Merchant Accounts vs. Payment Service Providers: What’s the Right Fit For Your Business?

When it comes to accepting credit card payments, merchants can opt for opening a merchant account or using a payment service provider. Since both of these options are valid, choosing one will depend on variables specific to your business. These include the way you sell your products, integrations with other software, number of monthly transactions, and so on.

Not sure which of these options is the best fit for you? Here are the main things you should know about merchant accounts, payment service providers, and what sets them apart.

Merchant Accounts

A merchant account is essentially a holding account used to deposit money from credit card transactions. This account stores all the income from your online sales. On the settlement date, which is usually once a week, your funds will be transferred to your regular account. Opening a merchant account gives you a Merchant ID (MID) that’s exclusive to your business.

Your merchant account can be either low-risk or high-risk. Low-risk accounts typically only accept one currency, have monthly sales below $20,000, and come from low-risk countries like the U.S. or Canada. High-risk accounts accept multiple currencies and have monthly sales over $20,000. Having a high-risk account also involves paying higher fees.

Payment Service Providers

A payment service provider (PSP) is a popular alternative solution to merchant accounts. PSPs aggregate groups of merchants under a single account, taking on the financial risk of accepting payments for each merchant. Most PSPs have their payment gateways used to authenticate payment details. Common examples of PSPs include PayPal, Square, and Stripe.

If you use a payment service provider, you can get your business up and running much faster than with a merchant account. These services don’t require you to enter into long-term contracts and come with a simple flat-rate pricing structure. That makes it much easier to predict the impact your transaction fees will have on your bottom line.

Which Option Should You Choose?

In general, if you’re running a small business with a tight budget, it may be easier to use a payment service provider. On top of being simple to set up, PSPs come with fewer fees and offer a lot of flexibility if you’re not sure what your long-term goals are. Using a PSP can also be a simple way to get around high charges associated with high-risk merchant accounts.

If your business is generating a steady monthly revenue, opening a merchant account will likely still be your best bet. Merchant accounts are inherently safer, offer better customer support, and give you direct access to customer data.

Have questions about what is the best fit your business? We are excited to assist you further. Our team of experienced account managers is always available to answer any questions you may have. Please feel free to contact us!

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