Merchant Account Vs Payment Aggregators – What’s The Best Option?

As the owner of a new business, choosing the right payment processing solution is one of the most important decisions you’ll make. In addition to changing the transaction fee structure for every sale, your processes and responsibilities as a merchant will change as well. Your main choices to start accepting payments are a merchant account vs a payment aggregator…but each has its own pros and cons.

What is a Merchant Account?

A merchant account is a joint contract between you, a bank (or “acquirer”), and a payment gateway. It provides a way for funds from credit card transactions to be confirmed and deposited into an account that you can easily access. A merchant account essentially acts as an intermediary between your business and the banks that your customers use.

Funds appear in your account before the acquiring bank itself actually receives any money, so it’s a credit-based system. The bank needs to know that you’ll be able to handle the cost of transaction fees, along with chargebacks resulting from customer returns and refunds. For this reason, banks will take a close look at your credit rating before allowing you to open an account with them.

Benefits of a Merchant Account

Merchant Accounts Give You More Control

When it comes to processing payments, some of the biggest challenges come with fraud prevention and chargebacks. If suspicious activity is detected, merchant accounts will notify you before taking further action (such as temporarily freezing your account). Payment processors, on the other hand, are known to freeze or terminate accounts without notice. Since they have a higher level of risk they take on with merchants, this is done to protect them from fraud – but gives you less control over your money.

Merchant Accounts Have More Flexible Rates

Merchant accounts with traditional banks aren’t necessarily more expensive, but their rates tend to be more flexible than payment gateways. Since they deal with businesses both small and large, rates tend to change based on your sales volume. You can even haggle for different prices for different credit card brands, giving you the ability to hugely reduce your fees with a little bit of savvy negotiating. Payment aggregators, on the other hand, usually use a fixed pricing structure that stays the same even as your company grows. The higher your sales volume, the more money you can potentially save with a merchant account.

Merchant Accounts Deposit Funds Faster

A huge benefit of a merchant account is that you get your money within a couple of business days. Payment companies sometimes deposit funds just as quickly – which sometimes put a hold of up to 30 days on deposits. This is due to the relative risk assumed by each. Since payment companies are in a higher-risk business, their processes are more conservative to help avoid fraud.

Customized Anti-Fraud Tools

Since the risk of different types of fraud differs depending on what kind of business you have, getting customized anti-fraud tools that are tailor-made according to your risk level and business type is a huge benefit. Payment processing companies are closer to a one-size-fits-all approach, so they may not provide the same fraud prevention tools for your particular situation.

Disadvantages of Merchant Accounts

Merchant Accounts Are More Complex

With the endless challenges and complexities of starting and running a company, it’s great to be able to keep certain things as simple as possible. And despite being more flexible, merchant accounts are much more complex than accounts with payment gateway companies. Rates are different for different payment types, and you might have different merchant account providers for each brand of credit card you accept. The simplicity of partnering with a payment processor makes it much easier to set up and manage in the long run.

Transaction Minimums

Depending on your merchant account provider, you may be subjected to minimum monthly transaction requirements. Since merchant accounts opened at banks are equipped to service much larger companies with enormous sales volume, they sometimes require you to make a certain number of sales each month in order to retain your account. This can disqualify a lot of smaller-sized companies from using them.

Negotiating is Difficult for Smaller Companies

In any negotiation, you need leverage. Unfortunately, if you’re a new or smaller company, you’ll naturally have less leverage than if you’re already a big player in your industry. Since payment companies use straightforward, fixed pricing structures, you might end up paying more using a merchant account.

Merchant Accounts Are More Time-Consuming

Just like the saying goes – time is money. Between figuring out your typical sales volumes, researching the best account providers for different credit cards, getting your credit approved, and negotiating prices, it can easily take a month or more to get set up with all the different accounts you need. Payment aggregator companies allow you to get up and running almost immediately, and the time you save can be spent building or growing your business.

What is a Payment Aggregator?

A payment aggregator provides a way for businesses to process credit and debit card sales without having to create a separate merchant bank account.

