How to accept credit cards without a merchant account

How to accept credit cards without a merchant account

Businesses and entrepreneurs with a poor credit history have traditionally struggled when it comes to accepting credit card payments. Many credit card merchant account providers will either deny their request for an account outright or apply such exorbitant fees to the service, they may as well have done. Fortunately, there are now several options open to business owners that allow them to accept credit card payments easily and without paying a fortune in fees. If you’ve been deemed a ‘credit risk’, here’s what you need to know about how to accept credit card payments without a merchant account.

How to Accept Credit Card Payments Without a Merchant Account

As merchantmaverick.com notes, many businesses who aren’t able to open a merchant account get around the problem by using a third-party processor. We’ll touch on some of the more popular processors shortly. Although many of the benefits of working with a merchant account provider are lost by going this route, it’s an easy, affordable means by which businesses without recourse can accept credit card payments.

The Pros and Cons of Using a Third-Party Merchant

Working with a third party processor is a great option for businesses who aren’t able to use a merchant account. However, as wikihow.com notes, it’s important to be aware of the pros and cons of using a third-party merchant.

The Pros

For businesses that aren’t able to use a merchant account, third-party merchants offer a viable way to accept credit card payments both online and in-person. It also sidesteps the prohibitively high fees that some merchant account providers apply to businesses deemed high risk. For companies that process less than $1000 a month and who have a less than stellar credit history, using a third party merchant makes sense. Most third party merchants don’t run credit checks and the application process is usually very straightforward and quick.

The Cons

Unfortunately, the option isn’t entirely without its downsides. For a start, third party merchants will typically retain a higher percentage of a payment as a processing fee than merchant account providers do. It’s also worth remembering that using a third-party provider doesn’t come with many of the benefits offered by merchant account providers. While a merchant account provider will usually offer a personalized service (something that applies to pricing plans and scalability as much as it does to general customer service), third party processors don’t. Regardless of different needs, their plans and options are standardized, with no room for negotiation or personalization. A merchant account provider won’t arbitrarily close or freeze your account without warning. The same rule doesn’t apply to third party processors. Providers like PayPal have become somewhat notorious at suddenly restricting access to accounts, even if a large amount of money is being held. While most disputes can be resolved, users have complained that the process sometimes feels longer and more complicated than necessary. It’s also worth bearing in mind that some third-party processors will apply limits and restrictions on processing volume or transaction amounts. If you don’t anticipate receiving a high volume of credit card payments on a regular basis, this isn’t necessarily a problem. However, for businesses that anticipate processing total payments in excess of $1000 per month, it’s a consideration worth noting.

Is it Worth Using a Third Party Processor?

As we’ve seen, using a third-party processor means losing out on many of the benefits of using a merchant account. Ultimately, it will be down to you to decide on whether a third party service provider will fulfill your business needs. However, it’s also worth noting that choosing to work with a payment service provider now doesn’t mean you’ll be obliged to do so for ever. For new companies that are just starting out, a third-party merchant can act as a convenient stepping stone. Once the business is established and no longer considered a ‘risk,’ you can begin exploring the option of opening a merchant account. Until then, a third party processor will at least allow you to continue accepting credit card payments.

Third-Party Processors to Consider

If you decide to use a third-party processor to accept credit card payments, you’ve got several options to choose between. Some of the most established and reputable providers include:

Stripe

Signing up to Stripe is free. Once registered, you can accept payments in person via the Stripe terminal, online with an embedded checkout, or via the payment page on your website. Stripe charges a fixed fee of 2.9% plus $0.30 on all transactions, but there are no monthly maintenance fees, refund fees, or set up fees to consider.

Square

Square is one of the best-known payment service providers on the market. It’s an attractive proposition for many businesses, offering various software and hardware options, a virtual terminal, an online payments platform, and several other appealing benefits. Registration is free. Once you’ve signed up, you can start accepting payments straight away. In comparison to many other similar providers, the range of customer-friendly benefits is excellent. In addition to customer support, users also benefit from PCI compliance, security and fraud monitoring, and a free magstripe reader for in-person credit card payments.

