Types of merchant accounts


To process payments, you need two things: a payment gateway and a merchant account. A merchant account is not your average bank account. A merchant account is where settlement takes place. Once the funds have cleared in the gateway and acquiring process, they are then settled into your merchant account. These funds are then passed through to your business bank account.

However, not all merchants accounts are created equal. There are two popular types of merchant account.

Aggregator Merchant Accounts

The first, and relatively newer account type, is a payment service provider (PSP) merchant account. Also called a payment facilitator (PF) merchant account, these account types aggregate funds across many merchants in a pooled master merchant account.

An aggregator account is a merchant account with a payments provider (e.g. Bambora) acting as the main merchant and the payments provider’s customers acting as sub merchants of that account. By having an aggregator account underneath a payment provider, the payment provider takes on a greater risk since they are the merchant on record.

Aggregator accounts are fantastic for small to medium-sized businesses. They tend to have lower or no set-up or monthly fees, so sub merchants only pay when they process payments. With Bambora PSP merchants have a blended rate that allows them to pay one flat rate instead of paying multiple rates based on card type.

To sign-up for an aggregator account, merchants complete an online application which takes less than ten minutes. When you sign up, you are given an MCC code based on your industry and goods sold. For instance, 0742 is the industry code for Veterinary Services.

Merchants are placed into a pool with other merchants who have the same MCC code. Although you share a pool, you do not share anything else. No chargebacks or fraud from a fellow merchant will affect your account. Nor will you be able to access or see any other merchants.

ISO Merchant Account

The second account type is an independent sales organization (ISO) merchant account. These accounts are typically used by larger merchants or enterprises.

ISO accounts are unique to the merchant who opens one, so more flexibility can be applied to the account settings and more customizations provided to specific merchant needs. Merchants can get dynamic currency conversion, settle into multiple currencies, customized credit limits, and more by utilizing an ISO account. With ISO accounts, there is a set-up and monthly fee, however, they have more flexible processing cost structures since they tend to be used to process larger volumes.

All aggregator accounts are capped with a maximum processing threshold. If a merchant reaches the threshold, their account will need to be migrated. The threshold is determined and regulated by card associations (Visa- $100,000, MasterCard $1,000,000 and AMEX $500,000) and merchants only have to meet one threshold to advance to an ISO account.

Many payment providers only offer one account type or another (PSP or ISO), and do not have the ability to transition merchants from an aggregator account to a dedicated ISO account. This causes many merchants to have to look at switching payment providers and deal with the burden of opening a new account at a pivotal moment of success. At Bambora, we can grow with you whatever your business need is.

Merchant accounts are a vital piece in processing payments. Big or small, merchants can feel confident with Bambora. 

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