Merchants services: payment processor vs. merchant acquirer


Merchant processing is a minefield for small and medium-sized businesses, a world awash with confusing terminology and a multitude of moving parts. As a result, merchants are often left scratching their heads when faced with the many payment options on the market. One of the most common considerations is whether to go with a payment services provider or a merchant acquirer. This article outlines the pros and cons of both and will help steer you onto the right path.

Friendly Payment Expert with a headset ready to help merchants.

What is a payment service provider?

Payment service providers—also known as payment aggregators and third-party processors—connect merchants to the various facets of the payments ecosystem, so they can accept credit card payment services, debit, and digital wallets. Specifically, these aggregators link merchants, consumers, card networks (i.e., Visa or Mastercard), and financial institutions to simplify the entire process. They are called “aggregators” for a good reason: they aggregate all their clients into one merchant account.

What is a merchant acquirer?

Merchant acquirers—also commonly referred to as acquiring banks and merchant account providers—are financial institutions that process debit and credit card payments for merchants. Merchant acquirers authenticate customers, authorize cards, and collect money from card-issuing banks. At the same time, payment service providers lump merchants into a giant merchant account with other businesses, and merchant acquirers issue clients a unique merchant ID number and deal directly with them. There is no middleman, i.e., a PSP.

A merchant takes a phone order for their direct-to-consumer brand.

PSPs vs. merchant acquirers

Although both solutions allow merchants to accept cards and other digital payment services, each has distinct benefits depending on your business. A few considerations you’ll want to think about include how you run your business, your monthly transaction volume, whether you’re integrating a CRM or other software, and your specific needs. Here is a brief comparison of the two options.

Costs: PSPs usually charge higher payment processing rates — in the form of a per-transaction fee—so in most cases, they are better suited to merchants that process lower volumes. These flat rates are charged to all merchants and are set in stone. In other words, as your business grows, and you’re doing higher sales volumes, your cost savings will be limited.

On the other hand, merchant acquirers have lower rates for higher volumes, with businesses often able to negotiate even better rates. Rather than lumping you in with hundreds or even thousands of other merchants, merchant acquirers consider your business size, industry, risk profile, and a host of other factors when determining your rates and suitability as a client. In terms of scalability, merchant acquirers are hands down the better option.

Setup: A PSP is a way to go if you’re looking to hit the ground running. The setup process is quick and easy, given the limited underwriting required. Virtually anyone can get an account, and with zero lag time. Likewise, you don’t have to worry about the more technical back-end aspects, such as finding a payment gateway, meeting compliance standards, and many others.

The process for merchant acquirers is different, however. A formal approval process can take days, and you’ll have to provide general business information, average sales volume, ownership information, and a void check.

Stability and support: When you sign up with a PSP, you are among thousands of merchants pooled into its merchant account. As a result, the customer service experience can leave much to be desired. Furthermore, PSPs carry a higher risk of fraud, which means that account freezes and holds are much more common than with merchant acquirers, especially for merchants in industries where customers are more likely to dispute charges.

Conversely, when you work with a merchant acquirer, you will usually work with a dedicated account manager and benefit from high-quality support. And given the more robust onboarding and vetting process, they will be more familiar with your business and payment activity. As a result, you’re less likely to experience account holds or service disruptions.

The bottom line

As you can see, the payment-processing industry has a ton of moving parts and can get confusing. Consider a merchant account if your business handles large transaction amounts and volumes and requires scalability and more customized support. On the other hand, if you need a quick start-up, are in a higher-risk business, or have lower transaction volumes, a payment service provider might be the best option.

You may still be wondering which is the best option for your business—and rightfully so. It’s an important decision that requires extensive reflection. Thankfully, Sekure Payment Experts is here to answer your questions and tailor a solution for your business. Get in touch with us today and see why we have the best reviews in the industry.

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