PayPal

PayPal is one of the most well-known payment processing providers in the world, offering a good selection of business solutions that make it a popular choice with many small or new businesses. Sign up can be completed online via a simple application process. No setup fees, termination, or monthly fees are charged. A fee of 2.7% for in-person payments and 2.9% plus $0.30 for online payments is applicable to all transactions. Customer benefits extent to fraud protection, customer support, and various integrated options.

Summing Up

Third-party payment processing providers aren’t for everyone. They lack the personalized service of merchant accounts and come with various disadvantages that need to be evaluated carefully. However, for businesses struggling to accept credit card payments via a merchant account, they offer a very beneficial service. Depending on your business needs, any one of the third party payment processors we’ve mentioned above could prove immensely beneficial. As each provider varies in both service and scope, remember to research the pros and cons of each before deciding on a particular one. Some may prove more beneficial to businesses that anticipate a greater proportion of in-person credit card payments to online payments. Others work the opposite way. And remember, regardless of which provider you ultimately choose, you’re not committed to the method for eternity. Once the business is established, you can look to re-open the conversation about setting up a merchant account. Until then, providers like Paypal, Stripe, et all, could prove very handy.

How to accept credit cards without a merchant account

A merchant account is a type of bank account which allows a business to accept card payments. For an offline business a merchant account allows them to accept payments with a card machine. Online businesses use a payment gateway which is set up through their website to process payments.

For an offline business to set themselves up with a merchant account can be quite a big step. A merchant account requires a contractual and financial commitment to a merchant services provider. There are a number of significant costs to set up a merchant account for instance the account activation fee and the cost of card machine rental/ purchase. Ongoing costs include the minimum monthly service charge, cost per transaction and statement charges. There may be charges associate with cancelling the account.

To enter into a merchant account agreement a business must be fairly certain they will process a significant number of card payments. If not they will still face paying the minimum monthly service charge each month. If the business is not gaining significant additional revenue by offering card payments they will end up losing money. For many businesses a merchant account makes sense but for some small businesses and the self employed a traditional merchant account isn’t a viable option.

Previously, for those small businesses that could not justify investing in a merchant account, accepting card payments wasn’t an option. However, recent developments have led to the development of mobile card readers that work with a smartphone or tablet and don’t require a merchant account to be set up.

There are several companies in the UK offering this type of device. For details on all the companies please read an article I wrote about mobile card readers. Amongst the best options for small businesses and individuals at present are Payleven, and iZettle.

You can get a mobile chip and PIN device from Payleven or iZettle for £49/£59 in the UK. Transaction fees are 2.75% and the card readers work with iOS and Android devices (check for compatibility).

If a merchant account is not an option for you but you still want to accept card payments a mobile card reader might be worth investigating. It is worth baring in mind that the technology is brand new so there are some issues still being ironed out and the market is changing rapidly.

If you sell online an easy way to do so is with Paypal. Paypal easily integrates with your website, you can customise the landing page and Paypal is highly recognised and trusted by prospective customers. It is free to set up as a merchant through Paypal and the only fees you pay are on sales made. Paypal accepts card payments from all the major card companies and you can also connect Paypal with your bank account.

I hope you found this article useful. There are additional related articles on this website, take a look through the categories to find the relevant info.

Accepting credit cards can give small businesses a boost

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Rebecca Lake has been a financial planning and credit expert for The Balance for over three years. She has over a decade of experience writing personal finance, investing, and small business content for publications like Forbes Advisor and U.S. News. She also assists with content strategy for prominent brands in the financial services industry, including Citibank, Discover Bank, and AIG Insurance.

Running a small business means keeping a tight handle on cash flow. One way to facilitate the movement of money in and out of your business is to expand your payment options to include credit cards. Allowing customers to pay via credit card can make managing cash flow less stressful and eliminate the delays associated with waiting for check payments. If your business isn’t accepting credit card payments yet, changing that may be easier than you might think.

Key Takeaways

  • Accepting credit card payments for your business can make managing cash flow easier and potentially boost sales.
  • More Americans are relying on credit and debit cards as a payment method instead of cash or checks.
  • You can accept credit card payments whether you run a large business or a small one.
  • Setting up your business to accept credit card payments doesn’t have to be a complicated process.

