Member Avatar for ksolaro

Hi there -- hoping this community can help.

We are starting a business that provides e-commerce services to small businesses. The businesses we are targeting are extremely small and have little to no online savvy.

Most shopping carts online require small businesses to register for a merchant account and a payment gateway to transact. We are considering offering individual shopping carts to these merchants, but just using our merchant account and payment gateway to transact on behalf of the small business.

Then, on a regular schedule (weekly or biweekly), we would transfer the accumulated value of the transaction into the individual small business' bank account, minus our transaction fees.

Couple of questions about this:
1. Are there legal or tax implications to making transactions on behalf of small businesses like this?
2. Is there a software package or API out there that makes it easy to automate transferring money between accounts, en masse, on a semi-regular basis?

Thanks so much for any help you can provide!

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  • 3 Months Discussion Span
  • Latest Post Latest Post by bobchrist

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Short answer: don’t route other businesses’ card sales through your own merchant account unless you build the right legal/compliance structure. — the concerns raised by (tax exposure) and (card‑brand rules) are real; and were right to suggest reseller/ISO routes. Below is a concise, modern checklist and safer alternatives.

Why this is risky: if you accept payments for other merchants you become the merchant‑of‑record — that brings chargeback/refund liability, PCI responsibilities, and tax/reporting obligations. Card networks require proper registration/sponsorship for aggregated or facilitator processing, and moving third‑party funds can trigger federal/state money‑transmitter rules and different 1099 reporting. Read the brands and regulators for details: Visa Direct Payouts, Mastercard registration notes, PCI FAQ, FinCEN MSB registration, IRS 1099‑K guidance. (developer.visa.com)

Safer approaches and tooling: (1) follow ’s idea — become a sponsored reseller/ISO or partner with an acquirer so the bank handles brand registration and much of the risk; (2) use a registered PayFac/marketplace product (Stripe Connect, PayPal/Braintree) that does onboarding, KYC, payouts and much of the compliance work for you; (3) if your need is scheduled disbursements, use payout/ACH APIs (Stripe Connect payouts, Dwolla Mass Pay, PayPal Payouts) rather than aggregating card volume on your own account. See examples: Stripe Connect payouts, Dwolla Mass Pay. (stripe.com)

Practical next steps: talk to an acquiring bank and a payments/AML attorney, decide who will be merchant‑of‑record in contracts, build KYC/chargeback reserves into onboarding, confirm PCI responsibilities with your acquirer, and pilot with provider sandboxes (test payouts, webhooks and failed‑payment cases) before moving real funds. These checkpoints are what card brands and regulators expect. (fincen.gov)

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All 7 Replies

Member Avatar for nimitz1061

Don't even think about doing this.

You would be the responsible party on the transaction, very likely owe all the taxes, and its just bad practice to get into.

David

Member Avatar for vectro

You would be better off becoming a reseller for a reputable merchant account provider. Then instead of just reselling accounts, you could actually add value by setting up the form and payment system for your users.

I wouldn't get into processing the payments yourself if I were you. It is too risky and it might even be against PCI rules.

Member Avatar for freebee

Sounds like a great idea to me. I would take it a step further and castrate all of them too, this way they won't be found in bed with inters either.

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Member Avatar for fionix

Well it has nothing to do with PCI regulations but rather with the Visa and Mastercard regulations, you are not in any way allowed to do any aggregated processing also called 3rd party processing if you haven't got sponsored by a bank!

You Merchant Account will be terminated once they catch you, your money will be frozen and you will face huge penalties!

It is indeed a good business idea, many have tried it and still do it, since there is a lot of money in it, in fact companies like ccbill and epoch systems are multimillion corporations while doing it, however, this is another story.

Don’t do it, get your own merchant account for your own website and stick to that.

Member Avatar for Robdale

You would be better off becoming a reseller for a reputable merchant account provider. Then instead of just reselling accounts, you could actually add value by setting up the form and payment system for your users.

I wouldn't get into processing the payments yourself if I were you. It is too risky and it might even be against PCI rules.

I think vectro is right, it can get you into a big trouble. Being a reseller would be a good option.

Member Avatar for Jen0608

i think the business is very risky due to tax reasons.

Member Avatar for bobchrist

I think vectro has given a good idea to resell the merchant account that will legalize the transaction.

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