What is best for your business?
When a business wants to accept credit card payments, it has two main choices: payment aggregators or traditional merchant accounts. Each option has pros and cons, and choosing the right one depends on the business’s needs.
What is a Payment Aggregator?
A payment aggregator is a company that lets businesses process payments without opening their own merchant account. Instead, many businesses share one large account. This makes it quick and easy to start accepting payments. Some well-known payment aggregators include PayPal, Stripe, and Square.
Pros of Payment Aggregators:
-
Easy to Set Up: Businesses can start accepting payments almost right away.
-
Simple Fees: They charge flat rates, so it’s easy to predict costs.
-
Low Startup Costs: Most don’t have setup fees or monthly charges, which is great for small businesses.
Cons of Payment Aggregators:
-
Less Control: Businesses don’t own their accounts, so the aggregator can set rules and limits.
-
Possible Account Freezes: Aggregators can freeze or close accounts without warning, which can be a big problem for businesses.
-
Higher Fees Per Transaction: Their fees are often higher than traditional merchant accounts, which can add up over time.
-
Equipment Costs: Businesses often have to buy their own card readers and terminals. While some aggregators provide free basic card readers, advanced models can cost anywhere from $59 to $99 or more.
What is a Traditional Merchant Account?
A traditional merchant account is a special type of bank account that allows businesses to accept card payments directly. The business has a unique account instead of sharing one with others. While it takes longer to set up, it often provides more stability and lower transaction fees.
Pros of Traditional Merchant Accounts:
-
Custom Options: Businesses can negotiate lower transaction fees and better terms.
-
More Stability: These accounts are less likely to be frozen compared to aggregator accounts.
-
Good for Growth: Best for businesses with a high volume of sales, as fees are usually lower.
-
Free Equipment: Many providers offer free card terminals and point-of-sale (POS) systems, helping businesses save on hardware costs.
Cons of Traditional Merchant Accounts:
-
Takes Time to Set Up: The approval process can take up to a couple of days.
-
Setup Costs: Some providers charge setup fees or monthly costs.
-
Longer Approval Process: This may take up to a couple of days.
Which One is Right for Your Business?
Here are some key things to consider:
-
How big is your business? Small businesses may like payment aggregators for their simplicity, while larger businesses may prefer merchant accounts to save on fees.
-
Do you need control? If you want full control over your payment processing, a traditional merchant account is better.
-
Can you handle account freezes? If a sudden account freeze would hurt your business, a traditional merchant account is the safer choice.
-
Do you want free equipment? If you don’t want to buy terminals, a traditional merchant account may offer free or discounted hardware.
-
How important is customization? Traditional merchant accounts offer next-level customization, allowing businesses to tailor processing rates, security measures, and integrations with other software systems. This is ideal for businesses with specific operational needs or high-volume transactions.
Conclusion
Both options have benefits and drawbacks. Payment aggregators are great for quick, easy setup, while traditional merchant accounts provide more stability and lower costs over time. By understanding these differences, businesses can choose the best payment solution for their needs.
Subscribe to our newsletter to receive our complimentary eBook and check our website for more at www.fintech5group.com to learn more.
By: Troy Maceira, FT5
January 22, 2025