Stripe vs Merchant Account: Pros, Cons, and right choice for growth

When a business grows, it has to choose a payment processing option, and it generally chooses between using Stripe vs merchant account. These are both options for collecting payment online; however, they have many differences in terms of how they operate. Their differences will affect your business in a number of ways: how scalable you will be, how you manage your risk, and how you grow over time. In this guide, we outline the advantages and disadvantages of both Stripe and a merchant account, as well as the situations in which you would be best served by using one or the other.

The Basics of Stripe

Stripe is a third-party payment processor that allows businesses the ability to collect payments through an online site without having to go through the process of obtaining a separate merchant account. When you use Stripe, all of your payment processing occurs through Stripe's master account, which includes all of the merchants that use Stripe as their payment processor. 

The Basics of a Merchant Account

A merchant account is a dedicated payment processing account created for you by your acquiring bank or payment processor. By opening a merchant account, you will gain direct access to managing your transactions, settlements, and risk.

What Pros Do You Gain From Using Stripe?

1. Quick and Easy Account Setup

• No long wait times for the underwriting process.
• The account will be approved in minutes.
• Perfect for new and smaller businesses.

2. The API is Very Comprehensive for Developers.

• Offers an abundance of options when it comes to subscriptions, invoicing, and international payments.
• Easy to use on both the website and apps.

3. Reasonably Priced

• Uses a flat pricing programme.
• Has no set-up fee or monthly fee.
• Is easy to understand pricing.

4. Global Access to Customers

• Allows for multiple currencies and countries.
• Comes with built-in fraud detection.

What Cons Are Associated With Using Stripe?

1. Account Volatility

• Stripe may freeze or shut down your account without notice.
• Higher scrutiny on high-risk, fast-growing businesses.

2. Lack of Personalisation

• Limited options for setting specific chargeback thresholds and risk control criteria.
• All underwriting decisions are made by Stripe.

3. Not Suitable for Some High-Risk Businesses

• Those in the gaming, entertainment, or dietary supplement industry often cannot work with Stripe.

4. Limitations on Increasing Volume of Business

• A sudden increase in your business can cause an account to be reviewed or shut down.

The Merchant Account: Advantages and Disadvantages

Advantages of a Merchant Account

1. More Control

• Business uses its dedicated account for payments
• Create your own risk management settings as well as fraud management settings

2. Better Approval Likelihood

• The risk of having your account suddenly be shut down is diminished
• Longer-term scalability opportunities typically fit better with this type of account

3. High-Risk Business Support

• Some specialized providers provide accounts for businesses considered as high-risk
• Complex and specialized industries usually need specially-tailored solutions

4. Customizable Pricing

• Higher transaction volume = lower transaction fee per transaction
• Pricing structure can be based on your company's business type

Disadvantages of a Merchant Account

1. Longer Set-up Time

You will have to go through underwriting and provide documentation before your account is approved.

It can take several days for your account to be approved.

2. Initially High Set-up Costs

• There are typically set-up fees, monthly charges, and possibly a rolling reserve. 

3. Possible Technical Configuration Difficulties

• You may need to do a lot of technical configuration beyond what you would do with a Stripe account.

Comparing Stripe and Merchant Accounts

Setting Up/Getting Approved to Get Started

• Stripe allows you to begin immediately with little paperwork.
• Merchant Account has a lengthy process to get your account approved and offers a more reliable method of doing business.

How Do You Pay?

• Stripe charges a flat fee but will eventually be more expensive as you scale.
• Merchant Account will charge you a variable fee based on how much you process.

Who is Responsible for Risk Management?

• Stripe has control over risk decisions.
• A merchant account gives you control over risk management.

Scalability

• If you are in the early growth stage, Stripe is the way to go.
• If you are looking to grow your business over the long term, a merchant account is a better choice.

When to Use Each Type of Payment Processor

Use Stripe when

• You are a startup or small business.
• You need to be able to get started quickly.
• You will only have a low to moderate amount of transaction volume.
• You are operating in a low-risk industry.

Use a Merchant Account when

• Your business is growing rapidly.
• You have a very high volume of transactions.
• You are working within a high-risk industry.
• You require the stability, flexibility, and growth potential of a Merchant Account.

The Conclusion: Proper Foundation for Growth

Trinity Consultings is a business that values speed and simplicity. Stripe is an ideal platform for you. If your business grows after utilising Stripe, you may face challenges due to Stripe's limitations concerning control, risk, and scalability.

A Merchant Account will require more initial effort. Still, it will provide a stable, flexible, and dependable foundation for continued growth, particularly for businesses at either the high-volume or high-risk end of the scale.

When making a decision about what is right for your business today, consider what your vision for the business will be tomorrow.