Before we start this comparison, it’s worth knowing what each type of high-risk merchant account is. Both of these have their advantages and disadvantages and you have to know every single detail before choosing the one you want. We’ll also cover the regular process following the creation of a merchant account, as well steps for payment. So without further ado, let’s start by discussing the different types of merchant accounts!
Aggregate Merchant Accounts
These merchant accounts are also known as Third Party Payment Aggregation or in other words, TPPA. These merchant accounts are best for merchants who have lower volumes and hard-to-find-a-place business. Because of the difficulty and expensive cost of getting a direct high-risk MID, some merchants only have the option of an aggregate account.
An aggregate account is one that splits off of a direct MID. PSP’s and merchant service providers create aggregates and often use false MCC coding to trick the acquiring bank. Aggregate merchant accounts are often shared with other merchants. Sometimes, one or several merchants in the group will have high charge backs/fraud leading to a frozen account.
Good merchants often lose their funds due to mistakes made by other merchants. Also, if a VISA or a Mastercard is used and discoverd, merchants on the AGG can get into trouble. Unfortunately, aggregate accounts are the only option for some high-risk merchants.
MID (Direct Merchant Accounts)
Direct merchant accounts are known as MID’s (Merchant Identification Number). Merchant Acquiring Banks approve and assign MID’s themselves to certain businesses. These merchants will then get a special and private Merchant Identification number (MID). Unlike aggregate accounts, MID’s are set up by a PSP.
Direct accounts are harder to get approved and set up fees can be expensive. The merchant usually requires high volumes and low charge backs in order to get a direct MID. In exchange, the approved merchant will get a custom descriptor. A direct account is a way to go as the merchant does not have to worry about other bad merchants affecting them. Unfortunately, direct MID’s can be much harder to get than aggregates in high risk.
The authorization process is the same for almost all merchant accounts.
The customer buys a product or pays for a service at the website of the merchant.
The merchant receives all necessary information about the customer and forwards this information to the merchant bank via payment gateways.
The merchant bank then sends this information to the Acquirer.
The Acquirer then sends the information to the Issuing bank for verification.
The Issuing bank sends back transaction results (whether it was accepted or declined).
The Acquirer sends the results back to the merchant bank.
The Merchant bank forwards the results to the merchant.
After the merchant receives the information, he completes the transaction process.
This might seem complicated but the procedure is mostly automated and people who do this are skilled enough for it to go smoothly.
Even though these two types of merchant accounts differ in certain areas, they’re also similar in a way. Not everyone can get Direct Merchant Accounts as you need a bank that offers them. However, if you manage to get this type of merchant account, it’ll be better for you as you get more freedom. Otherwise, you’ll end up with Aggregate Merchant Accounts, which are quicker to set up but with risks involved. All in all, the final choice is yours, so choose accordingly.