Benefits of Accepting Credit Card Payments

Allowing your customers to pay with credit cards can yield a number of advantages for your business that could lead to greater growth. According to the National Federation of Independent Businesses, the major reasons to accept credit cards include:

  • Improving cash flow, since it can speed up payment times and reduce delays
  • Legitimizing your business in the eyes of customers
  • Potentially boosting sales volume since your customers will have more ways to pay

If you’re still not sold on the idea of accepting cards, consider the growth of credit card payments compared to other payment methods. Research from Deloitte shows that credit cards made up nearly $4 trillion in payment volume in the U.S. in 2018. Between 2016 and 2018, credit card transactions increased, while the percentage of Americans using cash to pay declined.  

That’s a trend that may continue if demand for contactless and/or digital payments also rises. As a result of the coronavirus pandemic, for instance, 64% of small businesses said they were trying to steer clients away from using cash and checks in favor of digital payments, such as credit cards.   Credit cards could become an even more common payment method as Americans move a greater portion of their transactions online—even when buying from brick-and-mortar businesses, such as local restaurants offering delivery services or stores with curbside pickup.

What Types of Businesses Can Accept Credit Card Payments?

The short answer is that virtually any kind of business can accept credit cards these days. For example, you could choose to accept credit cards if:

  • You run a brick-and-mortar business
  • Your business operates completely online
  • You have a traditional small business with employees
  • You’re a sole proprietor with zero employees
  • You’re an independent contractor or freelancer
  • You have a mobile business (such as a food truck or dog grooming service)

In any of those scenarios, accepting credit card payments could work in your favor if it makes it easier for customers to pay. Deciding not to accept credit cards in your business usually comes down to personal choice, rather than the type of business you run.

If you decide to accept credit card payments, federal law requires that you verify that those payments are authorized by the customer before processing them. That is typically done behind the scenes, and virtually instantaneously, by a payment processing service.

How to Accept Credit Card Payments

If you’re ready to accept credit card payments for your small business, there are a few steps you’ll need to follow. But once you get a system set up, it’s relatively easy to oversee and manage.

1. Decide how you’ll accept credit card payments

The first step is determining when and how to accept credit card payments. For example, you can take credit card payments:

  • Online
  • In-person
  • Using a mobile card reader

The option you choose may depend on the type of business you run. If you have a brick-and-mortar retail store, for example, you may accept credit cards in-person at checkout or online if you’ve set up an ecommerce store. But if you run a mobile business, using a mobile card reader may be the best option.

You’ll also need to decide which of the major credit card networks (Visa, Mastercard, Discover, or American Express) you want to accept.

2. Choose a payment processing system

When a customer gives you their credit card to pay, there’s more to it than simply swiping the card. The customer’s card and account details have to be reviewed and processed electronically so the payment to you can be authorized. All of this happens digitally behind the scenes in a matter of seconds, but you need to hire a payment processor to make it all work.

If you want to accept credit card payments, there are two ways you can do it: merchant accounts or payment service providers. A merchant account is an account you open with a bank to accept credit card payments. Payment service providers are companies that allow you to accept credit card payments without setting up a merchant account.

Of the two, a payment service provider may charge lower processing and transaction fees. So it may work well for you if you have a newer business or relatively small credit card payment volumes. But if you do a large volume of sales from credit cards, then a merchant account could be an easier way to manage your credit card payments.

Important

When comparing merchant accounts and payment service providers, consider whether you have to sign a long-term contract and what fees you’ll pay for credit card processing.

3. Get your credit card payment software and hardware in place

Once you have a method of processing credit card payments in place you may need to update your point of sale software and hardware to actually accept them.

For example, if you run a brick-and-mortar business you may need to purchase checkout software to accept card payments or install a card reader that’s EMV chip enabled at the checkout. Some payment service providers will also supply the equipment you need to get set up for accepting credit card payments in-store or via a mobile card reader.

If you plan to accept credit cards online you’ll also need to set up a payment gateway for that. Again, this may be included with your merchant account or payment service provider plan.

Pay Attention to Credit Card Payment Processing Fees

Accepting credit cards through a merchant account or payment service provider isn’t free; both charge service fees to facilitate those payments. As you get ready to accept credit card payments, consider how those fees factor into your operating and overhead costs.

