How To Accept Card Payments Without a Merchant Account

It’s a truth that most of us already know to be true - cash is no longer king. If retail has a king at the end of 2023, it’s the humble credit or debit card. However, there can be challenges to the traditional way of being able to accept card payments. Traditionally, you’d need a merchant account to be able to do so.

What is a Merchant Account?

A merchant account is a type of business bank account that allows a business to accept and process electronic payment card transactions. Merchant accounts require a business to partner with a merchant-acquiring bank that facilitates all communications in an electronic payment transaction.

A merchant account can be extremely useful for any business. As well as allowing you to accept credit card payments, merchant account providers offer merchant services such as merchant account setup, merchant audits, e-commerce services, online banking services, and more. With a merchant account, you can receive money from credit card transactions, process cheques and accept online bill payments. Some merchant account providers also offer additional benefits, such as free credit monitoring, cash-back offers and discounts on account setup fees.

And the need to accept card payments is continuing to get greater. The annual British Retail Consortium Payments Survey released in December 2022 showed that in 2021 cash usage fell to just 15% of all transactions (down from 30% in 2020), while 82% were made on credit or debit cards (up from 67% in 2020). More than four in five card transactions were made using debit cards, with the rest made up of credit and charge cards. As a proportion of total money spent, cash accounted for just 8% of consumer spend (down from 15%), while credit cards rose slightly to 23%, and debit cards rose significantly to 67% (up from 59% in 2020).

Challenges of Traditional Merchant Accounts

But the ubiquity of traditional merchant accounts doesn’t make them suitable for everybody, especially for smaller businesses and freelancers. One of the biggest challenges that small businesses face when opening merchant accounts is high fees and charges. Merchant account providers often charge application fees, monthly fees, transaction fees, authorisation fees and minimum monthly fees. They soon start to eat into your profit margin, to a point at which it can start to feel as though everybody is entitled to a piece of your revenue apart from, well, you! In addition to this, credit checks are normally required to open them, which not everybody will pass, while approval times can be long, especially if you’re considered a higher-risk business.

Alternatives to Traditional Merchant Accounts

Fortunately for those who don’t want to open a merchant account, there are now plenty of alternatives for those who still want to accept card payments.

Payment Gateways

For businesses operating in the digital sphere, there are straightforward methods to accept card payments without the need for a merchant account. Payment service providers such as PayPal, Stripe, and Square offer online payment gateways that can be easily integrated into your website or e-commerce platform.

Third-party processors

Another option is to use a payment facilitator service. A payment facilitator provider is an aggregated merchant account provider that allows merchants to accept credit cards without individual merchant accounts. A payment facilitator provider serves multiple merchants by boarding them under one, master merchant account. In this way, each merchant often doesn’t need to apply and be approved for their own merchant account and accompanying merchant identification number.

These solutions are generally easier to set up, with fewer application hurdles and faster approval times. Fees are usually based on each transaction, and there are often no monthly charges, making it a more cost-effective option for many businesses.

Mobile payment apps

For businesses that operate in temporary or mobile settings—such as markets, fairs, or events—mobile payment apps and card readers offer a simple and efficient way to accept card payments without a merchant account.

These mobile apps and card readers connect to your smartphone or tablet and allow you to accept card payments on the spot. The payment is processed through the payment service provider, eliminating the need for a separate, traditional merchant account.

Setting up these mobile payment solutions is generally straightforward and quick. You’ll often receive a card reader that plugs into your mobile device, and from there, you simply download the corresponding app to begin accepting payments.

Fees are typically per transaction, and many providers offer tiered pricing based on your sales volume. The funds from transactions are often available almost immediately, enhancing your business’s cash flow.

Pros and Cons of Alternatives to Traditional Merchant Accounts

These alternative payment methods have definite advantages. They can be easy to set up and implement into already existing systems, and the pay-per-transaction pricing model may save you money. For those who need their money quickly, these payment processors do tend to pay out considerably more quickly than traditional merchant services, often almost immediately or within a day or two. You may also find that customer service options may be limited, should anything go wrong.

Are There Any Hidden Fees Associated With Non-merchant Account Payment Options?

While most fees associated with payment service providers are transparent and based on transactions, it’s advisable to scrutinise the terms and conditions. Some providers may charge additional fees for services like chargebacks or international transactions.

How to Accept Credit Cards Online Without a Merchant Account

When a customer makes an online purchase, the payment is processed directly through the payment service provider you’ve chosen. The provider handles the transaction, including security checks and fund transfers, without requiring an intermediary merchant account.

Setting up these online payment gateways is generally straightforward. Many providers offer plugins or APIs that can be quickly added to popular e-commerce platforms like Shopify, WooCommerce, or Magento. The fees are usually structured on a per-transaction basis, and there are often no monthly charges, making it a cost-effective option for businesses of all sizes.

How to Accept Card Payments in Person Without a Merchant Account

For businesses looking to accept card payments in physical locations, modern Point of Sale (POS) systems and mobile card readers offer a straightforward solution that eliminates the need for a traditional merchant account. These devices work directly with payment service providers like Square, Stripe, or PayPal to handle all aspects of the transaction.

When a customer pays by card, the modern POS system or mobile card reader processes the payment through the associated payment service provider. This bypasses the need for a separate merchant account, streamlining the transaction process and often providing quicker access to funds.

How to Accept Mobile Payments in Person Without a Merchant Account

The ability to pay can now be extended to such payment methods as Google Wallet and Apple Pay. By touching their phone against your device–be it a point-of-sale device or even with the right software, your mobile phone or tablet–they can make payment quickly and securely. Google and Apple encrypt all data for extra security, to give your customers extra peace of mind.

For those who don't want a merchant account of their own, there is an ever-growing number of ways in which payment can be made to you in a way that is quick, secure, and compliant with payment card industry guidelines. And if the sheer volume of information on this subject, well, that’s where SwitchPal can help! We have a panel of trusted payment processors and can help make your transition to taking card payments as easy as possible. The future is coming; can you afford not to make this leap?