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Merchant Accounts: 5 Things to Know and Watch for Before Signing Up

1. Not all providers are created equal

With the emergence of companies like PayPal and Square, some tend to think they are an equal alternative to a traditional Merchant Processor or Payment Gateway.

Not so. Traditionally a Merchant Processor would provide each of their Merchants with their own account, typically in partnership with a financial institution. But with newer aggregator models, the provider has one merchant account and manages sub-accounts for their merchants. While both allow people or businesses to process payments, they each have their pros and cons, so it would be wise to carefully consider each before making a decision. More on Aggregators vs. Traditional MSPs

2. Be leary of tiered rate structures that only promote the qualified rate

Pricing in this industry can be confusing, so it’s important you ask questions and really understand what you will pay before signing on the dotted line. A promoted “Qualified Rate” will almost always be accompanied by a mid-qual rate and a non-qual rate. Make sure you know how tiers are structured, and what kinds of cards you typically accept to better predict which rate will most affect you. For example, if you take a large portion of check cards, then you can expect to get that wonderful promotional rate, but if you tend to see a lot of business or rewards credit cards, then expect to get that non-qual rate more often than not.

3. Make sure you read the fine print

How long is your contract enforced for? Is there an early-termination fee? Does the contract automatically renew at the end of the term?

4. Look into the service providers compliance status with the PCI-SSC

Regardless of who you work with, the most important consideration is security. Luckily, the PCI-SSC (Payment Card Industry Security Standards Council) makes this easy by certifying MSPs with a leveled grading system based on their transactional volume. Level 4 is the baseline, and works up to level 1, which is the most strict. The stronger your MSPs certification level, the more you can rely on their infrastructure when obtaining your own compliance. You can read more about PCI Compliance here.

5. Ask about their customer support channels

The sales process went smoothly and you got your account all set up, so congratulations, but what happens now if you need help? Often overlooked, this is a consideration we always encourage people to explore when shopping for a new merchant account. Does the provider have easily accessible sales channels? What are they? Can you get help 24/7/365 if you need it?

Traditional Merchant Accounts vs. Aggregators

Not all merchant accounts are created equal.

When shopping for a merchant account, many tend to overlook the differences between the two very different merchant account types; the traditional model and the aggregator model.

The traditional model works as one might expect. A merchant contacts their MSP, and opens a merchant account. This MSP will have relationships in place with financial institutions as well as frontend and backend processors. While the nature of these relationships can vary, at a bare minimum, the MSP will facilitate the inception of an account with their partner financial institution on your behalf, and solely for your use.

The aggregator model is a bit different. Although the infrastructure remains largely the same, aggregator companies (such as PayPal and Stripe) actually play the role of the single merchant account holder in the hierarchy, and then process transactions through this single account on behalf of their customers.

The quickest way to identify which type of account you are opening is to evaluate the amount of information requested to open an account.

In the traditional manner each merchant is provided their own merchant account via an FI, therefore they are required to meet the same requirements in place to open a traditional bank account, and go through an underwriting process to verify information provided and substantiate the business. These accounts also must comply with portions of the Patriot Act of 2001, which requires financial institutions to take extra steps in identifying their customers in an effort to combat international money laundering and the financing of terrorism.

Aggregators, on the other hand, are simply reselling the use of a single merchant account in their name, and take on the risk of managing all their own accounts internally. These accounts can often open accounts online, and often with instant approval.

Neither one of these is inherently better than the other, and each have their perks and drawbacks.

Aggregator accounts are very popular due to their fast account opening and simple terms but can be subject to lower limits and longer holds on their accounts due to the comparatively lax identification requirements which expose the provider to more risk. A traditional merchant account typically alleviates these constraints but can come in at a higher cost or level of merchant involvement.

Since there isn’t a right or wrong choice here, it all comes down to understanding the needs of you and your business.

If you aren’t sure which one is right for you- feel free to give one of our experts a call. As a longtime merchant advocate, we will point you in the right direction, even if that direction is one of our competitors.