If the fees are going to take a serious bite out of profits, you might compensate by increasing prices for your products or services. Or you could add on a surcharge or convenience fee for processing credit card transactions below a certain dollar amount. But be sure you’re aware of state and federal regulations on credit card surcharges to avoid any illegal practices.

This tutorial will help to explain ways you can accept credit cards on-line without having your own merchant account. Many are surprised when they find out that they do not need a merchant account or expensive software to accept credit cards on the Internet. A credit card processing service will allow you not only the ability to accept credit cards online, but will also help you to avoid paying for special software, application fees, setup fees, monthly fees, gateway fees, a secure server, or even minimum transaction fees! The majority of third-party processing services only require a percentage of your transactions, however, this percentage is about four times the amount it would be if you had your own merchant account. Though, at the same time, it allows you to owe nothing if you sell nothing. It will be up to you to take the time to do the math and consider the costs involved with obtaining your own merchant account, and then compare those costs to the percentages of sales that a third-party will require. It all depends on your own volume of transactions and needs. For some, having their own merchant account is the obvious choice. For others, a third-party processing service is best.

Third-party merchants (companies who accept credit cards on your behalf) are useful for:

    Those who would rather not work with credit card numbers provided by visitors nor handle the transactions.

Those who do not wish to obtain, or do not have, a Secure Server to accept the credit card information.

Those who have less than $1,000 in transactions each month.

Those who may have difficulty in obtaining their own merchant account due to the type of business/organization they are operating, an unsightly credit history, or non-US businesses needing a US alternative.

  • Those who would like to first see if accepting credit cards will actually boost sales before obtaining their own merchant’s account.
  • The advantages are that you simply link your products to the validation service that accepts credit card payments on your behalf. They check the card, process the card, and send you a monthly payment for the amount you are owed. This is a simple solution that is easy to set up and costs nothing to begin.

    The main disadvantage is that they will charge a higher percentage for each transaction in comparison to having your own online merchant account. Third-party processing services are more of a stepping stone for your organization. Initially you will pay more per order but 100% less on setup fees, software fees, as well as owe nothing if you sell nothing in any given month. If your business is a success, you will pay a large setup fee for your own online merchant account, but then pay less per order. Again, the decision on which is best for you is all in the math and it will be important for you to sit down and calculate the advantages and disadvantages for each of your options.

    If a third-party processing service is something you think may be a viable solution for you, visiting the following web sites will help get you started. This is a list of third-party processors that will accept credit cards on your behalf. As always, it will be important for you to do some homework. Compare their rules and prices and read any and all small print. FutureQuest ® does not recommend or vouch for any third-party processor. This list is provided for informational purposes only and is supplied in an effort to help you realize more of the options that are available for your own success. The information and fees provided below are what was listed on the processing service’s web site at the time of this article. Visiting the web site and seeking out this information from them will assure accuracy.

    ProPay.com is for any type of business that requires instant credit card processing services. Requires a postal payment of $35 to be activated. One-time $35 activation fee plus 3.5% of total sale and $0.35 per transaction.

    2Checkout.com is for any type of business that requires instant credit card processing services which can be setup in 3 minutes! One-time $49 activation fee, and 5.5% plus $0.45 per sale.

    CC Now for any type of business. The cost is 9% per transaction and only 8% during the November and December holiday season. CC Now also provides complete solutions for online auctions.

    Credit Card Billing (CCB) for companies who are selling website content or services. Requires 5% holding of first 26 weeks of sales as charge back protection. Percentage of sale varies around 14.5%.

    Register Now for software/shareware vendors. Costs are 20% per transaction or 21% per transaction if they provide the download site/bandwidth for the software.

    Clickbank is for businesses that deliver unique products or services over the Internet itself (via web pages, files, or email). Clickbank is not for businesses that ship products or provide other offline services. Clickbank has a one-time $39.95 activation fee, and a $1 + 7.5% fee per sale.

    Shareit is for developers of shareware applications. Shareit will also provide a download site for your application as well as the registration/payment service. $2.95 plus 4% for the first 1000 transactions and $1.95 plus 4% for each additional transaction.

    Visage Services for developers of shareware applications. Transaction fees vary. Average transaction fee is $3.00 plus 3%.

