Let me tell you about Alex. He’s running a successful online business, processing about $200,000 a month through Stripe, everything’s going great — until one morning he wakes up to an email that makes his stomach drop. His Stripe account is frozen. $80,000 of his money is being held. No explanation, no phone number to call, just a vague email and a chatbot.
Sound familiar? This happens way more often than you’d think, and it’s exactly why understanding your payment processing options isn’t just some boring back-office decision. It’s literally the difference between your business running smoothly and having your revenue shut off overnight.
So let’s talk about the three main ways to accept payments online: payment service providers like Stripe, merchant of record services, and traditional merchant accounts. I’m going to break down what they actually are, what they really cost, and most importantly—which one makes sense for YOUR business.
What These Payment Models Actually Mean
The Stripe Approach (Payment Service Provider)
When you sign up for Stripe, you’re not actually getting your own merchant account. Stripe has one massive merchant account, and you’re basically sharing it with thousands of other businesses. Think of it like subletting an apartment—Stripe owns the place, you’re just renting a room.
And honestly? For a lot of businesses, especially when you’re starting out, this is exactly what you need.
Here’s what makes Stripe great:
Speed is fast. You can go from “I have an idea” to “I’m accepting payments” in under an hour. No underwriting, no waiting, no jumping through hoops. For entrepreneurs trying to validate a business idea, this is gold. Why wait two weeks for a merchant account when you don’t even know if people will buy your product yet?
The tech is really good. Stripe’s API is clean, their documentation is excellent, and they integrate with basically every platform you can think of. If you’re using Shopify, WordPress, or any major e-commerce platform, Stripe just plugs right in. Their fraud detection tools are sophisticated, their reporting is solid, and features like automatic receipt emails and customer portals just work.
Global reach out of the box. Need to accept payments in 15 different currencies? Stripe handles it. Want to use Apple Pay, Google Pay, and local payment methods? It’s all there.
What it costs: 2.9% + $0.30 per transaction. On $100,000 in monthly sales, that’s about $3,200.
The real downsides:
No phone support unless you’re processing millions. When something goes wrong, you’re stuck in an email loop with 1-2 day response times. And their algorithms can be trigger-happy—get flagged (even if you’re doing everything right), and you could wake up with a frozen account like Alex did.
The bigger issue? Stripe’s low risk tolerance. While they let you start processing fast, they can shut you down just as fast. A few chargebacks? You’re frozen and under review. A spike in refunds? Account hold. Their algorithms don’t always account for normal business fluctuations, and when you’re flagged, getting unfrozen is a slow, frustrating process.
And here’s something critical: take a very good look through Stripe’s prohibited and restricted categories—some may surprise you. Many online businesses fall into categories Stripe considers high-risk, and if you don’t do your due diligence, you might not realize it until your payment processing comes to a halt and your business is at a standstill. Supplements, CBD, high-ticket coaching, subscription services with free trials—these are all trickier on Stripe than most people realize.
As you scale past $50,000-100,000 per month, those 2.9% fees also start adding up compared to other options.
But for getting started? Stripe is still hard to beat.
The Merchant of Record Option
Similar to PSPs like Stripe, with a merchant of record you’re essentially renting a part of someone else’s merchant account. But the relationship goes even deeper—a merchant of record doesn’t just process payments on your behalf, they actually become the legal seller of your products.
Here’s how it works: When your customer clicks “buy,” they’re not technically buying from you. They’re buying from the merchant of record company. The merchant of record processes the payment, handles the entire transaction, and then pays you out your share. On all legal documents, invoices, and customer billing statements, the merchant of record is listed as the seller, not your business.
Why would anyone agree to this arrangement? Because for certain businesses, it’s actually brilliant.
The merchant of record value proposition:
Zero tax compliance burden. And I mean zero. If you’re selling internationally, you know the nightmare: VAT in Europe (27 countries, each with different rules), GST in Canada and Australia, sales tax across all 50 US states, keeping up with changing rates and thresholds, registrations in multiple jurisdictions, filing deadlines… it’s endless.
Merchant of record handles ALL of that. Every calculation, every registration, every remittance, every audit. You wake up, sell your products, and never think about tax compliance. For a small team selling globally, this is genuinely transformative.
They assume the liability. Chargebacks? The merchant of record deals with them. Fraud? Their problem. Regulatory compliance? They handle it. You’re not the merchant of legal record, so you’re not the one on the hook when payment issues arise.
Fast global expansion. Want to start selling in Japan next week? With merchant of record, you just do it. No new tax registrations, no local payment method integrations, no compliance research. They’ve already done all that work.