The Benefits of Using a Payment Aggregator

Easy Approval With No Credit Check

Getting approved for a merchant account can take a lot of time. From credit approval from the merchant acquiring bank to signing the contract, it’s a much more intensive process to open this type of bank account than buying services from a payment company. An easier approval process means you can get up and running faster, and start collecting revenue.

Fast, Simple Setup

In addition to their fast approval process, payment companies make it easy to get set up once the contract is signed. Complicated issues like PCI compliance are automatically taken care of. In addition, you get easy-to-use applications and plugins for your websites to accept debit and credit cards for online transactions. If you’re a brick-and-mortar store, many payment companies provide you with POS equipment like payment terminals that you need to handle in-person transactions.

Less Maintenance

Payment gateway companies are much more turnkey, requiring almost no maintenance on your part. The more time you save on details like your credit and debit card payment solutions, the more time you can spend finding new customers.

Fixed Pricing & Simpler Process

While fixed pricing means you can’t negotiate lower rates, it also means a much simpler structure. Not only does accounting become much easier, but the overall management of handling credit and debit card payments is drastically simplified.

The Disadvantages of Using a Payment Aggregator

Sudden Freezing/Closing of Your Account

Payment aggregators are much quicker to freeze or close your account. This is due to the higher risk of their business – at the first hint of fraudulent activity or excessive chargebacks, you could find your payment gateway frozen without warning. This is to protect the company providing the payment processor, but it can translate to a lot of lost revenue if it happens to your company.

It May Not Scale as You Grow

Since payment aggregators are designed for small to mid-sized businesses, you run the risk of outgrowing them as you expand. Higher sales volumes may bring higher fees in the long term, whereas merchant accounts are able to offer lower fees to bigger companies.

Inconsistent Customer Support

Some payment aggregators have much better customer support than others. If you have a technical issue, every moment you can’t accept credit and debit card payments is lost revenue. If you have to wait all day to get a problem fixed, it can have a devastating effect on your business.

Caps on Transaction Volume

With merchant accounts, you often have to meet a minimum transaction volume. With a payment aggregator like Square, on the other hand, you have a maximum account volume that you aren’t allowed to exceed. Growing beyond the set limit can incur additional fees or force you to upgrade to a more expensive version of the service. This is one of the reasons larger companies go with merchant accounts.

Why The Payment Aggregator Model Exists

With all the complexities of opening an account to manage credit card payments, entrepreneurs have historically had to spend far too much time figuring out the details. By acknowledging this need, companies recognized the need for a service provider that could make the process easy. The payment aggregator model emerged to make it easy to start accepting payments quickly with a payment gateway that anyone could set up. While there are disadvantages, payment service providers have made it much easier to start a business and begin selling.

What’s the Difference Between PayPal, Stripe, Google Wallet, Square, Payoneer, Shopify, and a Traditional Merchant Account? Which is Best?

PayPal, Stripe, Google Wallet, Square, Payoneer, and Shopify are all payment aggregators. They allow you to collect credit and debit card payments without having to make a separate, traditional merchant account with a bank. They’re a great option for many new business owners, but each option has its own features, risk profiles, and pricing.

Risk & Underwriting

Since every payment service provider has a set level of risk they’re willing to take on, they have different fraud prevention features. Their fees reflect the fact that payment gateway providers need to account for potential losses due to fraud. However, every payment aggregator is different. Some provide stricter fraud prevention measures than others and will freeze your account if your chargeback rate hits a certain level. Make sure to get all policies in writing, and familiarize yourself with chargeback thresholds.


When you’re looking at different payment aggregators, don’t just look at the price – make sure to also look at value. Different risk and fraud policies might justify a higher fee structure. For example, If a company pays some chargebacks for you, that provides a huge amount of added value that shouldn’t be ignored.

Who Should Use Merchant Aggregator Processing Services?

Payment services companies aren’t for everyone. Some companies are better off opening an account directly. However, a merchant aggregator might be a good fit for you if:

  • You own a small to midsize company with relatively low sales volume
  • You’re a new entrepreneur and want to get your business up and running fast
  • You don’t expect a dramatic increase in your volume over the medium to long-term
  • You have a minimal credit history or a lower credit score

If you fit the above criteria, a company like GAM payments can get you started fast. While bigger names like Stripe and Google are popular, they can’t give the kind of personal attention that a smaller, boutique provider can. That means better support when you need it, and less lost revenue in the long run.