    How to accept credit card payments on your site without a merchant account

    Are you thinking of selling things on the web? If so, you will probably also be considering some way in which you can accept credit cards on your site. Since new webmasters who visit thesitewizard.com often ask me about how they can get started accepting payments in this form, this article provides some basic information on adding credit card payment facilities to your website.

    (Note: if you do not already have a website, you may also want to read How to Create / Make a Website: The Beginner’s A-Z Guide.)

    Why Do It?

    Credit card payments allow you to take advantage of the following types of customers:

    Impulse buyers

    After reading your advertisements and hype on your site, buyers would be all fired up about your product. If they have a means of making a purchase immediately, you’ve secured that sale. If you only allow cheque (“check” if you use a different variant of English) payments, the additional time it takes for them to get their cheque book and mail out the cheque may be a deterrence. They may also have second thoughts later.

    International customers

    Credit card payment is a tremendous convenience if your customers are overseas. It automatically takes care of the problems of currency differences as well as the time it takes for a cheque to travel to the vendor. You will lose a large number of overseas customers if cheque payment is the only way you can accept payment.

    It’s the norm these days

    Nowadays, when you sell something on the Internet, everyone expects you to accept credit cards. In fact, it is now the norm so much so that it is inconceivable that any vendor not accept such things.

    Methods of Accepting Credit Card Payments

    There are actually two ways in which you can accept credit cards on your site.

    Using Your Own Merchant Account

    To do this, you will need a bank that will allow you to open a merchant account. Requirements for this will vary from country to country, and you should check with your local banks for more information on this.

    Through a Third Party Merchant

    There are numerous companies around that are willing to accept credit cards payments on your behalf in exchange for various fees and percentages. These are also known as “payment gateways”.

    Which Method Should You Use?

    The initial costs of opening your own merchant account is usually higher than when you use a third party merchant. Indeed, some third party merchants have no setup fee at all. However, the transaction fee (which is what you pay the bank or third party merchant for each sale) is much higher when you use a third party as compared to when using your own merchant account.

    A third party merchant is usually convenient to use when you don’t know if you can actually make much out of your product or service. If you just want to test the water to see how things are, this is usually a good way to start. It is also convenient in that the merchant takes care of everything for you. You just get a cheque at the end of each payment period (if you have earned enough) and concentrate on your products, services and customers.

    Another benefit of the payment gateway is that if you use a reputable one, your visitors may be more willing to buy your goods online since they trust that merchant to keep their credit card numbers safe.

    While having your own merchant account lowers your transaction costs, you have to be careful to minimize your risks since you’ll be processing the credit card payments yourself. By risks, I mean that you will have to deal with things like fraud (where people buy things with a stolen credit card number) and chargebacks (where someone forcibly reverses the payment to get a refund through their bank) yourself. This is not to say that there are no risks attendant on using a third party merchant.

    Some Third Party Merchants / Payment Gateways

    Here’s a list of some third party merchants that you might want to consider if you’re looking for ways to accept credit card payments. I have not used any of them myself, as a vendor (except for PayPal, and that was a very long time ago), so scrutinize them all carefully and use them at your own risk.

    Note that rates and stuff that I publish below were correct at the time I investigated these vendors. It will most likely have changed by the time you read this since the merchants tend to modify their rates from time to time according to market conditions. Make sure that you check the current (up-to-date) details from their site and read reviews from others who have used them before making any decision.

    2checkout: Avangate’s 2checkout accepts credit card transactions for any type of product, for a charge of 3.5% + $0.35 USD per successful sale.

    PayPal: This well-known service allows you to set up a Premier or Business account (you are subject to certain limits when receiving credit card payments if you use a Personal account, and probably also higher fees per transaction). The charges range between 1.9% + $0.30 USD to 2.9% + $0.30 USD for each transaction if you are in the US. Non-US users are charged different amounts according to the country.

    Stripe: There are no setup fees. Transaction fees vary according to your country (ie, the vendor’s country). For example, if you are in the US, it’s 2.9% + $0.30 per US transaction and 3.9% + $0.30 per non-US transaction. In the UK, you are charged 1.4% + 20p for European credit cards, and 2.9% + 20p for non-European cards. And so on. For disputes (like chargebacks), there is an additional fee levied, unless the customer’s bank resolves the dispute in your favour (“favor”). Like the other charges, the fee varies from country to country, and is USD $15 in the US, £15 in the UK, and so on.