Professional subscription infrastructure. Most merchant of record services come with sophisticated subscription billing, dunning management (automatic recovery of failed payments), multi-currency pricing, automated invoicing with local tax compliance, and revenue recognition support. For SaaS businesses especially, this is a huge operational advantage.
Focus on product. If you’re a three-person SaaS team, do you really want one person spending 20 hours a month on tax compliance? Or would you rather have everyone focused on building features and getting customers? This is the real merchant of record pitch—buy back your team’s time.
What it costs: Usually 5-8% per transaction, plus monthly fees of $500-$2,000. On $100,000 monthly revenue, you’re looking at around $7,000 total.
The real trade-offs:
You don’t own your customer data. The merchant of record does. They legally own the payment relationship, the billing information, all of it. Want to switch to a different payment processor later? Every single customer has to re-enter their payment info. Expect to lose 30-60% of them in the process.
Also, merchant of record is selective. They primarily work with digital products and SaaS—software, online courses, digital downloads, memberships. If you’re selling physical products or you’re in a high-risk industry, most merchant of record services won’t take you.
And yes, at 7% total fees, it’s the most expensive option. On $500,000 monthly, that’s $35,000 in fees versus $11,500 for a merchant account. That’s an extra $23,500 per month, or $282,000 per year.
But here’s the thing: if you’d otherwise need to hire tax staff, pay consultants $10,000-15,000/month for multi-jurisdiction compliance, and spend countless hours dealing with tax authorities, that 7% might actually make sense. It’s all about whether the operational relief is worth more to your business than the cost and data ownership trade-offs.
The Traditional Merchant Account
This is the “you actually own the whole thing” option. A merchant account is a real bank account set up in your business name, with a direct relationship between you, a payment processor, and an acquiring bank.
Yes, it takes longer to set up—usually 5-7 days—because they take the time to get to know every aspect of your business. They review your business model, your products, your sales history, your customer base, and your risk profile. This isn’t a one-size-fits-all approval process; they’re tailoring your processing agreement to your specific needs and risk assessment. But here’s what you get in return:
Complete ownership. You own the customer data, the payment relationships, all of it. Want to switch processors? You can, and you take your customers with you. Planning to sell your business? Owned customer relationships can increase your valuation by 15-25%.
Real support. Not a chatbot. Not a 2-day email response time. An actual account manager you can call on the phone who knows your business and can solve problems immediately.
Lowest fees at scale. On $100,000 monthly, you’re paying around $2,300 total (2.3%) versus $3,200 with Stripe or $7,000 with merchant of record. That’s saving you $900-$4,700 every single month.
Stability. With Stripe, account suspensions happen to 2-5% of merchants annually. With merchant accounts? Less than 1%. They know your business upfront—your model, products, and risk profile—so there are no surprises. You have a personalized relationship, not an algorithm deciding your fate.
Flexibility. Need multiple backup processors? Want to route high-ticket sales differently than low-ticket? Need custom fraud rules for your specific business? You can do all of that. You’re not locked into someone else’s system.
What it costs: Typically 2-3% for standard businesses (lowest of all options), or 4-6% for high-risk industries (still cheaper than merchant of record). On $100,000 monthly, that’s around $2,300 in total costs.
The trade-offs: Setup takes longer and requires more documentation upfront (business formation docs, bank statements, processing history). You’ll also need to have an established business with some track record; if you’re brand new with zero revenue or processing history, it will be very difficult to get approved. Some merchant account providers also charge monthly fees ($25-50) in addition to transaction costs, though many don’t.
Let’s Talk Real Numbers
Here’s what these three options actually cost at different business sizes:
At $100,000 per month in sales:
- Stripe: $3,200/month (but your account could get frozen at any time)
- Merchant of Record: $7,000/month (but zero tax headaches)
- Merchant Account: $2,300/month (but you handle your own taxes)
At $500,000 per month:
- Stripe: $16,000/month
- Merchant of Record: $35,000/month
- Merchant Account: $11,500/month
See the pattern? As you scale, the cost differences become massive. Using a merchant of record at $500,000/month costs you an extra $23,500 every single month compared to a merchant account. That’s $282,000 per year.
But here’s the thing—if you’re selling digital products to customers in 20+ countries, and you’d otherwise need to hire a full-time tax team and pay consultants $15,000+ per month for multi-jurisdiction compliance, that merchant of record fee might actually save you money.
When Each Option Actually Makes Sense
Start with Stripe if…
You’re just getting started and doing under $50,000 per month. Honestly, at this stage, Stripe is probably your best option.
Think about what you need when you’re starting: you need to validate your idea fast, you need to get revenue flowing, you need to focus on product and marketing—not payment infrastructure. Stripe gives you all of that.
