Credit Card Processing

Stripe vs. Merchant Account: What’s the Difference?

Read Time: 5 min

With more than 39 billion combined card transactions annually in the United States, businesses accepting credit cards can expect to generate more revenue than those that do not.[1]Card Rates. “The Average Number of Credit Card Transactions Per Day & Year“. Accessed on March 24, 2023. Fortunately, there are many companies offering payment processing solutions, allowing merchants to benefit from a full range of features, competitive pricing, and third-party integrations. One of the most popular payment processing solutions to have recently emerged is Stripe. However, Stripe is a payment service provider. The company does not actually issue merchant accounts, which are generally considered essential to payment processing. If you want to make an informed decision when choosing processing services for your business, keep reading as we delve into Stripe, merchant accounts, and their differences!

What’s the Difference Between a Merchant Account and Stripe?

an iPhone showing a mobile transaction after a merchant decided between stripe vs merchant account

A merchant account is a business bank account specifically used for processing credit and debit card transactions. These accounts are utilized to facilitate the transfer of transaction funds between issuing banks and acquiring banks. One major advantage of a merchant account is that it allows businesses to establish a direct relationship with the financial institution responsible for processing their payments.

On the other hand, Stripe is a payment service provider. This method of aggregate payment processing funnels multiple merchants and their associated transaction funds through a single merchant account. Because this merchant account belongs to Stipe, as opposed to the individual merchant, there’s no need for the merchant to go through the rigorous underwriting process normally necessary for merchant accounts.

Is Stripe a merchant account?

No, Stripe does not issue individual merchant accounts. Instead, Stripe utilizes payment aggregation to process numerous merchants through a singular merchant account. As a result, Stripe merchants have less control over their payment processing solutions.

How Does a Stripe Business Account Work?

Branded as “financial infrastructure for the internet,” Stripe is known for its eCommerce solutions, though the company also provides in-person processing and hardware. By offering a full-suite payment system, the company enables businesses to process all types of transactions—credit cards, invoices, and international transactions, to name a few.

Applying for a Stripe account is simple. Be prepared to provide business information, like a business bank account, operation details, and applicable licenses. Once approved, you can begin accepting payments. However, new account holders should expect to wait between one to two weeks after purchases before receiving a deposit.

Stripe has a pay-as-you-go model, meaning you only pay for Stripe’s services when you use them. Stripe’s processing fees depend on the type of transaction and card used, but eCommerce merchants can expect to pay around 2.9% + $0.30 on every transaction. This is higher than average credit card processing fees, but many merchants accept this rate in order to benefit from the fast onboarding process

Thanks to Stripe’s unique API solution, the platform is even suitable for large eCommerce businesses looking for a custom solution. However, it’s not a suitable solution for high-risk businesses, as Stripe lacks the necessary resources to assist high-risk businesses. In the case that your business is considered high-risk, it’s best to partner with a merchant service provider to obtain a high-risk merchant account.

Is Stripe a payment gateway or processor?

Stripe offers a simplified approach to payment services. Instead of providing a full suite of every feature and service available in the payments industry, Stripe chooses to focus on delivering only the essential components that businesses need to facilitate payment processing. To obtain a payment gateway or payment processor tailor-made to support your business operations or industry requirements, you must partner with a merchant service provider.

How Do Merchant Accounts Work?

A merchant account is a specialized bank account required for payment processing. When a customer makes a payment through a payment gateway or point-of-sale system, the credit card information is immediately encrypted and sent to the acquiring bank. The acquiring bank communicates with the customer’s issuing bank to verify the transaction. At this point, the issuing bank sends an approved or declined message, communicated to the customer and/or merchant via the gateway or terminal. Upon approval, the acquiring bank uses the merchant account to hold the transaction funds until settlement. The final step occurs after settlement, at which point the transaction funds are transferred from the merchant account to the merchant’s business bank account for their use. More or less, a merchant account functions as a holding account for transaction funds until settlement.

Pros and Cons of Using a Payment Aggregator like Stripe

As with any payment solution, payment aggregators offer advantages and disadvantages to businesses. We explore the pros and cons of this payment option below.


  • Quick Approval Timeframes: Payment aggregators don’t require the same due diligence as merchant accounts, so the application process is much faster.
  • Recognizable Brands: Companies like PayPal and Stripe have significant brand recognition. The logo increases trust between you and your customers.
  • Modern Interface: Most payment aggregators offer easy-to-use and sleek payment portals, enhancing the customer experience.
  • Flat-Rate Pricing: Flat-rate pricing makes it simple to predict credit card processing fees on every transaction. This means merchants don’t pay different fees for different card brands.


  • More Expensive: Flat-rate pricing can hide fees and commissions for each transaction.
  • Lack of Support: Payment aggregators don’t usually provide a support team, making it hard for businesses to receive assistance.
  • Prohibit High-Risk Businesses: Because payment aggregators lack the proper infrastructure to support high-risk businesses, they are usually turned away.
  • Slower Funding Timeframes: Because funds from multiple merchants must clear into a single merchant account, it may take longer for businesses to receive deposits.
  • Risk of Account Freezes: If a transaction raises red flags, payment aggregators reserve the right to freeze funds without notice.

Does My Business Need a Merchant Account?

Those starting new businesses may be tempted to use payment aggregators (Stripe, PayPal, etc.) due to the quick setup. However, merchant accounts offer various unique benefits including lower processing rates, increased processing fee transparency, third-party software integration, and advanced security features, among other advantages. For more sophisticated, yet also more affordable credit card processing, business owners should contact a merchant services provider to obtain a merchant account. But if you want to pay more for less, we can’t stop you.

Choose PaymentCloud for payment solutions that don’t box you in.

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EMV chipped credit cards that can be accepted for payment with a merchant account or Stripe

Article Sources

  1. Card Rates. “The Average Number of Credit Card Transactions Per Day & Year“. Accessed on March 24, 2023.

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