Jump to:
Navigating the payment processing world can be a minefield for small and medium businesses. Confusing terminology and an intricate system filled with many moving parts can leave merchants scratching their heads when faced with the many payment options on the market. Terms like payment processing, payment service providers, third party payment aggregators, payment gateways and merchant acquirers are thrown around interchangeably, making matters even more confusing.
On top of that, the payments landscape, once characterized by traditional brick-and-mortar transactions, has morphed into a complex ecosystem where electronic and mobile payments reign supreme. The advent of e-commerce, coupled with the proliferation of digital wallets and contactless payments, has added a new chapter in the history of payment processing and reshaped the way businesses engage with their customers.
This means many merchants are left unsure about where to start. One of the first questions merchants need to ask themselves before starting? Whether or not to choose a payment service provider or a merchant acquirer for their payment needs.
In this blog we’ll define both terms, outline the pros and cons of both and help steer you onto the right path.
What is a payment service provider?
Payment service providers, also known as payment aggregators, payment processors or third-party processors in the world of payment processing terminology, connect merchants to the various facets of the payments ecosystem so they can accept credit and debit card and digital wallet payments. They also allow merchants to process payments without having to create a merchant account with a bank network.
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 merchant banks, 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 the money from card-issuing banks. Whereas payment service providers lump merchants into a giant merchant account with other businesses, merchant banks issue clients a unique merchant ID number and deal directly with them. There is no middleman, i.e., a payment service provider.
Payment service providers vs merchant acquirers
Although both solutions allow merchants to accept card and digital wallet payments, 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..
Costs
Payment service provider: Payment aggregators usually charge higher 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.
Merchant acquirer: 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 banks are hands down the better option.
Setup
Payment service provider: If you’re looking to hit the ground running, a payment service provider is the way to go. 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.
Merchant acquirer: The process for merchant banks is different, however. There is a formal approval process that can take days, and you’ll have to provide general business information, average sales volume, ownership information, and a void check.
Stability and support
Payment service provider: When you sign up with a payment aggregator, you are one of many thousands of merchants pooled into its merchant account. As a result, the customer service experience can leave much to be desired. Furthermore, payment service providers 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.
Merchant acquirer: Conversely, when you work with a merchant bank 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 evolving landscape of payment processing
As technology continues to advance, the payment processing landscape is poised for further evolution. Understanding emerging trends can help businesses stay ahead in this dynamic environment.
Artificial intelligence (AI) and machine learning (ML)
The incorporation of AI and ML into payment processing systems is becoming increasingly prevalent. These technologies enhance fraud detection, automate customer interactions, and streamline payment approval processes. For businesses, this means a more secure and efficient payment experience.
Rise of cryptocurrency payments
With the growing acceptance of cryptocurrencies, businesses are exploring ways to integrate digital currencies into their payment options. Cryptocurrencies offer the advantages of faster transactions and reduced fees, making them an appealing choice for both merchants and customers.
Enhanced security measures and compliance
As the frequency and sophistication of cyber threats continue to rise, the payment processing industry is placing a greater emphasis on robust security measures. From tokenization to biometric authentication, businesses can expect a continued focus on implementing technologies that safeguard sensitive financial information. The payment processing industry is also subject to evolving regulations and compliance standards. Staying informed about changes in data protection laws is crucial for businesses to ensure they adhere to legal requirements and protect customer data.
Continued use of contactless payments
Contactless payments, driven by technologies like Near Field Communication (NFC), are becoming the norm in many regions. The convenience and speed of contactless transactions contribute to their widespread adoption. Businesses that prioritize providing contactless payment options stand to benefit from meeting consumer preferences.
Growing need for personalized customer experiences
Businesses are increasingly leveraging data analytics to gain insights into customer behavior. This information allows for the creation of personalized and targeted payment experiences. Tailoring payment processes to align with individual customer preferences enhances satisfaction and fosters customer loyalty.
Making the right choice for your business
In a world where one size does not fit all, take the time to assess your needs, weigh the advantages and disadvantages, and consider consulting with Payment Experts.
If your business handles large transaction amounts and volumes, requires scalability, and more customized support, you might want to consider a merchant account. If, on the other hand, 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 help you choose the right solution for your business.
If you’re wondering whether to use a payment service provider or a merchant bank, our team of Payment Experts will give you the lowdown on what best fits your needs.
Get in touch with us today and see why we have the best reviews in the industry.