    WorldPay: If you are in the US, UK, Brazil, Japan, China, Mexico, Argentina, Australia, Singapore, or Germany, WordPay lets you set up an account where you can receive payments made with credit cards as well as certain other digital wallets. Their website does not list their rates, and requires you to contact them for such information.

    How to Put an Order Form or Shopping Cart on Your Website

    Once you have signed up the vendor of your choice, you will be able to put an order form or shopping cart on your site. Each vendor has a different method for this, but most, if not all, will provide you with premade forms that you can customize for your product or service. If you use PayPal, and don’t know where to start, see my tutorial How to Put an Order Form or Buy Now Button on Your Website Using PayPal.

    Trying It Out

    Whichever you choose, if you are selling things on the Internet, you really have not much choice but to accept credit cards. You probably don’t know what you missed until you try it out.

    All the best for your business!

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    Accepting credit card payments will boost your sales, increase your cash flow and improve the customer experience.

    By: Jamie Johnson, Contributor

    No matter how small or new your business is, the ability to accept credit cards is a must-have. Fortunately, it’s never been easier for businesses to accept credit card payments. Here are three ways you can get started.

    Open a merchant account

    A merchant account is a bank account with a merchant acquiring bank that businesses use in order to accept credit card and other electronic payments. The merchant acquiring bank acts as an intermediary between the business and the credit card company, facilitating the authentication of the payment and other technical aspects. Once the electronic payments are processed and approved, the bank distributes the funds into the merchant account.

    To get started, you’ll choose the credit card companies you want to work with. This depends on the type of business you’re running and what countries you do business in. At the very least, you’ll likely want to accept the key players like Visa and Mastercard.

    From there, you’ll find a merchant acquiring bank to open your merchant account with. Your bank will require that you submit the following information:

    • Business activities.
    • Banking information.
    • Tax returns.
    • Payment model.

    The biggest advantage of going this route is that it will be less expensive in the long term. While the merchant acquiring bank can charge the business per-month and per-transaction fees, the amounts typically end up costing less than flat-rate fees. However, you will likely have to sign a multi-year contract so you want to choose the right partner the first time.

    If setting up a merchant account is too time-consuming, you can start by using a payment service provider.

    Use a payment service provider

    If setting up a merchant account is too time-consuming, you can start by using a payment service provider. Payment service providers allow you to accept credit card payments without setting up a merchant account. Common providers include companies like Square, Stripe and PayPal.

    The benefit of choosing this method is that you’ll pay a flat rate fee and there are no set up fees. This makes it easier to get started and since the billing is month-to-month, you won’t be locked into any long-term contracts.

    However, there are some downsides to using a payment service provider. Some customers have complained about sudden account holds or even having their account closed by the company’s fraud prevention team.

    And the fees do add up quickly. Most payment service providers charge fees up to $2.9% for companies that do less than $1 million in volume per year. Many businesses choose to start out with this model and then switch to a merchant account when ready.

    Use an e-commerce platform

    If you plan to accept payments primarily online, you can choose to set up an e-commerce platform like eBay, Etsy and Shopify. These platforms have built-in payment processors and accept all major credit cards as well as alternative payments, like gift cards.

    To get started, you’ll create your store and activate your payments. You can choose to either build an e-commerce website from scratch or implement e-commerce capability into your existing website. Regardless, you’ll need your EIN (employee identification number) and banking information for setup.

    As far as pricing, many sites offer free trial periods so you can try out your store before committing long-term.

    Which payment method is the right choice?

    As you can see, there are pros and cons to each type of payment system. Merchant accounts are more time-consuming to set up but will likely end up costing you less down the road, whereas payment service providers and e-commerce sites are easier to set up but come along with higher fees.

    Here are a few questions you can ask yourself to help you determine which is the right choice for you:

    • What kind of transaction volume will I be doing every month?
    • What kind of features do I need?
    • How much can I expect to pay in fees?
    • What level of customer support can I expect to receive?

    The answers to these questions should help you create the best plan for your business to begin accepting electronic payments.

    CO— does not review or recommend products or services. For more information on choosing the best credit card processors, visit our friends at business.com.

    CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

    Accepting credit card payments will boost your sales, increase your cash flow and improve the customer experience.

