’s how to accept credit card payments without a merchant account — as well as how to use a surcharge program to get rid of credit card processing fees entirely.

What Is a Merchant Account?

A merchant account is essentially a specific type of bank account for businesses that’s used to handle online payments and credit card transactions. There are a few different types of merchant accounts for different types of businesses — for example, internet merchant accounts for e-commerce businesses.

Depending on what products or services you offer, and where you sell them, you may need to open more than one merchant account to process all transactions. Not every bank offers merchant accounts, though, and you’ll have to go through an application process to get one — even if you already have a business bank account.

How Does a Merchant Account Work?

A merchant account is provided by an entity called a merchant acquiring bank, and it’s their job to facilitate the sale between you, the cardholder’s bank, and your credit card processor. Your customer’s money goes into the merchant account, where your credit card processor can access it to take their cut. Then, the remainder of the purchase amount goes into your business bank account, where you or your business partners can access it.

Most merchant acquiring banks charge a monthly fee for a merchant account, usually between $10 and $50, regardless of how many transactions go through it.

Is It Hard to Open a Merchant Account?

In order to get a merchant account for your business, you’ll have to apply for one with a merchant acquiring bank. These banks usually have a lengthy application process and may want to know the following details about your business:

  • The type of business you run
  • How long you’ve been in operation
  • Your own personal credit history
  • Your business’s financial history

Some businesses are considered “high risk” because they’re more likely to experience fraud or chargebacks. If that’s the case for your business, then your acquiring bank may charge you higher fees or decline your application altogether.

If you’re a small business without a lengthy credit history, then you may have better luck applying for a merchant account at a bank that you already do business with.

Pros and Cons of Merchant Accounts

Merchant accounts have their advantages. Since they’re provided by established banks who vet the businesses they work with, you’re less likely to run into processing delays and account issues than with third-party payment processing companies.

And for businesses with a high sales volume — over $10,000 per month — they may offer a more appealing pricing structure than payment processing services.

But for new businesses or startups that don’t have a high volume of sales or extensive business history, a merchant account may be harder to obtain. The application process can take more time than its worth, and you may not actually save any money on credit card transaction fees compared to other processing options.

How to Accept Credit Card Payments Without a Merchant Account

Entrepreneur calculating expenses

The obstacles to opening an account with an acquiring bank can leave you wondering how to accept credit card payments without a merchant account of your own. The good news is that there are plenty of companies that can do the heavy lifting for you. These are known as “payment service providers” or “merchant aggregators”.

Payment service providers (PSPs) maintain their own merchant account, where they receive the funds from all of the customers they work with. After deducting their fees, they’ll send the money into your business bank account — usually within a few business days.

You’re probably familiar with some of these companies — such as Stripe, Square, and PayPal — but all of them offer slightly different services and payment structures.

How Much Do Payment Service Providers Cost?

Most payment service providers charge a processing fee for each transaction. Instead of paying a monthly fee for a merchant services account plus the processing fees that your credit card network charges, your fees will look something like this:

  • Stripe: 2.9% plus 30 cents per transaction
  • Square: 2.6% plus 10 cents per transaction
  • PayPal: 2.99% plus 49 cents per transaction

Some payment service providers charge different rates for different payment methods — such as in-person vs. card-not-present payments — or for online transactions.

What Equipment Do You Need to Accept Credit Cards Through a PSP?

Not only do payment services providers handle everything behind-the-scenes, they’ll also provide you with the tools you need to accept credit card payments in person.

This usually means a credit card reader or point-of-sale (POS) system that you can use to swipe, tap, or otherwise process in-person payments.

In some cases, you may be able to install a POS app directly onto your mobile devices, but in other cases you may need to buy more extensive hardware.

Pros and Cons of Payment Service Providers

Payment service providers are faster and easier to get started with than acquiring banks, and don’t require as thorough of an application process. However, they may still decline to work with high-risk businesses with a higher likelihood of chargebacks.

On the plus side, they’ll take care of PCI compliance for you so you don’t have to worry about keeping your merchant account compliant with PCI regulations yourself.

They also tend to have a much more favorable pricing structure for small businesses – that is, any business turning over less than $10,000 per month. Even so, processing fees can still add up and eat into your profits, especially if you have to pay higher fees for online transactions or certain types of payment methods.

Avoid the Merchant Account Hassles and Credit Card Processing Fees

Nadapayments is a merchant service provider that makes it easy to start accepting credit card payments right away — even if you don’t have a merchant account. 

Nadapayments will take care of all the paperwork and set up your merchant account for you. You’ll be able to accept payments from all of the major credit card networks — including Visa, Mastercard, American Express, and Discover — without ever having to deal with the credit card companies directly.

Plus, when you use Nadapayments as your merchant service provider, you’ll be able to say good-bye to credit card processing fees with a built-in surcharge program. When you customer pays with a credit card, they’ll be responsible for paying a 3.5% surcharge, and you’ll pay $0 in processing fees. (These fees don’t change, even for online and other card-not-present transactions.)

The surcharge program gives your customer a choice. If they’d rather pay with a check, cash, or debit card, they will not be responsible for paying a 3.5% surcharge. And when your customer uses a debit card, your business will only have to pay 1% plus 25 cents for the transaction.

There are no setup fees when you use Nadapayments, just a flat $35 per month to rent a Wi-Fi-enabled EMV terminal. A payment gateway for online and over-the-phone transactions is included. Plus, you’ll have free access to a mobile app for accepting payments on-the-go.

Use Nadapayments as Your Merchant Service Provider

How to accept credit card payments without a merchant account: person paying for their coffee using their mobile phone

While it is possible to accept credit card payments without a merchant account, those options still come with high processing fees. By setting up a credit card surcharge program with Nadapayments, you’ll avoid the headaches of setting up a merchant account and enjoy $0 fees on all credit card transactions. Get started with Nadapayments today!