More and more we are moving towards a cashless society. There are around1.5 billion credit cards in circulation in the United States today. And, with consumer credit card spend accounting for $4.737 trillion in 2018, it’s understandable why businesses need to accept credit card payments if they want to remain relevant and competitive.
But, for a business to accept credit and debit cards, they must be able to route payment transactions through a merchant account. To do this, businesses must open a merchant bank account with an acquiring bank. The acquiring bank then, is responsible for facilitating the secure transfer of transaction data between the business, the interchange, and the credit card company. Once the payment request is approved, the acquiring bank will distribute the funds into the merchant’s account.
But, occasionally, there are certain situations where opening a merchant account to accept credit cards is not feasible. Some businesses are too new, or too small to afford a merchant account. Others are considered high-risk, have difficulty getting approved, or have had a merchant account shut down before. In these cases, businesses are looking for a way to accept credit cards without having to get approved for a merchant account.
So, how can you accept credit card payments without a merchant account?
As we have shown, there is no way to facilitate a credit card transaction without a merchant account (of some kind). However, you can accept credit card payments without opening your own merchant account dedicated to your business alone.
You do this by enlisting the services of a company that holds a merchant account and allows other businesses to sign up as a sub-business under their account. This type of merchant account is referred to as an aggregate account.
This avenue of accepting payments involves many businesses aggregating through a single merchant account. In this case, it’s not that there isn’t a merchant account, so much as that the merchant account doesn’t solely belong to one merchant. In other words, they all share the same merchant account.
The payment facilitator holds a master merchant account where they enroll many merchants to process under. The account holder allows all of the merchants to run their payment transactions through the same merchant account. As the transactions are approved, the master account holder will distribute the funds out to the various businesses.
Companies offering these services go by many names: payment facilitator, payment service providers (PSP), and processing aggregator. Examples of payment facilitators offering aggregate account services include Square, Stripe, and PayPal.
Businesses are tasked with determining if this type of option for accepting payments is the best solution for their business model. Below we will address the pros and cons of using an aggregate account to accept payments. Then we’ll compare traditional merchant account solutions to that of the aggregate account.
How accepting payments through a payment facilitator affects your business.
Simple enrollment process.
With this type of account, since you’re not getting your own merchant account, it is more of an enrollment process than an application process. Since there is no underwriting to get approved to accept payments they will not require you to produce extensive documentation. Businesses like it because they don’t have to wait for application approval. You simply sign up and they’ll pop a card reader in the mail. It is generally a quick and easy process.
One size fits all solutions and rate structure.
These types of accounts will have a flat processing rate that applies to every business. This is often viewed as a simpler to understand rate structure. There are no additional fees for items such as account set up, statement fees, or PCI Compliance fees. This all leads to low initial set up costs, although you would need to upgrade to an EMV compliant card reader. And, keep in mind that with the higher flat rate, these additional fees are generally built into the flat rate.
But it may not be the most economical option for every merchant. With flat-rate processing you end up paying more for certain card types than you would with a merchant account. For example, Debit cards have a very low processing rate. But because they charge a flat rate, merchants pay the same to accept Debit cards as they do a Rewards credit card. Merchants with higher volume will pay the same as lower volume merchants. Some businesses process numerous small transactions, others process fewer, but larger, transactions.
This can end up costing more overall than a traditional merchant account (with lower rates and the additional fees) would have.
Aggregate accounts limit sales volume and lack stability.
Stability is a nagging problem with a lot of aggregate accounts. It is very common for the aggregator to freeze or close a merchant’s account at any given moment. Because the business is never underwritten, the payment service provider doesn’t vet the risk of the business before enrolling them. Often times they will set limits on the volume a company is allowed to process over a certain period of time. They will also often limit the per transaction volume as well. This can be very limiting to a business’s growth.
Over time, the aggregator may find that the merchant poses a high-risk to their account. Or if the merchant processes a transaction higher than normal it can trigger a flag. This will cause them to freeze or close a merchant’s processing down. There is a number of reasons that can lead to an account hold, freeze, or even termination. And the master account holder has a right to do so without any notice.
Lacking in customer service.