Who Should Use a Traditional Merchant Account?

For some companies, payment aggregators and payment gateway services aren’t a good fit. Traditional merchant accounts at a local bank might be the best option if you:

  • Own a large company, with a consistently high sales volume
  • Expect your volume to increase in the medium-term
  • Are an experienced business owner with a high level of familiarity with the procedures involved with finding a payment partner
  • Have a good credit score and solid credit history

PayPal, Stripe, & Square: Which is Best?

Which payment aggregator you choose completely depends on your business needs. For example, PayPal and Square have identical pricing, but PayPal provides more payment methods for in-person payments compared to Square. Meanwhile, Stripe lowers your fees when you hit a limit of $80,000 per month, but with PayPal, you get a fee decrease at just $3,000 per month. They also offer different payment options depending on the package you get.

At the end of the day, the best option depends on factors like your monthly volume, growth rate, whether you want to accept ACH payments, whether you’re solely e-commerce or also brick and mortar, what products or services you sell, and other factors.

How to Prevent Your PayPal, Stripe, or Square Account From Being Frozen or Shut Down

If you have a payment aggregator account with a company like PayPal, Stripe, or Square, being frozen out isn’t just frustrating – it’s costly. Losing your payment gateway means losing revenue, and the reasons for account freezes vary wildly. However, almost all of them have to do with the aggregator’s perception of your risk level. That means certain companies will be deemed higher-risk from the outset simply because of what they sell. For example, if you only sell digital products, you will be considered higher-risk than if you sell physical products because it’s harder to prove that the product was received by the customer.

Another example is businesses that sell age-restricted products. These carry a higher risk because of underage customers attempting to buy the products, and the possibility of police sting operations to catch vendors selling products illegally.

Aside from your default risk level, you can take a few steps to minimize the amount of risk you present and avoid account freezes:

Minimize Chargebacks

The more chargebacks your company gets, the more likely your payment partner is to suddenly freeze or shut down your account. You can prevent excessive chargebacks by ensuring all customers see a clear, straightforward return and refund policy before they finalize their purchases.

Mind Your Marketing

Payment aggregators like Square have automated systems for determining your risk. They aren’t always entirely discriminating and can flag companies that use buzzwords associated with high-risk businesses and scams. For example, if you use terms like “get rich quick” or “miracle cure” somewhere in your branding, you run the risk of a sudden account freeze while the payment gateway further analyzes your business. Worse yet, they could shut you out from accepting payments entirely.

Maintain a Good Credit Score

While a good credit score isn’t as important as if you open a merchant account, it still lowers your risk profile (and your risk of being frozen out of your account).

Know Your Contract

Sometimes, accounts are frozen because PayPal, Stripe, or Square believes that you violated some aspect of your contract agreement. By being familiar with all of its provisions and knowing major details, you can make sure that you don’t give them an opportunity to accuse you of breaching it.

Look Out for Suspicious Orders

If you get an order you think is suspicious, taking proactive measures can prevent the situation from escalating to the point of your account being frozen. Look out for unusually large orders, orders with billing or delivery addresses in different countries, and many small purchases coming in separately from the same credit card.

The Final Word

Whether you need a merchant account or a payment processor depends on many different factors. While a payment gateway aggregator might be the perfect fit for your needs today, you may need to get your own account as your company grows. There are pros and cons to each, and every company is different!

If you still aren’t sure which is the best fit for you, GAM Payments can help you figure it out. They’re a boutique payment services provider specializing in high-risk merchants and can get you started with everything you need to start accepting payments as quickly as possible. GAM Payments will help you stop stressing about credit card processing, and focus instead on growing your company!

What is a Merchant Account & How do you get one for your small business? | GAM Payments

A Merchant Account is a type of bank account that allows businesses to securely accept credit cards, debit cards, and other forms of electronic payment for goods and services. Besides that primary function, a merchant account offers additional benefits to your business. Merchant accounts are available through banks and independent payment processing companies.

This post will explain what Merchant Accounts are, how they work for small businesses, how to get one, and how to choose the best merchant account services provider for your company.

How Does a Company Benefit from a Merchant Account?

