Whenever I am talking with businesses that are just getting started, one particular question comes up a lot: “How do I get a merchant account?”
It’s a simple question, but it has a complicated answer. Usually I prefer to take a holistic approach and get to know the business first, so that I can address specific needs and create a solution that fits. But for the purposes of this column, I’m going to focus on comparing the two ways to start accepting credit cards online. Both have their advantages and disadvantages.
It’s crucial that whichever merchant services provider you select is knowledgeable about Visa and Mastercard regulations.
Payment Service Provider Aggregator
The first method is through a payment service provider (PSP) aggregator, where your merchant account is shared with thousands of other businesses of similar types. This approach is particularly useful for a business that has never before accepted credit cards and may not necessarily have the infrastructure in place to provide customer service, address chargebacks or devote full-time attention to their payment processing. For instance, sometimes folks launch a site more as a side hustle than a primary source of income.
The disadvantage to the PSP aggregator approach is that the business doesn’t have control over the merchant account. That’s because it’s not a direct merchant account; the transactions are aggregated with thousands of other businesses. Because of this, you won't be able to use certain chargeback prevention solutions — more on that in a minute.
Direct Merchant Account
The second way to begin accepting credit cards is with a direct merchant account. This is an account that is established specifically for your business and it belongs to you. The only transactions going through this account are your own. This requires a little more work because you’ll need to decide on a gateway to integrate into your website to accept credit cards.
The upside is that almost every aspect of a direct merchant account is customizable. A business can decide which gateway to use, and whether to use a hosted payment page or integrate with the gateway and present a seamless payment experience for customers. You can also choose which shopping cart platform to use and which chargeback prevention tools to use, like CDRN, Ethoca Alerts and RDR. In short, you have more options and control.
Additionally, when you opt for a direct merchant account, the tokenized payment credentials, customer names and email addresses, and everything else your business obtains to process payments belong to you. An aggregator may not always be very accommodating if you request to transfer those tokens to a new gateway, which is costly and time-consuming.
The drawback of a direct merchant account is that your business must handle its own customer service and closely monitor the account's performance.
Which Path Is Best?
It is important to distinguish between these two methods because as your business grows, you may want to adjust how you handle payments. But which one is right for you?
Short answer: That’s totally up to the business! I think an aggregator is a great place for a neophyte to get their feet wet, learn the ropes and gain necessary experience before running a direct merchant account — or eventually, several direct merchant accounts across their digital properties. But if you’ve already “been there, done that,” then a direct merchant account backed by a team with decades of experience is your best bet.
Traditionally, a direct merchant account offers lower rates than an aggregator, but an aggregator offers many premium services that a direct merchant account doesn’t. What it really comes down to is a business’s needs and goals. Once those are defined, a business can compare the services offered by each type of provider and decide based on what fits best to help address those needs and achieve those goals.
It’s crucial that whichever payment services provider you select is knowledgeable about Visa and Mastercard regulations, and is able to accommodate your growth and provide tools and guidance for mitigating chargebacks. As sales go up, refunds and chargebacks go up. That’s part of scaling up.
If you decide to go with a direct merchant account, one particular tool you should utilize, especially if your business relies on recurring memberships, is the Visa Account Updater (VAU). This service connects your gateway with participating banks, and when a payment credential on file — often a tokenized card number — is about to expire, this service will contact the issuing bank, get the updated payment information and add it to your customer’s profile. This means your customers’ subscriptions will not be interrupted due to expired card numbers.
TLDR
Aggregators are good for helping beginners gain experience, while direct merchant accounts are better for those who already have experience. Both options have their pros and cons, so the choice ultimately depends on your experience and needs. Research and compare payment companies before making a decision, then choose a payment service provider that can accommodate your plans and help you mitigate chargebacks.
Jonathan Corona has two decades of experience in the electronic payments processing industry. As chief operating officer of MobiusPay, Corona is primarily responsible for day-to-day operations as well as reviewing and advising merchants on a multitude of compliance standards mandated by the card associations, including, but not limited to, maintaining a working knowledge of BRAM guidelines and chargeback compliance rules defined in both Visa and Mastercard operating regulations.
