How to Accept Credit Card Payments Without a Merchant Account

Here's how it works, along with possible advantages and disadvantages.

Randa KrissOct 28, 2020
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If you’ve ever wondered if it’s possible to accept credit card payments without a merchant account, the short answer is yes.

It would be more accurate, however, to say that you can accept credit card payments without a dedicated merchant account — meaning without a merchant account that’s unique to your business.

In short, a merchant account is a bank account that allows you to accept credit card payments from customers. More specifically, a merchant account fronts your business funds from credit card payments until your customers pay off their credit card bills. Typically, when you’re looking to accept credit card payments, you work with a merchant account provider, first applying for a merchant account and receiving one after going through the underwriting and contract negotiation process.

In order for your small business to accept credit card payments without a merchant account, you’ll have to work with a payment service provider, also known as a third-party payment provider, payment facilitator or processing aggregator. These providers, like Square and PayPal, allow you to accept credit cards through their payment service, which includes a built-in merchant account — meaning they aggregate all of their customers’ funds into one merchant account which can then be transferred into individual business bank accounts.

How it works

When you have a merchant account, the process of accepting a credit card payment — whether in-person, online or using a virtual terminal — looks like this:

  • After you’ve accepted a credit card payment, your payment processing company transmits the data to your merchant account.

  • As this is happening, your payment processor consults your customer’s bank, the issuing bank, before the payment information is accepted or denied.

  • If the customer’s bank approves the transaction, then you can accept the payment and complete the transaction.

  • Once the transaction is approved, your payment processor will deduct any fees and then deposit the funds in your merchant account.

Ultimately, you do need a merchant account to be involved in this process, however, it doesn’t have to be a merchant account dedicated to your business. Instead, you have the option to work with a payment service provider, sometimes referred to as a third-party payment provider, payment facilitator or processing aggregator.

Accept credit card payments using a payment service provider

If you think you’d prefer to accept credit card payments without a merchant account, you’ll want to explore the different payment service providers on the market to find the one that will work best for your business. Whether you need to accept credit cards online, or in-person, using an e-commerce platform integration or point-of-sale system, you’ll want to look for the payment service provider that will fulfill that specific need.

Generally, many payment service providers will include some kind of hardware or software with their service, in addition to payment processing. Payment service providers will also typically charge flat-rate transaction fees and very limited additional fees.

If you’re looking for a payment service provider, you’ll want to compare your options in terms of both features and pricing. Once you’ve found your preferred provider, you’ll more than likely be able to apply for an account online and, depending on your payment acceptance method, start accepting credit cards almost immediately.

In this case, the actual procedure involved in accepting and processing payments will look exactly as described above, except the merchant account in question will belong to your payment service provider. Then, once the funds are deposited in your payment service provider’s merchant account, they’ll transfer the appropriate funds to your business bank account.

Payment service providers vs. merchant account providers

Let’s dive deeper into the possible advantages (and disadvantages) of working with a payment service provider, compared to working with a traditional merchant account provider.

Working with a payment service provider

Why would you choose to accept credit card payments without a merchant account by using a payment service provider?

First, the process of signing up for and receiving service from a payment service provider is usually quick and easy compared to a merchant account provider. With merchant account providers, you generally have to go through an underwriting process, as the provider wants to ensure that you’re not going to pose substantial risk for them by granting you a merchant account. Comparatively, as a payment service provider is working with a larger group of merchants within one single merchant account, the risk isn't as influential.

Another benefit of using a payment service provider is that they usually offer an all-inclusive platform where you can choose the specific solution you need. As an example, if you work with Square, you can choose from their multitude of payment options: Square Point of Sale, Square Invoicing, Square Payments, Square Virtual Terminal, depending on how and where you need to accept credit card payments. Regardless of the particular solution you choose, you receive access to the Square dashboard, as well as their PCI compliance and other security measures.

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on Square's website

Another of the top reasons that business owners choose to work with a payment service provider is that compared to merchant account providers, payment service providers charge significantly fewer fees — and the fees they do charge are much more transparent. Most payment service providers will charge a flat-rate transaction fee based on the type of transaction, but won’t charge contract or early-termination fees, setup fees, refund fees or PCI compliance fees. Any fees that they charge are typically laid out clearly on their website.

Although merchant account providers may be able to offer interchange-plus pricing for processing (arguably the most affordable type of pricing), they also generally require complex contracts, charge a number of additional fees and aren’t completely clear with said charges.

Still, working with a payment service provider to accept credit card payments without a merchant account has its downsides as well.