Businesses need a merchant account to accept credit and debit cards, and other kinds of electronic payments. And merchant accounts offer additional benefits to businesses:

Increased payment options make it easier for customers to shop at your business at both point of service POS terminals (and cash registers) in ‘bricks and mortar’ stores and/or online, with an Internet Merchant Account.

Merchant accounts help you get paid faster and improve cash flow with faster access to funds. You’ll have access to the latest e-commerce, hardware, software, and mobile technologies. And chip cards and mobile payments have advanced encryption and safeguards to help prevent chargebacks and fraud.

Some merchant accounts offer management tools to view your transaction activity, create and schedule reports, and research customer data online. Merchant accounts make it easier for businesses to track and manage transactions. And besides credit and debit card payments, a merchant account lets businesses accept ACH, e-checks, and contactless payments like Google and Apple Pay so your business can expand and grow.

How Do Merchant Accounts Work?  

When a customer makes a credit card payment at a merchant terminal or online by internet gateway several technologies work together to authorize the transaction and schedule payment to the account.

The customer’s card payment information is sent to the merchant’s financial institution-the acquirer bank.

The acquiring bank sends the information to a payment processor and the card association-Visa, Mastercard, American Express, or Discover.

The card association sends the information to the customer’s bank-the issuing bank and requests an approval. The issuing bank sends a response and an approval code if approved.

The merchant sends the transaction to a payment processor for settlement and the processor deposits funds into the merchant’s account.

An acquiring bank is a financial institution or bank that processes debit and credit card payments on behalf of a merchant. The acquiring bank passes the merchant’s transactions along to the issuing bank to receive payment.

Types of Merchant Accounts 

There are two main types of merchant accounts:

A merchant account for Card Present Transactions is used when the cardholder and the credit card are physically present at the time of the sale. In a card-present transaction, the customer physically swipes a card, or dips, i.e. inserts an EMV chip or shows a mobile device with the card loaded into a digital wallet.

Note: transactions that are manually keyed into a credit card machine do not count as a card-present transaction even when the card is physically present. Card Data must be captured electronically to qualify as a card-present transaction.

A Card Not Present or Internet Merchant Account is used when neither the cardholder nor the card is present at the time of sale, as in online e-commerce, telephone orders, and mail orders. Internet merchant accounts have online payment gateways that link a business website to the payment processor.

When a customer makes an online purchase, the card information from the business website is sent through a payment gateway to obtain an authorization for a payment card transaction to be completed. Payment gateways work with a variety of e-commerce service providers such as shopping carts and digital wallets. Typically, internet merchant account fees are higher because of the assumed higher risks of online payments.

Most independent credit card processing companies offer both merchant accounts and Internet merchant accounts.

How Do You Get a Merchant Account? 

Merchant accounts are available through banks and financial institutions and independent payment processing companies. You’ll be asked to fill out an application and provide supporting financial documents. The bank or financial institution will assess the level of risk of your business may have when processing credit card payments. And you’ll need a regular business account to open a merchant account.

It may be easier to get your account through an independent merchant service provider. A merchant service provider can help you through the application process for a merchant account. In general, an independent merchant service provider will offer access to more services than a financial institution will.

Getting a Merchant Account

Think about your current business needs and how your company might use credit cards and other electronic payments in the future. Consider different credit card brands. 

Gather your financial information. Different banks and merchant account providers may ask for different supporting documents from different businesses. In general, you’ll need a business bank account, financial statements, business license if applicable, (EIN) employer id number, articles of incorporation, a physical address, and a completed application.

You might also be asked to provide additional supporting documents including a voided check, business forecasts, and inventory reports. If your business has already been accepting credit cards, previous processing statements are helpful so the underwriters can see what types of payments you’re accepting.

Choose a payment processor: Determine if you want to go with a local bank or an independent merchant services provider based on the services offered and fees assessed. Most independent merchant service providers offer access to more services than banks.

Submit the completed application with the supporting financial documents, and possibly a cover letter.

