Free Merchant Accounts – What’s the Catch?

Free Merchant Accounts

As a business owner, you want to save money wherever you can, so perhaps you’ve been enticed by payment processors that advertise “free merchant accounts” or “free merchant services” for business owners who want to accept payments at a minimal cost. Before you sign on the dotted line, you should take a moment to remember the adage: “If something seems too good to be true, it probably is.”

Do Free Merchant Accounts Really Exist?

There is no such thing as a truly free merchant account. Payment processors have to make money to stay in business. When you see an advertisement for free merchant accounts, one of three things is usually happening:

  1. The merchant services provider is imposing hidden or undisclosed merchant account fees.
  2. The merchant services provider is passing on the cost to the customer.
  3. You are being lured into a merchant services scam.

To discover what’s really happening, you should always read the fine print, seek out third-party reviews, and ask questions.

Hidden or Undisclosed Fees

Some merchant providers use the word “free” to attract your attention and get you in the door. They know that hundreds of merchants are searching Google for “free merchant accounts” each month, and they want to capitalise on that segment of the market. It’s understandable.

However, when you dig a bit deeper, you discover that only one aspect of the account is free. They may offer zero transaction fees but charge a high monthly service fee. Conversely, they may not charge monthly service fees but will instead charge exorbitant payment processing fees. Some credit card processing companies will even go so far as to advertise free merchant services when all they’re doing is waiving the initial setup fee. Here are some of the promises you’ll commonly see on “free” merchant landing pages:

  • No sign-up fees
  • No per-transaction fees
  • No monthly fees
  • No credit check required
  • Free access to a secure server or payment gateway

Technically, they’re not lying. They are offering some aspect of their service for free, but they’re making up the difference with other fees. And when you weigh the true costs, you often end up spending considerably more than you would with a more transparent (and decidedly not free) processor.

For example, let’s say that your business pulls in €20,000 per month in average sales.

Payment Processor 1 charges a 2% transaction fee and a €100 monthly fee.

Payment Processor 2 advertises FREE merchant accounts; they charge no monthly service fee but take 4% of each transaction.

Based on your average monthly sales, Payment Processor 1 would cost you €500 per month. Payment Processor 2 (the “free” merchant services provider) would cost you €800 per month.

Don’t be fooled by payment processors that use deceptive maths and clever advertising to seduce you. At the very least, you’ll end up paying higher transaction fees. In many cases, you’ll also be stuck with a bare-bones merchant account that’s unable to manage high-volume sales as your business grows.

Costs Passed On to the Customer

There are a few payment processors that charge no fees to their merchants. But that doesn’t mean the service is free. Instead of collecting the transaction fee from the merchant, they collect it from the customer. While this might seem advantageous to the merchant, it’s just transactional sleight of hand.

With this type of merchant account, the fee still exists. If your customer is charged a 3% transaction fee for a €50 item, they’re actually paying €51.50. The added cost appears on their statement as a merchant transaction fee.

From a customer satisfaction standpoint, it’s usually better for you to just charge an extra 3% for the item and pay the transaction fee yourself. Even though the customer is paying the exact same amount in the end, it can leave a bad taste in their mouth if they think that a retailer is burdening them with extra fees. In some countries, charging credit card convenience fees or surcharges is actually illegal.

Merchant Services Scams

Finally, websites that advertise free merchant services are often outright scams. They lure businesses with irresistible claims in order to obtain money or personal data, with no intention of ever providing a quality or even legitimate service. There are different kinds of scams that you may encounter:

Hidden Fee Scams: These scams go much deeper than simply exaggerating the definition of “free.” In a hidden fee scam, the merchant unwittingly agrees to undisclosed charges (usually buried in the fine print of the application) like maintenance or security fees. When the merchant realises they’ve been misled and tries to cancel, they’re charged a massive cancellation fee.

Phishing Scams: A scammer sets up a fake merchant website with a sign-up form. The form may ask for personal information like credit scores, financial statements, and bank account numbers. The scammer may then use that information to steal the applicant’s money or identity. The U.S. Federal Trade Commission received over 1.1 million reports of identity theft in 2022, with an equivalent of around €8 billion lost to scams overall for the same year. There are plenty of identity thieves out there, and merchants can fall victim just as easily as anyone else.

Stolen Money Scams: This is similar to a phishing scam, but rather than simply stealing your information, the scammer earns your trust and steals your money outright. They might set up a fake merchant services account on your behalf and require you to submit a high initial deposit. The money is actually deposited into the scammer’s personal account—right before the scammer disappears and is never heard from again. Some of the more sophisticated scammers will even set up a phony payment gateway and funnel your customers’ transactions into their own accounts.

Low-Cost Alternatives to Free Merchant Accounts

There’s no such thing as free merchant services, but low-cost options do exist. You just have to be diligent about finding them.

The key is to always read the fine print and learn about every possible fee that you might be responsible for. The following are just a few of the types of merchant account fees to be aware of:

  • Sign-up fees
  • Monthly merchant service fees
  • Annual contract or service fees
  • Transaction fees
  • Interchange fees
  • Gateway fees
  • Terminal fees
  • Swipe fees
  • Batch fees
  • Statement fees
  • PCI fees
  • Cancellation fees

Compare your options. Don’t sign up for any payment processor until you know exactly how much you’ll be responsible for, and never give up any personal information to a merchant provider without vetting them first.

Finally, be wary of any service provider that deceptively advertises “free merchant accounts” without immediately clarifying what they mean. Even if their actual fees seem reasonable, you want to avoid working with providers that openly engage in dishonest marketing practices—as you have no way of knowing what else they’re withholding or exaggerating.

Nothing Is Ever Truly Free

Payment processing is never entirely free because payment processors, card networks, and banks need to cover their costs in order to keep providing a service. If a company is offering “free payment processing” or a “free traditional merchant account,” they are covering their costs in other ways.

Rather than being enticed by offers that sound too good to be true, ask for a transparent list of fees from each provider and work out how much it would truly cost you to process transactions with that provider. The best deal might end up being a payment processor that’s upfront about its charges rather than one that is offering payment processing services for “free.”