The integration is straightforward. The documentation is clear. If something breaks, there are thousands of Stack Overflow answers. Every developer knows how to work with Stripe’s API. You’re not reinventing the wheel.
Plus, at lower volumes, the cost difference isn’t that dramatic. On $25,000/month in sales, you’re paying about $750-800 with Stripe versus maybe $600-650 with a merchant account. Is $150/month worth the extra setup complexity and 1-2 week wait when you’re trying to get your business off the ground? Probably not.
Just don’t make the mistake of thinking Stripe is permanent. Keep an eye on your numbers, and when you’re consistently over $50,000/month, start planning your transition. And regardless of your size, always have a backup plan ready—Stripe account issues can happen to anyone.
Consider Merchant of Record if…
You’re running a digital business—SaaS, online courses, software, digital downloads—and you’re doing $100,000+ per month with customers spread across lots of different countries.
Here’s the profile where merchant of record really shines: you’ve got a small, focused team (maybe 5-15 people), nobody wants to become a tax expert, your margins are healthy (at least 40%+), and you’re selling to customers in 10, 15, 20+ countries. You’d rather pay more in processing fees than deal with VAT registrations in the EU, GST in multiple countries, sales tax across US states, and all the ongoing compliance work.
The merchant of record model is genuinely popular with SaaS companies for good reason. Services like Paddle and FastSpring let you expand globally fast—you can start selling in a new country tomorrow without any prep work. They handle the subscription billing infrastructure, the tax compliance, the fraud management, all of it. Your team stays focused on building product and getting customers.
There’s also something to be said for simplicity. When you’re a small team trying to scale, having one vendor handle payments, subscriptions, taxes, invoicing, and compliance can be genuinely valuable. You’re not juggling multiple relationships, not dealing with multiple support teams, not trying to get three different systems to talk to each other.
The fees are high—yes. And the customer data ownership issue is real—absolutely. But if you’ve run the numbers and decided that your team’s time is better spent on growth than on payment operations, merchant of record might be the right strategic choice.
Just be really honest with yourself about the trade-offs. If you think you might want to sell your business in the next few years, or if you might want to switch payment processors, that lack of data portability is a serious constraint to consider.
Get a Merchant Account if…
You’re consistently doing $50,000+ per month and you want the best long-term setup for your business. This isn’t just about saving money (though the savings are real—$800-1,200 per month compared to Stripe at $100,000 in sales). It’s about building a real payment infrastructure that you actually own.
Think about it: with a merchant account, you’re building a business asset. The customer relationships are yours. The payment data is yours. If you ever want to sell your company, this matters—owned infrastructure and customer relationships can add 15-25% to your business valuation.
Plus, you get actual human support. When something goes wrong (and in payments, things do go wrong), you can pick up the phone and talk to someone who knows your account. Compare that to Stripe’s email-only support with 1-2 day response times.
Merchant accounts are also essential if you’re in what payment processors call “high-risk” industries. And by the way, their definition of “high-risk” is broader than you’d think. Supplements? High-risk. CBD? High-risk. High-ticket coaching programs over $2,000? High-risk. Dating services? High-risk.
Here’s a reality check: if you’re selling supplements on Stripe, there’s a 35-50% chance your account will get suspended at some point. With CBD, it’s even higher—40-60%. With a specialized high-risk merchant account, you get 60-85% approval rates with processors who actually understand your industry.
And here’s something people don’t talk about enough: merchant accounts scale with you. As your business grows to $500,000, $1 million, $5 million per month, your merchant account grows with you. Stripe gets more likely to flag you as you scale. Merchant of record gets prohibitively expensive. But merchant accounts? They’re built for scale.
What People Don’t Tell You About Merchant Accounts
Here’s what the Stripe and merchant of record marketing teams won’t mention: merchant accounts have some serious advantages that only become obvious once you’ve been in business for a while.
You can have multiple accounts. With Stripe, you get one account and pray it doesn’t get suspended. With merchant accounts, you can (and should) have 2-3 different accounts with different processors. This isn’t just backup—it’s smart business. Route your high-ticket sales through one, your subscription renewals through another. If one processor has issues, you’re still processing.
Your rates can actually go down. With Stripe, you’re stuck at 2.9% + $0.30 basically forever unless you’re doing $10+ million. With merchant accounts, you can renegotiate after 6-12 months once you’ve proven your business model. I’ve seen businesses get their rates down to 1.8-2.2% at volume. That adds up fast.
You’re not at the mercy of an algorithm. Stripe’s suspension algorithm doesn’t care that you’re operating a legitimate business. Hit the wrong trigger (a few too many refunds, a spike in sales, whatever), and you’re frozen. With a merchant account, you have a real person managing your account who understands your business model and can make judgment calls.