Personal credit is also part of the application. If you have a low FICO score you likely won’t be able to get a low-risk merchant account. You’ll have to apply for a bad credit merchant account if you want to accept credit card payments. You’ll pay higher rates for your merchant account and it may have restrictions (they’ll decrease as you build your processing history). PayPal, Paypoint, and Chronopay could be workable merchant account alternatives. And GAMPayments is a highly transparent, full-service merchant services provider specializing in high-risk accounts. 

How Long Does It Take to Get a Merchant Account?

If you submit a complete application and accompanying documents, a new merchant account can be set up in as little as one day, possibly less, but 2-3 days is more usual. High-risk merchant accounts can take longer.

How Much Does It Cost to Open A Merchant Account?

Startup fees range from $50 to $200, plus monthly and per-transaction fees. Monthly statement fees range from $4 to $20 and transaction fees typically from 5 to 50 cents per purchase. The discount rate i.e. the percentage rate charged per transaction varies generally from 1.5 to 3 % based on the degree of risk, card volume sales, and whether the card is swiped at a storefront or entered online (card present and card not present).

Do You Need a Merchant Account and a Business Bank Account?

You’ll need to have a business account before you can apply for a merchant account. The business bank account is the default destination for funds your business transacts as well as the account where transaction fees are debited.

What are Low Risk & High-Risk Merchant Accounts?

There are low-risk, medium-risk, and high-risk businesses. The risk level of a given business is determined by several factors, including the type of business it is, processing history, country of incorporation, length of time a business has been in operation, and more.

A low-risk business typically processes less than $20 000 a month, operates in a low-risk industry and country, uses secure technology, and has a low, 0-1% chargeback ratio. A large percentage of transactions will be Card Present.

Book sales, retail apparel, office supplies, and home goods are some of the businesses considered to be low risk. A low-risk merchant account in general can get fast approvals to be up and running and pay lower rates and processing fees than high-risk merchant accounts.

A high risk merchant account is a payment processing account for businesses considered to be of high risk to banks. High-risk accounts usually come with higher processing fees. When opening a high-risk merchant account transparency and communication are chief among the things to consider.

High-risk businesses include travel agencies, casinos, credit restoration companies, e-commerce, and many others. High-risk businesses are more prone to excessive chargebacks, i.e. bank-initiated credit card payment reversals due to fraud or dispute, and they pay higher fees for merchant services.

While low-risk merchants can generally establish a merchants account, it can be more challenging to find a processor for a high-risk business and the costs for processing services could be substantially higher.

GAMPayments specializes in complex and high-risk accounts.

Understanding Fees 

Merchant accounts come with a variety of fees including Monthly Fees, Setup Fees, Application Fees, Discount rates, Transaction Fees, and Cross-Border Fees. Additional fees can increase the total fee per credit card transaction to over 3%. These fees are not always clearly outlined in contracts.

There are 3 main categories of pricing fees associated with merchant accounts:

Flat Rate Pricing: the processor charges a single fixed fee for all credit and debit card transactions regardless of the card used for payment. Either simple base rate fees between 1.75% – 3% or base rate plus small include transaction fees, for example, 2.9% + $0.20 per transaction.

Tiered Pricing fees: These are broken down into three tiers: Qualified, Mid-qualified, and Non-Qualified based on card type, amount of risk in the transaction, and other factors. Qualified transactions get the lowest fees, non-qualified get the highest. Processing rates can range from 1.4% to 4% depending on tier with qualified at the lower end and non-qualified at the higher.

Interchange Plus Pricing: Here, the merchant is charged a percentage of the transaction (the interchange rate) plus a fixed per-transaction fee. It’s considered to be the fairest and most transparent pricing model.

What Is a Merchant Services Provider? 

A merchant services provider simplifies the payment acceptance process. Merchant Service Providers enable your business to take credit and debit card payments and ensure that customer card transactions are secure and efficient. They act as intermediaries between customers, banks, and financial institutions and make it easy to accept and process payments. Independent merchant service providers generally offer more services than banks or financial institutions. Merchant services may include:

  • Point-of-sale (POS) systems and card readers
  • Security
  • Payment solutions for specific business needs
  • Responsive Customer Service
  • Online payment gateways and eCommerce platforms
  • Software and apps for business management and many other services