    By: Jamie Johnson, Contributor

    No matter how small or new your business is, the ability to accept credit cards is a must-have. Fortunately, it’s never been easier for businesses to accept credit card payments. Here are three ways you can get started.

    Open a merchant account

    A merchant account is a bank account with a merchant acquiring bank that businesses use in order to accept credit card and other electronic payments. The merchant acquiring bank acts as an intermediary between the business and the credit card company, facilitating the authentication of the payment and other technical aspects. Once the electronic payments are processed and approved, the bank distributes the funds into the merchant account.

    To get started, you’ll choose the credit card companies you want to work with. This depends on the type of business you’re running and what countries you do business in. At the very least, you’ll likely want to accept the key players like Visa and Mastercard.

    From there, you’ll find a merchant acquiring bank to open your merchant account with. Your bank will require that you submit the following information:

    • Business activities.
    • Banking information.
    • Tax returns.
    • Payment model.

    The biggest advantage of going this route is that it will be less expensive in the long term. While the merchant acquiring bank can charge the business per-month and per-transaction fees, the amounts typically end up costing less than flat-rate fees. However, you will likely have to sign a multi-year contract so you want to choose the right partner the first time.

    If setting up a merchant account is too time-consuming, you can start by using a payment service provider.

    Use a payment service provider

    If setting up a merchant account is too time-consuming, you can start by using a payment service provider. Payment service providers allow you to accept credit card payments without setting up a merchant account. Common providers include companies like Square, Stripe and PayPal.

    The benefit of choosing this method is that you’ll pay a flat rate fee and there are no set up fees. This makes it easier to get started and since the billing is month-to-month, you won’t be locked into any long-term contracts.

    However, there are some downsides to using a payment service provider. Some customers have complained about sudden account holds or even having their account closed by the company’s fraud prevention team.

    And the fees do add up quickly. Most payment service providers charge fees up to $2.9% for companies that do less than $1 million in volume per year. Many businesses choose to start out with this model and then switch to a merchant account when ready.

    Use an e-commerce platform

    If you plan to accept payments primarily online, you can choose to set up an e-commerce platform like eBay, Etsy and Shopify. These platforms have built-in payment processors and accept all major credit cards as well as alternative payments, like gift cards.

    To get started, you’ll create your store and activate your payments. You can choose to either build an e-commerce website from scratch or implement e-commerce capability into your existing website. Regardless, you’ll need your EIN (employee identification number) and banking information for setup.

    As far as pricing, many sites offer free trial periods so you can try out your store before committing long-term.

    Which payment method is the right choice?

    As you can see, there are pros and cons to each type of payment system. Merchant accounts are more time-consuming to set up but will likely end up costing you less down the road, whereas payment service providers and e-commerce sites are easier to set up but come along with higher fees.

    Here are a few questions you can ask yourself to help you determine which is the right choice for you:

    • What kind of transaction volume will I be doing every month?
    • What kind of features do I need?
    • How much can I expect to pay in fees?
    • What level of customer support can I expect to receive?

    The answers to these questions should help you create the best plan for your business to begin accepting electronic payments.

    CO— does not review or recommend products or services. For more information on choosing the best credit card processors, visit our friends at business.com.

    CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

    How to accept credit card payments on your site without a merchant account

    Are you thinking of selling things on the web? If so, you will probably also be considering some way in which you can accept credit cards on your site. Since new webmasters who visit thesitewizard.com often ask me about how they can get started accepting payments in this form, this article provides some basic information on adding credit card payment facilities to your website.

    (Note: if you do not already have a website, you may also want to read How to Create / Make a Website: The Beginner’s A-Z Guide.)

    Why Do It?

    Credit card payments allow you to take advantage of the following types of customers:

    Impulse buyers

    After reading your advertisements and hype on your site, buyers would be all fired up about your product. If they have a means of making a purchase immediately, you’ve secured that sale. If you only allow cheque (“check” if you use a different variant of English) payments, the additional time it takes for them to get their cheque book and mail out the cheque may be a deterrence. They may also have second thoughts later.

    International customers

    Credit card payment is a tremendous convenience if your customers are overseas. It automatically takes care of the problems of currency differences as well as the time it takes for a cheque to travel to the vendor. You will lose a large number of overseas customers if cheque payment is the only way you can accept payment.