You control the checkout experience. Want a specific checkout flow? Custom payment options? Special handling for different customer segments? With your own merchant account, you can do whatever makes sense for your business. You’re not stuck with someone else’s one-size-fits-all solution.
You’re building a sellable asset. If you ever want to exit your business, buyers care about customer data ownership and processing stability. A merchant of record relationship actually reduces your business value because the customer relationships aren’t yours. A solid merchant account setup increases your value.
The One Thing You Absolutely Must Do
Whatever payment processing model you choose, NEVER rely on just one processor.
I cannot stress this enough. Single-processor dependency is business suicide. Processors fail, accounts get flagged, technical issues happen, and when they do, you need a backup ready to go.
Alex’s story had a semi-happy ending—he scrambled and got a merchant of record account set up as a backup within a few hours. But he lost days of revenue and it was incredibly stressful. Many businesses aren’t so lucky.
The smart setup depends on your size:
Under $200,000/month: Keep Stripe or your merchant account as primary, but have a backup merchant account approved and ready to activate.
$200,000-$500,000/month: Run two merchant accounts actively. Send 80% of your volume through your primary processor and 20% through your backup. This keeps both accounts active and lets you switch instantly if needed.
$500,000+/month: Split your processing 50/50 or 60/40 across two different merchant accounts. You’re too big to risk everything on one processor.
Common Questions I Get All The Time
“Can I negotiate these fees?”
With Stripe? Almost never unless you’re doing $10+ million per year. With merchant of record providers, sometimes at $500,000+ per month. With merchant accounts? Usually yes, especially once you’ve been processing for 6+ months and can show stable numbers.
“What if I’m selling physical products?”
Most merchant of record services don’t accept physical product businesses—they’re set up for digital products and SaaS. You’ll want either Stripe (if you’re small) or a merchant account (if you’re doing any real volume).
“How do I know if I’m high-risk?”
If you’re selling supplements, CBD, dating services, gambling-related stuff, high-ticket items, anything with subscriptions that have free trials, or you have naturally higher chargebacks—you’re probably high-risk. The good news is there are merchant account providers who specialize in exactly these industries.
“Can I switch later?”
From Stripe to merchant account? Easy—you own all your customer data. From merchant of record to anything else? Pain in the ass—customers have to re-enter payment info and you’ll lose a lot of them. Think hard before going with merchant of record.
Bottom Line: What Should YOU Do?
If you’re under $25,000/month and just getting started: Stripe is your friend. Get your business off the ground, prove your model, worry about optimization later. The speed and simplicity at this stage is worth more than the marginal cost savings.
If you’re doing $50,000+/month with a standard business model: A merchant account is your best long-term play. Yes, it takes 1-2 weeks to set up. Yes, you’ll need to handle taxes (with software, it’s manageable). But you’re saving real money every month, you own your customer relationships, you have actual human support, and you’re building a more valuable business. This is the grown-up option that scales with you.
If you’re doing $100,000+/month selling digital products internationally: You’ve got a real choice to make.
Go merchant of record if you have a small team (under 15 people), you’re selling to lots of countries, and the idea of dealing with international tax compliance makes you want to close your laptop. The fees are high, you’re giving up customer data ownership, but you’re buying back your team’s time and sanity. For some businesses, that’s the right trade.
Go merchant account if you want to own your infrastructure, you’re willing to use tax software to manage compliance, and you care about building long-term business value. You’ll save significant money at scale, you’ll have more control, and you’ll own the customer relationships that make your business valuable.
If you’re in a high-risk industry: Your path depends on your volume.
Under $50,000/month? You’re in a tough spot. Most high-risk merchant account providers have minimum volume requirements, so you might need to start with Stripe (knowing it’s temporary and risky) or find a merchant of record that accepts your business type. Some merchant of record providers do work with certain high-risk categories, especially for digital products. Just understand that Stripe suspension rates are high for high-risk businesses (35-60% for supplements, CBD, etc.), so have a backup plan and transition to a proper high-risk merchant account as soon as you hit the volume minimums.
Over $50,000/month? Get a high-risk merchant account. You’re now at the volume where specialized processors will work with you, and you’ll have much better stability than hoping Stripe doesn’t flag you or trying to find a merchant of record that accepts your category.
Look, there’s no one “right answer” here. Stripe isn’t bad—it’s great for what it’s designed for. Merchant of record isn’t a ripoff—it’s a strategic choice that makes sense for certain businesses. Merchant accounts aren’t unnecessarily complicated—they’re the option that gives you the most control and ownership.
The right choice depends on where you are now, where you’re going, and what you value most: speed, simplicity, cost savings, or control.
Just whatever you do, have a backup processor. That’s not optional.
