You’ve seen the ads. 0% fees. No application fees. No monthly fees. Free merchant accounts, right? Well, not really. The truth is you are being SCAMMED by free merchant accounts and my goal is to teach you how to avoid falling victim to these 0% fee “merchant accounts” and show you how much you can save by using a traditional merchant account in order to accept credit cards online.
Why Is a Free Merchant Account Bad?
To give you the answer straight, you will lose customers and you will lose even more revenue.
No Application Fees
Free merchant accounts scam you in one of three ways. The first way is when these merchant account providers tell you, “We won’t charge you to apply.” But no merchant services provider charges you an application fee unless you fit into a very slim category of applicants. These include incredibly high-risk businesses, those with very poor credit, and those with absurdly high chargeback ratios.
Fees should start appearing once you start processing transactions, not before. A 0% processing fee account doesn’t exist – this is a scam.
Waived Monthly Fees
The promise of a no-fee merchant account or a 0% processing rate merchant account doesn’t exist. Fees don’t disappear, they just get moved around. There’s really no such thing as a no monthly fee merchant account.
Some providers charge something between $20 and $50 per month so that you can accept credit card payments on your online store. Many merchant account processors waive this fee depending on your sales volume.
However, the scam is that this fee is “waived” but your transaction fee goes up by a small percentage. Be wary of no-fee merchant accounts because those fees don’t even disappear, they just get moved to the transaction side of things where maybe they get tucked out of sight.
If you are currently using a free merchant account, you need to go in and make sure those fees aren’t being translated into higher percentage rates on transaction fees.
No Processing Fee
This can look like “no payment processing fee” or “no percentage fee on sales” or “no transaction fees”. Nothing is really free.
Visa, MasterCard, American Express, and any major credit card processing network has a built-in fee called interchange. It appears on every credit card, gets charged on every transaction, and will never disappear or be waived. It doesn’t matter if you’re a charity, a non-profit, selling books to the blind, adult content, or CBD to help the elderly sleep better, there is always a fee. That interchange does vary, however, depending on what type of e-commerce business you are. So it could be in your best interested to learn what MCCs your small business falls under and select the one that has the smallest fee.
What these credit card processors mean when the say “no fee” is that you will be charging your customers those fees. Instead of you taking on the fees behind the scenes, your customers get them on their bank account statement. Anytime you pass on a fee to a customer, they aren’t very happy about it. Imagine if you were suddenly charged an extra $5 and only found out about it when you looked at your credit card statement? We doubt you’d be very happy about it, and you’d likely dispute the transaction. Guess what: that’s exactly what the customer does, and it leads to high chargeback rates and a diminishing customer base.
You should always aim to charge your customers one price that covers everything: card processing fees, transaction fees, interchange fees, cancellation fees, office costs, marketing costs, and everything else. It should all be covered all in one go.
Another thing to consider is that when you decide to force these fees onto the customer, you’re adding line items to their monthly statement. And this never ends well. A customer will notice how much and how often you charge them even moreso than if it was packed into one transaction.
The solution? Negotiate for better fees.
How You Can Lower Fees and Get More Out of Your Merchant Account
So, when you go for a free merchant account, you should know by now that it’s not really free. And even though you pay less in fees, your customers get charged more. That leads to higher chargebacks, more refunds, customers not buying from you again, and a bad reputation. All of this happens just from adding an extra dollar or two. What can you do about it?
Call Your Payment Processor or Service Provider
Call them, email them, get in touch with them in some way and ask if there’s anything you can do to lower your fees. Sometimes with a review, they can lower your fees. That’s especially true if you’ve been steady with sales and low on chargebacks.
Attempting to lower your fees also makes it a lot easier on your customers if they’re the ones that end up paying it all. If you’ve decided to go with a free merchant account, you shouldn’t ignore fees altogether. In fact, you should take extra steps to protect your customers.
Check Your Monthly Statement
Whether you’re processing with Stripe, PayPal, or a merchant account provider, there can be errors on your statement or fees you weren’t aware of and don’t need to pay.
3rd-party payment processors like Stripe and PayPal do charge extra fees, especially for non-domestic card transactions. They aren’t really the best solution if you sell in multiple markets, especially to a large customer base, but it is possible as a last resort or for startups.
Check your statement and if you see anything you don’t understand or don’t agree with, contact your processor. They can either erase the fee entirely or knock it down to something more appropriate.
Offer ACH Payments
A lot of customers have access to ACH, and even if it’s not their preferred payment option, it’s still a processing solution that works and can be used by most of your customers. The benefit of offering ACH to your free merchant account is because it costs far less to process than credit cards.
Credit cards might be the top payment solution for most Americans, but it isn’t the only method. And if it can help eliminate fees, you might as well give it a shot.
This is a bonus tip for online business owners that sell internationally. If you sell products from the US to someone in the UK, that customer will want to see prices in their native currency. DCC (dynamic currency conversion) makes that happen. Otherwise, customers see USD, get charged a terrible conversion rate by their bank or credit card, and might not even understand the difference in price. That can lead to chargebacks.
It’s really easy to turn on. In Stripe, it’s literally just a switch in the backend you need to flip to “on”. For other online payment processors, call or email them and ask to turn on DCC. It should be free or cost very little.
Avoid the Scam of Free Merchant Accounts Right Now with DPN
Free merchant accounts do not exist. Whether it’s you or your customers, someone is paying those fees. So many businesses fall for the free merchant account scam and end up losing their entire business all because they want to save a few dollars. Don’t fall for it.
Instead, get your own high-risk merchant account. DirectPayNet sets you up with a merchant account whose fees you can negotiate and customize to best fit your business and your customers. You get linked with a processor that will accept your business with full support so there’s no hindrance on expansion and a PCI-compliant payment gateway on your checkout that offers credit card, debit card, and ACH payments (if you need). That also includes virtual terminals and point-of-sale devices/card readers to accept contactless payments and more for in-person transactions.