Understanding Merchant Accounts: When Is A PSP The Better Option?

Over 55% of consumers prefer digital payments to cash when shopping, and this number continues to rise as e-commerce and contactless options become the norm. In such a scenario, accepting digital and card-based payments can be the difference between a sale and an abandoned cart.

A merchant account enables businesses to process card and electronic payments securely, efficiently, and in compliance with industry standards. However, do businesses need a dedicated merchant account, or should they use a payment service provider (PSP)?

What is a merchant account?

A merchant account is a specialised business bank account that enables businesses to accept all forms of electronic payments, including card transactions, bank transfers, and digital wallet payments.

Businesses can open a merchant account either by partnering with an acquiring bank or a payment service provider (PSP). An acquiring bank provides a dedicated merchant account to each business.

In contrast, a PSP, such as Unlimit, assigns a merchant ID to businesses, enabling them to accept payments through an aggregated merchant account shared across multiple businesses.

What are the different types of merchant accounts?

Based on how a business operates, how it accepts payments, and where its customers are located, merchant accounts are classified into:

• Retail merchant accounts: for in-person, point-of-sale (POS) transactions, these accounts support card-present payments
• B2B merchant accounts: for businesses that primarily do business with other businesses or government entities, these accounts can accommodate higher transaction values, invoice-based payments, and specialised card types
• Internet merchant accounts: for accepting payments through websites, apps, or online platforms, these accounts are categorised as card-not-present (CNP), which carries a higher fraud risk and requires enhanced security measures
• Mobile merchant accounts: for accepting debit and credit card payments via smartphones or tablets using mobile card readers, these accounts function similarly to retail merchant accounts
• MOTO (Mail Or Telephone Order) merchant accounts: for accepting payments by mail, fax, or telephone without the customer present, these transactions are also classified as CNP and therefore carry a higher fraud risk
• International merchant accounts: for accepting payments from customers in multiple countries and currencies, these accounts often support local acquiring, multi-currency pricing, and cross-border settlement
• Dedicated merchant account: assigned to a single business, and isn’t shared with other merchants
• Aggregated merchant accounts: shared between multiple merchants through PSPs, which acts as the primary merchant of record, while individual businesses operate as sub-merchants.

What are the fees associated with a merchant account?

When a business sets up a merchant account, it typically incurs a range of fees to compensate the various parties involved in processing payments.

• Transaction fees: a combination of interchange fees (paid to the issuing bank), assessment fees (charged by the card networks), and processor markup (retained by the payment processor)
• Monthly or annual fee: the base amount a business pays to maintain the merchant account and access the platform features
• Minimum monthly fee: the difference a merchant pays if the processing volume or monthly fees don’t reach a minimum threshold
• Statement fee: the fixed monthly administrative charge for generating and delivering account statements
• Setup fee: the one-time fee to set up the merchant account
• Early termination fee: the penalty for closing a merchant account before the defined term ends
• Batch fee: the small charge when a merchant submits a grouped transaction for end-of-day settlement
• Chargeback fee: the fee charged when a customer disputes a transaction, and the funds are reversed.

Merchant account fees can vary widely based on:

• Industry: Card networks and acquiring banks classify industries based on fraud exposure and chargeback risk. Businesses operating in higher-risk categories face higher fees
• Card-present vs card-not-present: Card-present (retail) transactions attract lower fees due to reduced fraud risk than CNP transactions
• Processing volume: Large enterprises with higher transaction volumes can often negotiate lower acquirer mark-ups and more competitive pricing
• Chargeback ratio: Businesses with higher chargeback rates pay higher processing fees and may incur additional monitoring or risk-management charges

Dedicated merchant account vs PSPs: when to choose each model?

Businesses can either partner with a merchant acquirer to open a dedicated account or use a PSP to operate under a shared account across multiple sub-merchants.

When to choose a dedicated merchant account?

Businesses should consider setting up a dedicated merchant account if they:

• Handle high monthly sales volume. Such businesses can negotiate acquirer pricing and achieve a lower effective cost over time (the total fee divided by the monthly processing volume).
• Require advanced customisation. Dedicated merchant account support tailored settlement schedules, multiple payment gateways, multi-entity and multi-currency settlements, and advanced reconciliation and reporting capabilities.
• Operate in higher-risk or regulated industries. Industries such as lotteries, check-cashing services, and multi-level marketing often require customised risk rules, negotiate reserve structures, and direct relationships with acquirers. PSPs may decline to onboard these businesses due to risk constraints.
• Need direct access to data and infrastructure. Dedicated merchant accounts offer greater flexibility in selecting gateways and processors, and allow deeper integration with internal finance, risk, and analytics systems.
• Rely on immediate operational support. Merchant account providers with 24/7 customer service can resolve issues quickly, reducing downtime and disruption.

When to choose a PSP?

