08 October 2009

4 Differences between a Free and a Paid Merchant Account

The differences between a paid and a free merchant account are their basic fees to be paid, the funds’ delivery time, the requirements and most importantly the “catch”.

A merchant’s main concern in choosing a merchant account is one that will suit his needs and fits his budget. Knowing the difference between a free and a paid merchant account is one step to selecting the best merchant account for your business.

Basic fees

The basic fees needed to be paid for users of a paid merchant account are the application fee, setup fee, monthly account fee, and transaction fee. All fees vary from a merchant account provider to another so it is best to inquire from different choices before settling to the one. The application fee is normally paid at the moment you acquire a merchant account. Though, there are some providers that do not charge this kind of fee at all. Another basic fee is the setup fee which covers the establishing of your account and this also includes other bank related issues. Just like the application fee, this is paid just once in the whole duration of your use. Another would be the monthly account fee which is mainly for the maintenance of your merchant account. This rate may vary with each provider or company. There is only one basic fee which is similar to both free and paid merchant account and this is the transaction fee. This is incurred every time a customer buys something from your e-business. In this matter, paid merchant accounts are well off because it generally takes lower charges compared to free merchant accounts. A free merchant account caters to providing the needed software to run this special program for free. Therefore, you won’t be bothered by set-up fees.

Funds delivery time

For free merchant accounts, you have to be patient in waiting for funds to settle in your bank account especially when you are a first-timer and doesn’t have a prominent name in the business yet. But usually, you have to expect your income for at least three to four business days. On the other hand, the funds delivery time for paid merchant account is far quicker compared to the first. Knowing this, you have to weigh whether you will keep a free merchant account with limitations or apply for a paid merchant account where you can manage to pay for the necessary charges and have the advantage of a faster funds delivery time. This will have to be your choice.


For a free merchant account, you are not obliged to yield to a credit check and vice versa for the case of paid merchant accounts. Other than this, paid merchant accounts require you a sufficient amount of money to pay for the fees that will be charged on you. But for free merchant accounts, you will only have to keep track of the transaction fee and nothing else.

The “catch”

With all the benefits of a free merchant account, it’s probably intriguing to know the catch. So here it is. Though this kind of application doesn’t cost a set-up fee initially, you are still incurred to some fees which will be taken out from every transaction made. This is quite expected because if otherwise, the merchant provider won’t be earning profit out of its clients. Another drawback is when your merchant account can be temporarily disabled. This is done by your provider because it noticed that you are earning too much money at a certain span of time. They will say that this will benefit both parties. Also, this deactivation is a method to detect fraudulent practices. Nevertheless, when a client is generating more money, his account will start receiving more funds.

Some things to be cautious of when acquiring a paid merchant account is to avoid credit card terminal leases. A sign of this is a company that offers free equipment because there is a large tendency that this is just a rip-off. Be careful of rates that are lower than normal. The odds are the company is exploiting introductory rates that may be non-guaranteed. Lastly, be watchful for early termination fees. Most sales rep will say just about any lie so that you will sign into the contract. So be sure that you won’t be locked with early termination fees so ask.

Now, it ends with a mind-boggling question, ‘Would it be a go for a free merchant account or a paid merchant account?’ Equipped with the differences of both, you have to weigh your needs and budget to get the best kind for your online business.

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