How to Accept Credit Cards Without a Merchant Account

Not too long ago Web commerce was such a novelty that consumers were willing to put up with a fair amount of inconvenience when placing an online order just because the whole experience was such a novelty. This is definitely no longer true: consumers expect a slick ordering and payment system. As a result, in order to build a successful Web based business these days you MUST be able to accept credit card payments and preferably be able to process transactions in real-time. (See also How to Accept Credit Cards Online).

There are two ways to accept credit cards on your website:

1. Setting Up Your Own Merchant Account
2. Using a “Free” Merchant Account or Payment Gateway

There is no doubt that getting a credit card merchant account for an Internet only business is much easier than it used to be. However, new small businesses with no credit history, older businesses with a poor credit history and foreign-based businesses can still struggle to get that vital merchant account.  In addition, even those businesses that do qualify for a merchant account can find the costs to be prohibitive: application fees, set-up costs, terminal or software leasing costs, transaction costs, statement costs, monthly fee minimums etc., can all quickly mount up.

Fortunately, there is a solution to this challenge: there are now a growing number of third party services that allow Web merchants to accept credit card payments on their Web site without the need of a merchant account. On top of this, many of these services come complete with valuable additional features, for example a built-in shopping cart, 24×7 customer service, and the ability to accept other forms of online payment.

Setting up your own merchant account is the first option but is probably not the optimal payment processing choice because the cost and labor involved with setting up a merchant account will be prohibitive for most first time website owners and operators. If you anticipate doing very heavy sales volume right out of the gate with your new website, you may want to consider setting up your own merchant account. Requirements for having a dedicated merchant account will vary from country to country, but if it’s appropriate for your particular situation, you should start by inquiring at your local bank branch about merchant processing setup and fees.

3rd party credit card processors are companies that accept credit card orders on behalf of other online businesses. They process all of the payment transactions for you and then send you a payment for the amount you are owed at the end of every month.

All things considered, a third party merchant account is the easiest, quickest and most inexpensive option for accepting credit card payments for first time website owners.

While sometimes referred to as “free” merchant accounts, 3rd party processors are not really free. Setup costs for so-called “free” 3rd part merchant accounts are very low, and in some cases, are free, but 3rd party processors earn their revenue by taking a small percentage of each of your completed transactions. Even though you’ll pay more per sale using a 3rd party processor, it’s usually best for first time website owners because upfront costs are much lower compared to setting up your own merchant account. Additionally, the time and upfront costs involved with integrating a merchant account or shopping cart software with an existing website is beyond the scope of most first time website owners.

Once you establish a certain level of revenue and you begin to grow the sales volume to a significant level, then you can invest in your own dedicated merchant account. You’ll have to pay a large setup fee initially for the merchant account, but you’ll end up paying far less per transaction, which will more than make up for the initial setup fee.

Here are the most important things you should consider when searching for the right 3rd party credit card processor:

• Setup Fees – fees charged for account activation.
• Transaction Fees – fees for credit card transactions completed.
• Reserve – some processors will temporarily hold 5-10% of your transaction revenue in escrow as a safeguard against returned items or “charge backs”.
• Methods of Payment Acceptance – some processors allow payment collection via online checks, over the phone, by fax or mail.
• Restrictions or Limitations – do they handle only “tangible” or physical products, services or software? Are there minimum or maximum prices that you can set for your products or services?

If you just want to test the water, using a 3rd party processor is usually the safest, easiest way to start. The upfront fees are lower, but the transaction fees will justifiably be higher. Main reasons to use a 3rd party credit card or merchant processor:

• Low upfront costs – No upfront fees for processing software, computer hardware, customer service fees, gateway fees or minimum transaction fees.
• Minimal setup fees.
• International sales capable.
• No credit checks required.
• Start accepting online payments within minutes.

Here is a list of some of the main players in this field together with a summary of the services they provide as well as fees that they charge:

PayPal

PayByWeb

2CheckOut.com

ClickBank

iBill

Kagi

CCNow

RegNow

NetBanx

UPDATE: There are a few other credit card resources out there to look into when researching how to accept credit cards without needing a merchant account. Credit Card Assist is an outstanding resource on the subject of credit cards in general and provides a variety of tips and recommendations on the topic.  Business.gov also provides a great article on the steps that you’ll need to take in order to start accepting credit cards and debit cards.

See Also:

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Tagged as: 3rd party merchant, credit card processing, merchant account