What is the difference between a Merchant Account and Third Party Payment Processor?

To a layman it may not matter knowing the difference between a merchant account processor and a third party payment processor, but businesses, this difference carries huge significance. Read on to know what differentiates the two concepts.
 
Basic Difference
 
Merchant accounts are separate bank accounts which are availed by merchants capable of receiving credit card payments from credit card providers. On the other hand, third party payment processors are companies appointed by merchant account holder, which help in accepting online payments without holding a high risk merchant account of your own.
 
However, you have to accept their terms of service before you go about working with them. Their name shows up on the customer’s credit card bill. Additionally, they are directly liable for fraudulent transactions reported with your account.
 
Price Difference
 
Because third party processors charge a lower set up and fixed monthly costs, they are popular with small businesses which have revenue of less than $5,000 per month. However, they charge slightly higher discount rate when compared to merchant accounts.
 
High risk merchant accounts charge a lower per transaction and discount rate. They have high set up and monthly costs.
 
The price difference occurs due to variety of reasons:
 

• The third party processor system adds on to new low volume merchants through a system that is very cost effective and fully automotive. This helps in keeping processing costs under control. On the other hand, merchant account holders require lengthy documentation work and in depth analysis of possibility of fraud risk. This escalates costs and ultimately merchant account proves costly to small businesses.
• Because third party processors take up the risk of bearing any online fraud, they can provide small businesses better deals in comparison to merchant account providers.
• Presently, there are a few third party processors in the market, but the number of merchant account holders is very large. In the wake of huge competition that exist in the market today, deals provided by merchant account holders are more attractive with respect to price charged unless you represent a very small business or a business that works in a very high risk category.

Interface Difference

Third party processors work on an interface that directs users to leave their website and use their own to input credit card details. This is to avoid fraud, which can come into light if your credit card information gets hacked. The standard interface that they possess and reduced communication cost helps them in lowering down their IT costs. This is the basic reason behind their charging low costs from small businesses.
 

 
However,  regular merchants don’t prefer sending customers to another company’s page and hence, as soon as they come up with a formidable business set up, they change to conventional high risk merchant account service provider than  relying upon a third party processor.