You’re more likely to experience account holds or termination with payment service providers. Although you can much more easily apply and receive payment service from this kind of provider, the provider reserves the risk to monitor your account and freeze or cancel it if they deem your business too risky. Therefore, one of the biggest criticisms of providers like Stripe or Square is these types of service interruptions.

Another notable downside you’ll see with payment service providers is customer service issues. Even when payment service providers offer customer support solutions in a variety of different ways, business owners often report that they’re not particularly accessible or helpful, especially in situations regarding account freezes or closures. On the other hand, when working with a merchant account provider, you typically have greater access to support representatives who know about your specific business and activity.

Working with a merchant account provider

It’s worth mentioning why some business owners ultimately choose to work with a merchant account provider, like Fattmerchant or Payment Depot, instead of a payment service provider.

Stax By Fattmerchant Payment Processing

Stax by Fattmerchant
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on Stax by Fattmerchant's website

First, whereas payment service providers are often criticized for account freezes and closures, you’re less likely to suffer these types of issues with a merchant account provider. Overall, your account is more stable in this case because of the more in-depth qualification process you went through when signing up for a dedicated merchant account through this kind of provider.

Additionally, with merchant account providers, you can receive a more personalized service. This applies to customer service as well as pricing and scalability. Many merchant account providers offer interchange-plus pricing, as opposed to flat-rate pricing. Although this pricing model may not be as clear on the surface, it’s typically considered the best for merchants and offers the cheapest credit card processing fees. Plus, many merchant account providers will allow you to negotiate your rates and pricing structure.

Moreover, because working with a merchant account provider means you’re receiving your own dedicated merchant account, you’re less likely to see limits on processing volume or transaction amounts, which you will see with some payment service providers.

Top payment service providers to choose from

If you’re interested in accepting credit card payments without a merchant account, you might consider working with one of these providers:


Square is perhaps one of the most well-known payment service providers. By working with Square, you can accept credit card payments without a merchant account in the way that works for your business. Square offers a POS system with different hardware and software options, an online payments platform, a virtual terminal and more.

You can sign up for a Square account for free online and start taking payments almost instantly. Square charges flat-rate pricing, with Square fees for in-person payments starting at 2.75% using a card reader terminal. Additionally, when you work with Square as your payment service provider, you receive a free Square magstripe reader, access to the Square dashboard and app marketplace, PCI compliance, security and fraud monitoring and customer support. On the whole, Square only charges transaction fees and doesn’t require a long-term contract or charge setup fees, account fees, batch fees, refund fees or chargeback fees.

Square is known for their flexibility, variety of options and ease of use. Therefore, as a payment service provider that allows you to accept credit card payments without a merchant account, Square is always a top option to consider.

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on Square's website


Another option for payment service providers is Stripe. While Square offers greater solutions for businesses that need a POS system, Stripe is more-focused on online payments. Nevertheless, with Stripe, you can sign up for a free account online and start accepting payments in minutes.

Stripe’s payment platform allows you to accept credit card payments (as well as other payment types) without a merchant account. You can accept payments online with an embedded checkout, payment page on your website, recurring invoices and even in-person with the Stripe terminal. For all online payments, Stripe charges 2.9% plus $0.30 per transaction. Like Square, Stripe does not charge monthly fees, setup fees or refund fees; they do, however, have a $15 chargeback fee.

On the whole though, Stripe’s service includes data security, PCI compliance, reporting, dashboard access, a developer platform and integration options and 24/7 customer support. Like Square, Stripe is known for their usability, flexibility and advanced technology.


Finally, you might also consider PayPal as a top option for accepting credit card payments without a merchant account. As one of the most well-known names in online payments, PayPal provides a number of business solutions that allow you to accept the full range of payment methods.

You can use PayPal to accept payments on your website, to connect to your e-commerce platform, by invoicing customers and to accept in-person payments using PayPal Here. Like Stripe and Square, PayPal makes it simple to get started, allowing you to sign up online and accept payments quickly. PayPal charges flat-rate transaction fees, 2.7% for in-person payments and 2.9% plus $0.30 for online payments and invoicing.

Once again, just like Square and Stripe, PayPal does not charge setup, termination or other monthly fees — unless you choose to utilize one of their specialty services, like PayPal Payments Pro. Regardless of the method you choose to accept payments with PayPal, you’ll receive fraud protection tools, hundreds of integration options, customer support and more.

With all of the different options Paypal can offer, they’re a particularly noteworthy payment service provider for online-based businesses, as well as those who typically accept payments online but would benefit from an occasional in-person payment option.

A version of this article was first published on Fundera, a subsidiary of NerdWallet.

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