A merchant account is a type of business bank account that makes it possible for you to accept credit cards online or in-person. Some businesses — especially those with more than $10,000 in monthly sales volume — may find it hard to get by without one.

But with monthly merchant account fees to pay and credit card processing fees on top of that, having a merchant account can really make a dent in your profit margins.

Fortunately, opening your own merchant account isn’t the only way to accept credit card payments. We’ll show you how to lower your merchant account fees and even get rid of credit card processing fees altogether by starting a surcharge program.

What Is a Merchant Account?

As a small business owner, you may already have a business bank account that you use to pay bills and safeguard your money. But chances are, it isn’t set up to process credit card payments. That’s because credit card transactions go through a different process than check and cash deposits and require a special type of business account.

In short, you’ll need a separate bank account called a merchant account in order to receive credit card payments, which comes with its own merchant account fees.

Merchant accounts are provided by merchant acquiring banks and typically require a lengthy application process before you can open an account. This can make merchant accounts pricey and inconvenient for small business owners, especially if you don’t have a high-enough sales volume to justify the monthly fee.

That said, there are ways to accept credit card payments without a merchant account, such as by working with a merchant services provider like Nadapayments.

How Do Merchant Accounts Work?

Before we get into the best alternatives to merchant accounts, it’s worth taking a look at how merchant accounts work so you can understand their pros and cons.

The main purpose of a merchant account is to transfer your customer’s payment into your business bank account, but it’s a multi-step process.

First, your customer’s credit card issuer will approve the transaction and send their money into the merchant account.

Then, the acquiring bank, credit card processor, and/or credit card network — such as Visa or Mastercard — will deduct their transaction fees. These are usually based on the current interchange rate, but may also include markups on top of that.

Finally, the money is deposited into your business bank account, where you or your employees can access it.

How Long Do Transactions Take?

Although swiping a customer’s credit card and communicating with the issuing bank may only take a few minutes, it can take several business days before the funds are available in your bank account.

With so many steps involved — as well as the potential for delays and chargebacks — it’s no surprise that some small businesses choose not to accept credit cards at all.

But as customers come to expect more and more payment options — such as mobile and contactless payments — refusing to accept credit cards can cost you customers.

It’s up to you to find out whether merchant account fees are worth it and whether you can reduce those fees by using a merchant services provider that takes care of the merchant account for you.

How Much Are Merchant Account Fees?

Merchant account fees: credit card terminal

There are several different types of merchant account fees, so you’ll have to check with your acquiring bank to find out which fees will apply to your business.

In general, there are two types of fees to look out for: account fees, which are charged by the acquiring bank directly, and transaction fees, which may be applied by the payment processing company or credit card networks, like American Express or Discover.

Your bank may charge any of the following fees:

  • A setup fee when you open a merchant account (not including the cost of a card reader or point-of-sale (POS) system)
  • Monthly or annual account fees, usually a flat fee between $10 and $30
  • Statement fees, which cover the cost of mailed credit card statements
  • A batch fee for processing a large number of transactions
  • An address verification fee for checking a customer’s address
  • A payment gateway fee for e-commerce services
  • A cancellation fee or early termination fee if you cancel your contract early

Not all of these merchant account fees may apply to you, but since merchant service agreements tend to be quote-based, they can be hard to predict in advance.

You’ll also be charged a credit card processing fee for each transaction, usually based on one of three pricing models:

  • Flat-rate pricing
  • Interchange-plus pricing, based on the real-time interchange fees charged by the major credit card networks, plus a markup
  • Tiered pricing, which involves a different rate for different types of transactions (e.g., card-present payments vs. high-risk transactions)

The most cost-effective option for you depends on your sales volume and the type of cards you accept. For example, flat-rate pricing tends to be more predictable but can add up quickly if you process a lot of sales with low transaction amounts.

How to Avoid Merchant Account Fees

As mentioned, you may be incurring both merchant account fees and credit card processing fees. To reduce or eliminate merchant account fees, you have two options: using a payment services provider or using Nadapayments. One of these options will also eliminate credit card processing fees (more on that later).

For businesses that don’t have a high monthly sales volume, using a payment services provider can be a more affordable way to accept credit card payments since they don’t have the monthly minimum fees associated with merchant accounts.

You’ll still have to pay a flat fee or percentage for each transaction, but you won’t have to pay an annual fee or other additional fees just to maintain an account. For example, PayPal charges a fee for each transaction, with a different rate for online payments, keyed-in transactions, and card-present sales.

Nadapayments, on the other hand, charges the same rate for all credit card transactions, regardless of the payment method — and passes those fees on to customers. So you’ll be able to avoid both merchant fees and credit card processing fees.

When you set up a surcharge program with Nadapayments, there are no setup fees or annual account fees — just a $35 fee per month to rent a Wi-Fi-enabled credit card terminal. Your customers will pay a 3.5% surcharge when they pay with a credit card, and you’ll pay $0 in fees. When customers pay with a debit card, you’ll only owe 1% plus $0.25 per transaction.

Credit card surcharge programs are legal in almost all 50 states, and Nadapayments will provide the signage so your customers are fully informed of the credit card processing guidelines. If your customers don’t want to pay a surcharge, they can easily choose to use another payment method instead, like cash, check, or debit card.

Plus, Nadapayments will save you from having to open a merchant account of your own, since it will take care of all the paperwork for you. This makes it easier to get set up quickly.

And, along with the credit card terminal, you’ll have access to a virtual terminal and mobile app at no extra cost, giving you the flexibility to take payments over the phone, online, and on the go.

While payment services providers can help you avoid merchant account fees, only Nadapayments can eliminate both merchant account fees and credit card processing fees.

Use Nadapayments as Your Merchant Services Provider

Restaurant staff using a POS

Opening a merchant account can add a surprising number of fees to the cost of doing business: from setup fees to account fees to statement fees. If you want to start accepting credit card payments without merchant account fees, then Nadapayments may be the payment processing solution for you.

Nadapayments makes it easy for small businesses to accept credit cards without the hassle of securing a merchant account and paying merchant account fees. Sign up today to pay $0 on all credit card transactions!