Sub-Merchant
A business that processes credit card transactions under a payment aggregator or facilitator's master merchant account rather than having its own dedicated merchant account with an acquiring bank.
Sub-merchants operate under the umbrella of a payment facilitator (PayFac) or aggregator, allowing them to begin accepting payments quickly without establishing individual relationships with acquiring banks. Popular platforms like Square, Stripe, PayPal, and Shopify Payments operate as payment facilitators, with their users functioning as sub-merchants. From the card network's perspective, all transactions appear to originate from the facilitator's master merchant account, not the individual sub-merchant.
The sub-merchant model provides significant advantages for small businesses and startups including rapid onboarding measured in minutes or hours rather than days or weeks, minimal documentation requirements compared to traditional merchant accounts, no monthly fees or minimum processing requirements for many facilitators, simplified fee structures with all-inclusive per-transaction pricing, and integrated payment solutions that bundle processing with commerce platforms. This ease of entry makes the sub-merchant model ideal for occasional sellers, small businesses, seasonal operations, and startups testing business concepts.
However, sub-merchants face limitations and risks including higher effective processing rates (often 2.9% + $0.30 or more), risk of account suspension or termination at the facilitator's discretion, potential holds on funds during risk reviews impacting cash flow, limited control over payment processing features and customization, transaction amount limits (many facilitators cap individual transactions at $10,000-$25,000), and potential negative impacts from other sub-merchants' actions if facilitators implement platform-wide changes. Additionally, sub-merchant accounts may complicate banking relationships, as processors like Square deposit funds with generic descriptors that some banks flag as suspicious activity. As businesses scale beyond $50,000-$100,000 in annual processing volume, transitioning to a dedicated merchant account typically becomes cost-effective despite the increased complexity.
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3D Secure
An authentication protocol for online card transactions that adds an additional verification layer between the cardholder and issuing bank, shifting fraud liability from merchants to card issuers when properly implemented.
ACH Payment
Automated Clearing House payment is an electronic bank-to-bank payment method that transfers funds directly between bank accounts through the ACH network, typically used for direct deposits, bill payments, and recurring transactions.
Acquirer
A financial institution that processes credit card payments on behalf of merchants, maintains merchant accounts, and facilitates the settlement of funds from card-issuing banks to merchant bank accounts.
Address Verification Service (AVS)
A fraud prevention tool that compares the numeric portions of a billing address provided during a transaction against the address registered with the card-issuing bank, returning match result codes to help merchants assess transaction risk.
Aggregator
A payment service provider that enables multiple merchants to process card transactions under a single master merchant account rather than each merchant having their own dedicated merchant account, common with services like Square, Stripe, and PayPal.