A merchant account, such as Swipe4Free or Merchant Industry, is an account that is created in your business’ name to a merchant bank that allows the merchant to accept credit and debit card payments. The bank takes these payments and then disperses them to the merchant after a preset amount of time. These banks will often run a background check before opening the account, in order to determine any risk that might occur with the business (chargebacks, business type, etc.).
The setup process for a merchant account is often a longer process than an aggregator. This is to ensure that everything goes smoothly for the life of the account as long as there are no drastic changes in business. In the event one of these changes happen, the bank will almost always notify the merchant before taking any action, allowing the merchant to fix the issue.
With a merchant account, the merchant is allowed to negotiate their rates and fees. Certain factors, such as life of the business and average processing amount, are used to determine a price that works best for the merchant. For example, if a merchant has been in business for many years and has a high annual processing volume, they will receive a better rate than a merchant who is just starting up and has no history of sales volume. These rates are also often negotiable in the event that the merchant sees a consistent increase in sales volume, or when account has been open for an extended period of time.
Both merchant accounts and aggregators have to hold the merchants sales before they can be dispersed. With a merchant account, a merchant will often receive their funds within 1-2 days.
With a payment aggregator, such as Square or Stripe, you create an account with the aggregator who has an account with a merchant bank in their name. This allows the setup process to be shorter due to a lack of extensive, if any background checks. This, in turn, means that an aggregator will often freeze or cancel your account with no notice in the case that any issues arise.
Unlike a merchant account, the aggregator typically will have a flat rate for all accounts. This is almost always non-negotiable, and doesn’t typically get reduced for the life of the account.
Similar to a merchant account, the aggregator must hold your sales for an amount of time. These hold times are often drastically longer and can be anywhere up to 30 days from the requested disbursement of funds.
If you are a merchant who is just starting out, it may be better to go with an aggregator so that you can get a history of sales volume. However, once your business has that volume you would greatly benefit by applying for a merchant account and increasing your savings as well as your peace of mind.