You may wonder what type of payment service you should use for your business or your future business. Should you use Stripe payment? Square? In this article, we will help you understand the differences and find the best Payment Service that is suited for your food business.
The main difference between the two payment service is that payment aggregators is quick and easy to set up since it takes only a matter of minutes to do it and it can be used almost straight away. A certain number of risks is also present. Your account can get frozen and you may be unable to access the payments you receive. True Merchant Providers is a more suitable choice for handling large volume transactions since they allow you to negotiate separate deals for each payment method.
Payment Aggregators or True Merchant Account?
Payment Aggregator allows you to run payments through one merchant account that is registered with the processing bank. These providers (Stripe and Square) are all known as Payment Service Providers. By using an Aggregator as your method of receiving payments you become a Sub-Merchant.
Stripe payment, Square, Sump and iZettle are all forms of Payment Aggregators. Paypal, formally name bill me later, has been around the longest and is the payment processor standard with their quick setups that allows easy transactions. With digital payment companies there is no process for formal approval. They do not ask specific questions like what is your business selling, do you fulfill orders directly, or if you have a good history with taking credit card payments.
One of the benefits of using this payment processor is they have instant approval, everything in their setup is done digitally through their automatic setup process. This allows you to just go into their website and immediately receive payments.
A common problem with using aggregators is that they have their own Risk Algorithm which allows them to hold and freeze your funds when they see suspicious activity, like huge spikes in volume. Paypal has been notorious for freezing accounts without warning, and in some cases, they have frozen accounts for 6 months or longer. It is not a good state to be in since sometimes they lack a hotline that you call for problems you might encounter. But despite their lacking customer service, they still have about 179 million active PayPal users to this day.
Merchant Account is a dedicated bank account that is used to deposit money from credit card transactions. They give a Merchant ID Number which is exclusive to your business. This means that it is a straight relationship involving you (“the merchant”) and the merchant account processor. However this implies that there is the need for a formal approval process.
When filling for a Merchant Account, you may need to provide your Personal Credit History, Tax ID number, Business History, and answer how you process transactions and other details about your business. This helps your merchant account processor gain more of an understanding about your business, unlike payment aggregators. However true merchant reviews shows that this is a more tedious process.
There is also a chance that your account can get frozen when using a true merchant account, this happens when you misrepresent what you are selling or if you mix two different products, companies or services into one account.
What will it cost you?
Stripe payment aggregator charges 2.9% + £0.30 per transaction and Square charges 2.75% for each transaction. Most Merchant Account Providers posts their fixed monthly fees for their platform which can range from £5 to £50 depending on the software you get access to and the features that you can get.
If your business does a lot of transactions per month it is possible to negotiate a lower rate which leads to lower effective cost by going with a Merchant Account option. Which is the reason that it is one of the cheapest payment gateway there is.
Which one is right for you?
To know which method is correct for you, you need to ask yourself these questions:
- How do you run your business?
- What is your monthly volume?
- Are you integrating your payment system into another software
- Is it a card-present environment
- What type of card do you accept
- What the general needs of the business are
The reason why aggregators are popular is that they are quick and easy to set up, they have very limited or no underwriting, there is a worldwide availability and anyone can get an account.
With a Merchant Account, you have the privilege of having a more customisable and robust account, the option of multiple payment gateways, lower rates for higher volume, more software options, and a more stable account.
What to use will depend mostly on what your direction for your business is. If you are a strong, resilient, and outgoing entrepreneur I’m sure you will pick what will help your business grow whether you use payment aggregators or a true merchant account. Your business, your direction.