How to Choose a Merchant Services Provider

  • Transparency is vital. Look for merchant service providers who are clear about their pricing and offer reasonable and understandable rates and fees. Make sure processing rates, monthly fees, and other fees are fair. Uncommonly low rates may be disguising undisclosed hidden fees and rates that will show up later.
  • Look for responsive 24/7-available quality customer service and account support.
  • Consider the specific needs of your business. Does the merchant account provider offer the type of processing that you require? Innovative technology and hardware solutions?
  • Payment security is critical. Is there protection against credit card fraud?
  • Expandability: a merchant account provider that supports many payment technologies (POS systems, online payment gateways, virtual terminals, and mobile credit card processing) lets you scale your business over time.
  • Independent merchant services providers generally offer more services than banks do. And many banks outsource their merchant services to independent providers.

Be aware that merchant service providers using third party processors don’t offer the same level of service as full-service merchant service providers.

Look for a provider that can offer as many services as possible, so you don’t have to use multiple providers. It will simplify your payments.

GAMPayments is a full-service merchant services provider offering innovative technologies and transparent, safe, customized payment processing solutions.

Will a Merchant Account Prevent Fraud Transactions?

Merchant accounts offer data-driven fraud prevention tools such as real-time behavior analytics, 3D, and enhanced security. ENV 3-D Secure allows greater data exchange between merchants and issuers during cardholder authentication for e-commerce transactions.

Tokenization replaces sensitive account information with a unique digital identifier called a token, allowing in-store, online, and in-app payments to be processed without exposing actual account details that could potentially be compromised. PCI DSS Compliance chip activated terminals address verification services. Merchant accounts also offer chargeback representation.


How Do You Close Your Merchant Account?

Many merchant service providers offer long term contracts that require an early termination fee of generally about $500 to exit the contract. Recently some merchant service providers have offered month-to-month contracts though that is not the industry standard.

How Do You Transfer Money from Your Merchant Account to Your Bank Account?

When a credit card payment is made, funds are deposited into the merchant account first, then transferred to the business account on a daily or weekly basis.

How Many Merchant Accounts Can You Have?

You can have multiple merchant accounts, but you can only set up one merchant account processor for processing credit card transactions for each card type. Because only one processor can be set to perform real-time authorizations and manual transmissions. With multiple accounts, you can process more payments, increase card processing options, and distribute chargebacks.

What Is a Merchant Account Summary?

A merchant account summary is part of the information on the account’s monthly statement. It’s a summary of the money that came into and left your account during the statement period. It shows sales processed by card brands as well as the total fees paid to process the sales. Adjustments to the account, chargebacks, number of refunds, and sales trends may also be included.

What is a Payment Solution?

Payment Solutions, in general, are technologies and/or systems of technologies that make processing credit cards and other electronic payments possible, efficient, and secure.

What Is a Chargeback?

A chargeback is a demand by a credit card provider for a retailer to remedy the loss on a fraudulent or disputed transaction. More simply it is a reversal of a credit card payment that comes directly from the bank.

What Is PCI Compliant?

Payment Card Industry (PCI) compliance is a set of standards that ensures that customer data is being uniformly secured throughout the payment card industry. The Payment Card Industry Security Standards Council was established to help regulate the credit card industry and improve payment security throughout the industry.

GAMPayments provides customized payment solutions for a broad range of payment types made via physical and virtual terminals, internet gateways, and mobile payment with CRM and POS integration; multiple payment options on one platform, including credit cards, ACH, and more-solutions to fit your business and payment needs. We offer a full range of services, high-level account servicing and responsive customer support, real-time forecasting and analytics, and intelligent chargeback representation.

GAMPayments can serve virtually all industries and they specialize in complex and high-risk accounts. The core of GAMPayments is trust, transparency, and partnership. Their partnerships with clients are based on trust and transparency and providing clear, understandable information to find the best payment solutions for their businesses.

Final Thoughts

Merchant accounts are indispensable to your business. But navigating the ins and outs of payments can be tricky. A truly transparent, responsive, and forward-thinking merchant services provider makes payments efficient, secure, and easy.

GAMPayment’s high level of service and customized payment technology solutions make them a smart choice for any business. Their expertise in high-risk accounts and commitment to transparency makes them an excellent choice for complex and high-risk businesses.