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Is There Such a Thing as a Free Merchant Account?

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Are free merchant accounts really free?

Is There Such a Thing as a Free Merchant Account?

Not really. If your business needs the ability to accept credit cards but you don't want to have to complete the application and process the credit cards yourself, there are options. One of the options is a third party payment processor. These companies don't allow you to use their credit card merchant account. That would be a violation of their merchant account terms. Allowing one business to use another business's merchant account is called factoring. These third party payment processors process the credit cards themselves for a fee and then pay you independently. Or they 'buy' the product from you at a wholesale price (your retail price less their fees) and sell it to your customer at the retail price.

It may sound like a technicality but it's not. Your business does not have access to the customer's credit card information. Nor is your company paid by the bank. The fees are a percentage of the retail product price plus a flat transaction fee. Keep in mind that both fees will be higher than if you had the merchant account for your business. The merchant account fees and a profit margin are incorporated into the fee you pay to the third party processor.

A disadvantage of third party processors is that they can withhold money from your account with them for various reasons. If the customer decides to refuse to pay for the product and requests a charge back from their credit card, the third party processor is responsible for giving back the money. Some third party processors charge a reserve amount to cover these types of occurrences. Others can freeze your account and not allow withdrawals until the charge back amount is covered.



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