Credit Card Processing

Merchant Account vs Payment Processor: Key Differences

The proper tools for accepting credit card payments are one and the same as the proper tools for business success. After all, over 40% of Americans today make zero purchases with cash in a week, and the younger generations are far less likely to even carry it on them.[1]World Economic Forum. “This is how many Americans never use cash | World Economic Forum”. Accessed on March 27, 2023. However, payment processing is a complicated procedure requiring many tools which are, in fact, not one and the same. Below dives into two necessary tools for credit card acceptance—a payment processor and a merchant account—to highlight their different functions.


What Is a Merchant Account?

A customer's hand swiping credit card on a terminal after finding out what payment processor vs merchant account means by an informed business owner.

Without a way to accept credit cards—the current most popular form of payment—merchants run the chance of missing out on sales. This is where a merchant account comes into play.

As a specialized bank account, a merchant account holds transaction funds until settlement. Upon settlement, funds are released from the merchant account and deposited into the merchant’s business bank account. Essentially, a merchant account holds transaction funds during the backend transfer of said funds from the issuing bank to acquiring bank.

Note: Check out our explainer on merchant accounts vs business bank accounts to understand the differences between these two bank accounts.


What Is a Payment Processor?

​​A payment processor acts as an intermediary for the exchange of transaction funds. However, it can get more intricate as the payment processor may either work in conjunction with the acquiring bank to facilitate the transaction or be the acquiring bank itself.

For businesses deemed high-risk, there may be many intermediaries involved with obtaining the merchant account. Because of the considerable financial liability associated with high-risk businesses, additional parties are required to support their payment processing. This effectively distributes and decreases the liability singular processing partners shoulder. As such, these businesses must obtain a high-risk merchant account that relies heavily on the relationship between the payment processor and other institutions assisting you with securing an account.

Additionally, payment processors verify that each transaction complies with the rules and regulations of the payment industry. (This is known as PCI compliance.) In order to guarantee the protection of consumer information, payment processors utilize data encryption to ensure credit card information is stored securely. In short, a payment processor not only makes it possible for you and your customers to exchange payments but creates a safe, convenient environment for this exchange.


What Is the Difference Between a Merchant Account and a Payment Processor?

A payment processor facilitates the movement of transaction funds from customers to merchants. Meanwhile, a merchant account is a specialty bank account that holds transaction funds until said movement is complete.

Does my business need both a merchant account and a payment processor?

Yes. To support the acceptance of debit or credit cards, your payment processor has a connection to a merchant account. Without this connection, your processor would not have a designated account in which it can store transaction funds until settlement. Simply transferring unsettled transaction funds to a business bank account would result in increased liability in the event of chargebacks, fraud, and other issues associated with payment processing.


How to Find the Best Payment Processor and Merchant Account Provider for Your Business

Finding the best payment processor and merchant account provider doesn’t have to be hard with the following steps:

  1. Determine Your Business’s Needs: Note any specific needs like the type of card brands you accept, your transaction volume, and the products you sell.
  2. Ask for Quotes: Shop around to ensure the best possible price. Clarify the processing fee structure and compare it to the average credit card processing fees.
  3. Check for Integration: Ensure your potential provider integrates with the software you use in your business operations. This could be software for accounting, website maintenance, or customer relationship management.
  4. Evaluate Customer Reviews: Check review sites. Reviews can tell you how responsive and dedicated their customer support team is.
  5. Assess Added Services: You may find that having chargeback or fraud protection is necessary for your business. Sometimes, providers add these services or can refer you to a third-party solution.

By partnering with a merchant services provider, you can obtain the best payment processor and the best merchant account your for particular needs, even if you operate a high-risk business. Additionally, a merchant services provider will grant you access to their comprehensive suite of credit card processing services and features far beyond the basic necessities for processing—because let’s be real, you’re better than basic.


A cloud with two credit cards on it to represent the differences between a merchant account and a payment processor.

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Article Sources

  1. World Economic Forum. “This is how many Americans never use cash | World Economic Forum”. Accessed on March 27, 2023.


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