Stripe vs Merchant Account: Which gives more control and lower fees?

 

Businesses have often compared Stripe vs merchant account for accepting online payments. While both enable credit card processing, how they function is quite different. There's value in understanding these variances when choosing a solution that gives your company the best balance of control, flexibility, and cost.

What is Stripe?

Stripe is a widely used payment service provider (PSP) that provides online payment acceptance without requiring users to open a separate merchant account. Rather than giving each user their own unique merchant account, all Stripe users share the same merchant account and use that account to process transactions on behalf of each other. 

One of the major benefits of Stripe is that it is easy to set up and use. You can create your Stripe account quickly, set up your payment processing options on your website/app, and start processing payments in about 15 minutes. Additionally, Stripe provides robust developer resources, subscription billing features, and supports payments from multiple currencies. 

Because the merchant account structure is managed by Stripe, businesses have less direct input into how payments are processed. If Stripe has a suspicion about your transaction(s) through unusual activity, they may withhold funds or suspend your account while processing transactions to determine whether your business is safe to process with them again.

Merchant Accounts Explained

A merchant account is a specialized bank account designed for companies to accept credit/debit card transactions. A merchant account is created by an acquiring bank specifically for the purpose of accepting credit/debit card transactions. This gives businesses greater flexibility when it comes to how they will process payments.

Merchant accounts provide businesses with the ability to process a transaction through a payment gateway before sending it to the acquiring bank for authorization. This gives you the ability to customize any aspect of your business's payment processing, including negotiating your processing rate, as well as managing your risk more easily.

Merchant accounts are good for businesses with high transaction volumes and/or businesses classified as "high risk", because they allow for more flexibility with respect to managing the risk associated with the business.

Control Compared to Flexibility

The major difference between Stripe and a merchant account is control.

Stripe simplifies payment processing and manages several decisions within the company, such as doing fraud checks, managing chargebacks, and monitoring accounts. While this definitely is the best option for startups and small business owners, many businesses do not find this level of control sufficient as they begin to grow.

Merchant accounts provide greater levels of control regarding managing transactions, implementing fraud tools, and choosing how payments are routed to the bank or processor. In contrast, businesses using a merchant account can work directly with their payment processors or banks to create their own customized setup to fit their business model. Businesses that are larger or subject to higher risk typically prefer to have this level of flexibility.

Comparing Fees

Fees are a huge consideration when comparing Stripe and merchant accounts.

Stripe charges a flat-rate fee per transaction that allows owners to anticipate how much will be charged regularly. As such, Stripe is easiest to use because of its predictable, consistent fee structure. However, for those businesses that process a large number of transactions through Stripe, these flat-rate fees over time will have a large impact on their bottom line.

A merchant account has a different pricing structure for its fees, which is typically known as interchange-plus pricing. Under interchange-plus pricing, the merchant pays the card network's fee each time a transaction occurs, plus a charge from the payment processor to cover their costs. Although this type of pricing is more complicated than Stripe's (the merchant does not know how much they will pay per transaction), many merchants that experience high levels of transaction volume will end up paying less overall than using the flat-rate fee offered by Stripe.

Which Choice is Preferable?

Your payment processing requirements will be determined by whether you are using Stripe vs Merchant Account to process payments.

The Stripe payment processing option tends to work well for small businesses that do not need a lengthy setup and would like minimal effort to establish a payment processing option. Conversely, typically larger, established organizations requiring a significant level of control over their transaction process tend to prefer Merchant Accounts as their method of payment processing.

Ultimately, the decision as to which method of processing payments will provide the best solution with Trinity Consultings will depend on many variables, including which type of processing option you choose, how much growth you expect in the future, how many transactions are expected to take place each month; and what your risk profile is associated with each payment method.

By comparing and contrasting the two payment processing methods before implementing them in your organization, you can develop an effective strategy that supports continued growth and success.