Unfortunately, some of the most popular payment facilitators have been accused of having limited customer service. They will have an 800 number but it won’t operate 24/7 leaving you with no help if your business is not 9-5.
In addition, there is a lack of knowledge of what is happing with your specific business’s processing. Since there are hundreds of businesses all operating within the same merchant account, they often can’t help each individual business. Merchants must wait for the master account holder to address an issue.
PayPal in particular, more than Square and Stripe, is very consumer-centric. They have traditionally operated as more of a service to the consumer, as opposed to a solution for merchants. They will, first and foremost, protect the consumer in the event that there is a payment issue.
Benefits of working with a merchant account provider.
More flexible interchange-plus rate structure.
Your solutions and the rates quoted with them are tailored to your business and often come with much lower per-transaction fees. Your merchant account provider will take into account your total transaction volume, the number of transactions, and ticket volume to quote the most competitive rates.
Under the flat-rate structure of a third-party processor, you will pay the same flat rate for debit cards that you do for a rewards credit card. This can end up costing you significantly.
Whereas a traditional merchant account rate structure carries much lower rates for debit card transactions. Depending on the demographics of your business and its customers, this can have a significant impact on your costs.
Account stability and flexibility.
Going through the underwriting process to open a dedicated merchant account has its benefits. First, and probably most importantly, dedicated merchant accounts are much more stable and dependable. Aggregate accounts are notorious for experiencing account freezes and even account shut-down.
Because underwriting has taken the time to look at your business model they have already assessed risk. There are no surprises. Your merchant account won’t be shut down without notice due to perceived risk.
Your account will also be less likely to have limits on processing volume. Dedicated merchant accounts are customized to your business’s specific processing needs. In the event that you need to process more volume than normal, you can easily have your volume parameters raised with a quick phone call.
Advanced payment processing tools and solutions.
Oftentimes, payment facilitators will offer an all-in-one platform with the payment services included. There’s not much flexibility. Merchant account providers, however, have access to an array of comprehensive hardware, software, and terminal options. This way you can customize your payment needs based on how you do business.
When you partner with a merchant account provider, you are their customer. You’re not just lumped in with a million other businesses. Merchant account providers generally have a dedicated customer service line with representatives who have access to your account information. This way they are able to address issues with your particular account. During regular business hours you will be able to reach your own account representative, but they will also have a 24/7 customer service line as well. Ultimately, you have access to better customer service with a company that knows and understands your business model and challenges.
Merchant account or payment facilitator- it’s your choice!
Occasionally, there are situations where it might not make sense to apply for a traditional merchant account. Brand new businesses, starting out with limited capital, just want to start accepting payments right away. New business owners may find it easier to start with a payment facilitator.
For businesses that do very small amounts of transactions or do not have significant transaction volume, a merchant account may not pencil out. For instance, micro-merchants like crafters or farmer’s market vendors are great examples of businesses that may not benefit from a traditional merchant account. In addition, ultra-seasonal businesses such as fundraisers, who only take payments one time a year, would not want to have the ongoing costs of a traditional merchant account.
In these instances, a great way to accept credit card payments without a merchant account would be with a simple mobile phone payment system.
This is a small device that connects to a mobile phone either through Bluetooth or the audio jack port. This little tool accepts the payment information from the card and facilitates the transactions for the sale through an app on the phone. These types of payment accounts are quick, simple, and affordable to set up. And a perfect option for business owners not ready to have a full-featured merchant account.
Occasionally a business owner cannot get a merchant account. Either they have been canceled before, or they are too new and can’t provide the requirements for approval. These are times where an aggregate account is a great way to accept credit card payments without a merchant account.
At Bankcard Brokers, we do it all!
At the end of the day, each business needs to take into consideration the pros and cons to decide which option is best for their business. You will want to consider your processing needs, your total estimated transaction volume, hardware and software needs, and the total estimated processing costs in order to make an educated decision.
At Bankcard Brokers, it’s our goal to provide the best solution for each of our client’s needs. Our ETA-Certified Payment Professionals are educated in all of the most current solutions on the market and are prepared to answer any questions you have.
Whether an aggregate account will suffice, or you prefer the full service of a dedicated merchant account, we have solutions. Give us a call and “Experience The Bankcard Brokers Difference”.