As a business owner, deciding how to accept payments from customers is an essential task with many possible solutions. The right setup will depend on a business’s model, customers, and customer payment preferences. While many methods of accepting online payments require a merchant account, solutions like payment facilitators can help businesses bypass this requirement.

Every business that conducts customer transactions online shares a common goal: to make the process as simple, comprehensive, and accommodating as possible. Choosing to accept payments online without a merchant account is one way to streamline your payment processing strategy.

What’s in this article?

• What is a merchant account?
  
• How to accept credit card payments without a merchant account
  
• How to accept payments online without a merchant account
  
• Merchant account vs. business bank account
  
• How do merchant accounts work?
  
• The downsides of merchant accounts
  
• What is a payment facilitator (payfac)?
  
• How Stripe Payments can help
  

What is a merchant account?

A merchant account is a bank account used specifically to hold funds from a customer transaction before those funds are deposited into the merchant’s business bank account. It’s the first place the funds land after the transaction is processed.

Banks and financial institutions that provide merchant services offer these accounts to businesses. Sometimes the same banks that issue merchant accounts will supply businesses with payment gateway hardware or software, but often they provide only the account and leave the business to piece together a complete payment system using third-party providers.

How to accept credit card payments without a merchant account

To accept credit card payments without a dedicated merchant account, you can use a modern payfac solution, such as Stripe. These technology-first commerce solutions allow you to process payments under a master account, bypassing the complex and often costly setup required by traditional providers. Using a payfac is an increasingly popular way for businesses that don’t have their own merchant account to accept credit card payments from customers.

In addition to a payfac service that can functionally replace a merchant account, businesses also need a basic battery of hardware and software to accept credit card payments from customers, including:

• Point-of-sale hardware and software
  
• A card reader for in-person purchases, ideally one that can accept these payment types:
  
  • Swiped card payments, using a credit or debit card’s magnetic stripe (magstripe)
    
  • EMV chip payments, in which you insert the credit or debit card into the reader
    
  • Contactless payments, using near-field communication (NFC) technology
    
• A business bank account (this is different from a merchant account)
  

How to accept payments online without a merchant account

For online payments, merchants will need a digital storefront, either on their own website or on a platform or marketplace (e.g., Etsy, Airbnb). On a business’s own ecommerce website, they’ll need a checkout interface with a payment gateway that can accept credit and debit card details.

Stripe’s payfac solutions can empower businesses to accept payments online without a merchant account or merchant identification number (MID) of their own. Most payments providers that offer this service also offer a full scope of services that make end-to-end online transactions possible without the need for a merchant account.

For example, businesses can use the Stripe Dashboard to easily create a payment link or a unique URL that they can send to customers via email, text message, or social media for checkout. This can help businesses bypass some of the issues with peer-to-peer platforms or other types of payment providers, since most don’t allow credit card payments.

Merchant account vs. business bank account

The two major differences between a merchant account and a regular business bank account are 1) how the account is used and 2) who operates and maintains the account. A merchant’s regular business bank account, which the merchant’s bank or credit union owns, is the account from which they can send and receive payments related to every aspect of business operations: paying employees, paying rent on retail spaces, paying for their website, etc. A business bank account is used in the ways we typically associate with a standard bank account.

Merchant accounts are used only for holding funds from a customer sale immediately after the transaction is complete and moving these funds to the merchant’s primary business bank account. Merchant accounts are not bank accounts from which payments are issued, other than moving funds into the main business bank account.

How do merchant accounts work?

Merchant accounts play an important role in the multistep process that occurs after a customer initiates a credit card transaction. When the transaction begins—the credit card is swiped, inserted, or tapped at the point of sale, or the credit card information is input for online checkout—the payment is sent to the merchant’s credit card processor. The processor contacts the bank that issued the customer’s credit card via the credit card network.

Once the issuing bank confirms that the customer has adequate funds or credit to cover the cost of the transaction, it approves a funds transfer for that amount. This transfer is then deposited into the merchant account, which is owned by the merchant’s credit card processor, not their actual bank. It’s only after funds have been deposited into the merchant account that they can be routed to the merchant’s business bank account.

The downsides of merchant accounts

Although merchant accounts have historically enabled businesses to process customer payments, they come with their own challenges around speed, ease of use, and risk. Here are a few notable disadvantages of merchant accounts:

• Increased risk of fraud
  Traditional credit card processing involves multiple parties handing off transaction data and funds, which increases the number of potential points of failure. The more fragmented the setup, the higher the risk of fraud.

• Merchant account underwriting
  To reduce the risk of fraud, the banks that issue merchant accounts take measures to mitigate their risk. Those measures can include tedious underwriting processes for the businesses themselves. During the underwriting process for a new merchant account, banks consider the following factors:

  • What industry the business is in
    
  • How long the business has been operating
    
  • Business history (payment history, defaults, bankruptcies, etc.)
    
  • Any previous merchant account history
    
  • The applicant’s personal credit history
    

• Merchant account fees
  Merchant accounts are notorious for their fees, including:

  • Application fees
    
  • Setup fees
    
  • Account maintenance fees
    
  • Transaction fees
    
  • Currency conversion fees
    
  • Monthly minimum fees
    
  • Chargeback fees
    
  • Batch fees
    
  • Annual fees
    
  • Early termination fees
    

The actual dollar amount of these fees can vary significantly depending on a number of factors, including what arises during the underwriting process. For example, if your business is new and you have a less-than-perfect personal credit history, your fees will probably be higher than those of someone with a more established business and better personal credit.

• Merchant account transfer delays
  There are often delays between when a customer transaction takes place and when the funds arrive at their final destination. While businesses that have a comfortable cushion of funds can withstand delays, many businesses cannot, and missing payments can cause problems such as late bill payments or payroll.
  

What is a payment facilitator (payfac)?

A payment facilitator, also known as a payfac, is a type of payment service provider (PSP) that extends all the functionality of a merchant account to businesses without requiring them to go through the process of acquiring their own individual merchant account. Instead, the payfac has a master merchant account that it uses to process payments for all the “submerchants” in its network.

While PSPs are a broad category referring to any providers that help businesses accept payment, payfacs are a specific type of provider that groups merchants together under a Master Merchant ID.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods, and Link, a wallet built by Stripe.
  
• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.
  
• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalize interactions, reward loyalty, and grow revenue.
  
• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.
  
• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.
  

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.