The Ugly Truth About Free Merchant Accounts

As a business owner, you want to save money wherever you can, so perhaps you’ve been enticed by payment processors who advertise “free merchant accounts” or “free merchant services.” Before you sign on the dotted line, you should take a moment to remember the old 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:

  • The merchant services provider is imposing hidden or undisclosed fees
  • The merchant services provider is passing the cost to the customer
  • You’re 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.

Free Merchant Accounts Usually Have 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 waive the service fee but charge exorbitant processing fees. Some 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 transaction fees
  • No monthly contract 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 service 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 who 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 taxes and fees.

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. Experian notes that identity theft is one of the most common outcomes of data breaches, and the consequences can be devastating.

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 account.

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 fees to be aware of:

  • Sign-up fees
  • Monthly contract fees
  • Annual contract 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.

QPay Europe offers two straightforward merchant solutions for businesses of different sizes. Our rates are competitive, and the transaction costs are simple: you pay a fixed percentage and a small fee for every sale. There are no sign-up or set-up fees, and we even offer free integration services. Best of all, our merchants are able to accept over 150 forms of currency from almost every country on the planet—all through our secure gateway.

If you’d like to receive your free rate quote, sign up today. There’s no hassle and no obligation.

You might also like: