07 July 2009

Difference Between a Third Party Processor and a Merchant Account Provider

A third party processor is a type of service directly connected to a credit card processor while, merchant account provider is a provider of various merchant accounts for online business transactions such as credit/debit card processing, gift cards and other forms of payment cards.

Both the third party processor and the merchant account provider share the same basic function, which is to allow money transfer from the customer to the retailer. To understand more about their difference, it is imperative to understand fully their definitions.

What is a third-party processor

It is a network of e-Commerce merchants sharing one direct merchant account. During the purchase of an item, the third party processor transfers funds directly from your credit card to the retailer's bank. The sole responsibility is on the bank itself. This type of service is recommended for the following circumstances:

Starters or non-registered business

No monthly fees to maintain and one can easily leave without obligations, which mean less worries.

Black listed

People who can't get a merchant account due to bad business record can avail of a third party service since it is under the merchant's name and not theirs.

High risk

Business through online transactions is a very risky practice. Fraudulent use of the cards is an avoidable risk a third party is facing. However, all these issues are shouldered by the third party processor that is why they charge higher to cover the cost of risk.

When unable to get a merchant account

Since it is difficult to acquire a merchant account, hiring a third party processor is the best solution when making personal purchases. You just have to abide with their existing regulations to continuously make use of their services.

What is a merchant account provider

A merchant account provider is the intermediary between the credit card company and the retailer. It facilitates transfer of funds, handling of all services and transactions. This type of service provider has a more monthly and other fees but, with a lower per-transaction fee.

Although both have something in common, they differ in method of transfer, rates, and security. Below are the major differences:

Acquisition of services

Third party allows huge number of new merchants to be added into their system with less hassle compared to merchant account provider, which require several documentations and verifications of accounts.

Risk taking

The bank assumes full responsibility for the services handled and not the third party this is the reason why they can charge a lesser fee. To ensure safety, merchant account providers prefer to have a face-to-face business transaction; therefore, it establishes more rapport between the customer and the account provider.


Since there are many merchant account providers, they need to maintain an irresistible offer to satisfy the customers. They play around with their rates from discount rates, to start-up fees, to monthly fees just to cope up with the tough competition.

Regardless of the type of e-Commerce service, it is important to choose a provider that will help you maximize your profit. Decide wisely and not just rely on the cheaper rates offered since what matters most is the quality of service, not the cost.

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