    It’s the norm these days

    Nowadays, when you sell something on the Internet, everyone expects you to accept credit cards. In fact, it is now the norm so much so that it is inconceivable that any vendor not accept such things.

    Methods of Accepting Credit Card Payments

    There are actually two ways in which you can accept credit cards on your site.

    Using Your Own Merchant Account

    To do this, you will need a bank that will allow you to open a merchant account. Requirements for this will vary from country to country, and you should check with your local banks for more information on this.

    Through a Third Party Merchant

    There are numerous companies around that are willing to accept credit cards payments on your behalf in exchange for various fees and percentages. These are also known as “payment gateways”.

    Which Method Should You Use?

    The initial costs of opening your own merchant account is usually higher than when you use a third party merchant. Indeed, some third party merchants have no setup fee at all. However, the transaction fee (which is what you pay the bank or third party merchant for each sale) is much higher when you use a third party as compared to when using your own merchant account.

    A third party merchant is usually convenient to use when you don’t know if you can actually make much out of your product or service. If you just want to test the water to see how things are, this is usually a good way to start. It is also convenient in that the merchant takes care of everything for you. You just get a cheque at the end of each payment period (if you have earned enough) and concentrate on your products, services and customers.

    Another benefit of the payment gateway is that if you use a reputable one, your visitors may be more willing to buy your goods online since they trust that merchant to keep their credit card numbers safe.

    While having your own merchant account lowers your transaction costs, you have to be careful to minimize your risks since you’ll be processing the credit card payments yourself. By risks, I mean that you will have to deal with things like fraud (where people buy things with a stolen credit card number) and chargebacks (where someone forcibly reverses the payment to get a refund through their bank) yourself. This is not to say that there are no risks attendant on using a third party merchant.

    Some Third Party Merchants / Payment Gateways

    Here’s a list of some third party merchants that you might want to consider if you’re looking for ways to accept credit card payments. I have not used any of them myself, as a vendor (except for PayPal, and that was a very long time ago), so scrutinize them all carefully and use them at your own risk.

    Note that rates and stuff that I publish below were correct at the time I investigated these vendors. It will most likely have changed by the time you read this since the merchants tend to modify their rates from time to time according to market conditions. Make sure that you check the current (up-to-date) details from their site and read reviews from others who have used them before making any decision.

    2checkout: Avangate’s 2checkout accepts credit card transactions for any type of product, for a charge of 3.5% + $0.35 USD per successful sale.

    PayPal: This well-known service allows you to set up a Premier or Business account (you are subject to certain limits when receiving credit card payments if you use a Personal account, and probably also higher fees per transaction). The charges range between 1.9% + $0.30 USD to 2.9% + $0.30 USD for each transaction if you are in the US. Non-US users are charged different amounts according to the country.

    Stripe: There are no setup fees. Transaction fees vary according to your country (ie, the vendor’s country). For example, if you are in the US, it’s 2.9% + $0.30 per US transaction and 3.9% + $0.30 per non-US transaction. In the UK, you are charged 1.4% + 20p for European credit cards, and 2.9% + 20p for non-European cards. And so on. For disputes (like chargebacks), there is an additional fee levied, unless the customer’s bank resolves the dispute in your favour (“favor”). Like the other charges, the fee varies from country to country, and is USD $15 in the US, £15 in the UK, and so on.

    WorldPay: If you are in the US, UK, Brazil, Japan, China, Mexico, Argentina, Australia, Singapore, or Germany, WordPay lets you set up an account where you can receive payments made with credit cards as well as certain other digital wallets. Their website does not list their rates, and requires you to contact them for such information.

    How to Put an Order Form or Shopping Cart on Your Website

    Once you have signed up the vendor of your choice, you will be able to put an order form or shopping cart on your site. Each vendor has a different method for this, but most, if not all, will provide you with premade forms that you can customize for your product or service. If you use PayPal, and don’t know where to start, see my tutorial How to Put an Order Form or Buy Now Button on Your Website Using PayPal.

    Trying It Out

    Whichever you choose, if you are selling things on the Internet, you really have not much choice but to accept credit cards. You probably don’t know what you missed until you try it out.

    All the best for your business!

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