Many merchant account applications are rejected. Additionally, underwriting timelines may be extended due to provider-specific requirements and complex fee structures. In some cases, acquirers may hold, freeze, or terminate accounts when transactions trigger risk thresholds.

Businesses looking to overcome these challenges or with the following needs often benefit from choosing a PSP.

• Speed to market. PSPs offer faster onboarding because setup requires less documentation and less extensive underwriting.
• International expansion. Many PSPs support multi-currency processing, local payment methods, and regional compliance, which reduces the need for local banking relationships or separate legal entities when entering new markets.
• Lower operational overhead. PSPs bundle merchant accounts, gateways, fraud prevention, and reporting into a single platform, reducing the internal technical and compliance burden.
• Variable sales volumes. Businesses with fluctuating or moderate transaction volumes benefit from PSP pricing models that feature fewer fixed fees and monthly plans with no setup fees.
• Broad range of payment methods. PSPs often support a wide range of payment methods, including highly region-specific payment instruments such as cash vouchers.

That said, PSPs often apply their own risk controls. These protocols authorise them to hold or freeze a business account in response to sudden volume spikes, chargebacks, or suspicious activity.

How to open a merchant account?

Step 1: Define business needs and payment requirements

Before approaching a provider, define expected transaction volumes, average ticket size, sales channels, geographic markets, currencies, required payment methods, and overall risk profile. These factors help determine whether a dedicated merchant account or a PSP model is most appropriate for the business.

Step 2: Choose an acquirer or payment provider

To select the right provider, organisations should conduct market research, comparing pricing models, settlement timelines, geographic coverage, reporting and reconciliation capabilities, and risk and fraud management tools. Narrow the shortlist to three providers and consult each provider to review their fees, services, and features, and request a quote.

Different providers use different pricing models. Common pricing models include:

• Flat-rate pricing: the provider charges a fixed percentage or predetermined rate for every transaction (usually a combination of a flat fee and a percentage fee)
• Interchange-plus pricing: also known as cost-plus pricing, the provider separates the interchange fee, network assessment fee, and processor markup
• Tiered pricing: the most complex model, the provider groups transactions into pricing tiers, reducing transparency and making true processing costs harder to evaluate. 

Step 3: Prepare required documentation

To open a merchant account, businesses must provide a business license, company registration documents, proof of business address, shareholder and director identification, financial statements or processing history, and a checking account for settlement. Other necessary information includes tax ID or employer identification number (EIN) and primary contact information.

Acquiring banks typically require more detailed documentation than PSPs because they onboard businesses under their own master merchant account.

Step 4: Undergo underwriting and risk assessment

After submitting the documentation, the provider conducts underwriting to assess the business’s legitimacy, financial stability, industry risk classification, fraud exposure, and chargeback history. Higher-risk industries or high-volume merchants may face longer review timelines, additional compliance questions, rolling reserve requirements, or stricter risk controls.

Step 5: Review and sign the merchant agreement

After approval, the provider issues a merchant agreement outlining the fee structures and pricing model, settlement schedules, chargeback and dispute terms, termination clauses, and compliance responsibilities.

Legal and finance teams should review this agreement carefully, because it governs how funds flow and how disputes are handled.

Step 6: Integrate payment technology

Once the account is live, the business should integrate a payment gateway for online or omnichannel payments, POS terminals or mobile readers for in-person payments, and fraud-prevention and authentication tools, such as 3D Secure.

Integration complexity varies depending on whether the provider offers a bundled PSP solution or a modular merchant account setup.

Step 7: Complete PCI DSS Compliance

Any business handling cardholder data must comply with the Payment Card Industry Data Security Standard (PCI DSS). Depending on setup, this may involve:

• Completing self-assessment questionnaires
• Conducting network vulnerability scans
• Implementing tokenisation or hosted payment pages.

Step 8: Test Transactions and Go Live

Before full deployment, test transactions, verify settlement and reconciliation, and confirm refund and chargeback flows. After successful testing, businesses can fully activate the merchant account for live customer payments.

Accept payments with Unlimit

Unlimit provides the financial infrastructure global businesses need to operate without borders. Through a single, programmable layer, we help businesses:

• Enter and operate across global markets with access to local payment ecosystems in 200 locations and over 150 currencies
• Control costs without being locked into a fixed-fee structure, and get it adjusted to business volume and needs
• Create a frictionless customer experience through a single integration that offers access to over 1,000 local and global payment methods
• Move, convert, and settle value globally without the operational burden of managing multiple providers or systems
• Navigate local market complexity through infrastructure built on deep regional licensing and regulatory expertise
• Protect the business and customer trust with top-tier security–PCI DSS compliance, encryption, tokenisation, and advanced fraud detection
• Scale confidently across markets, volumes, and business models without the need for replatforming.

Contact our team to explore how our infrastructure can support your evolving financial operations.

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