Bank-Owned vs. Third-Party Payment Processing: What’s the Difference?

The demand for payment processing solutions is on the rise. The market size is projected to grow to $116 billion by 2027, up from $49 billion in 2019. The ever-increasing demand for online purchases is one of the major factors driving this growth. So, sooner or later, as a merchant dealing with online purchases, you have to have a payment processing solution.

So, should you go for bank-owned or third-party payment processing solutions?


It Is a Rollercoaster Ride!

Payment processing is like a rollercoaster ride for businesses; it is thrilling and terrifying. And just like on a rollercoaster, having the proper safety harness is essential to ensure a smooth and successful ride.

Think of bank-owned payment processing like the classic wooden rollercoaster made for kids. It’s the tried and true option that has been around for years; it’s safe, reliable, and a familiar experience for many. However, just like a wooden rollercoaster, it may offer different types of excitement and thrills than the newer, more technologically advanced options.

On the other hand, third-party payment processors are like sleek, modern rollercoasters with all the bells and whistles. They may be intimidating initially, but once you experience their speed and technology, you’ll never return to the wooden coaster. These payment processors offer customization, security, and integration capabilities that traditional banks just can’t match.

In this blog, we’ll take a closer look at both options, so you can make an informed decision and have the ride of your life with your perfect payment processing solution.


Definition of Bank-Owned and Third-Party Payment Processing

Bank-owned payment processing is a straightforward solution that involves working directly with your bank. This means the bank manages your business’s account information and payments, including the authorization, clearing, and settlement of transactions.

Third-party payment processors are independent providers that offer payment processing solutions to businesses. Third-party processing offers a solution as a service that includes online payment gateways, ACH processing, mobile payments, virtual terminals, POS systems, etc. 

These processors provide secure payment acceptance and management services for customers’ transactions. This is especially important as studies from Sift’s global merchant network show an increase in attempted online payment fraud by 69% year-over-year.

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What Is the Difference between Bank-Owned and Third-Party Payment Processing?

The main difference is who manages and controls the payment processing system.

Bank-Owned Payment Processing:

  • The payment processing system is owned and controlled by the bank
  • The bank manages the payment processing infrastructure, security, and customer service
  • Usually offered as part of a suite of banking services
  • May have higher fees and less flexible pricing compared to third-party payment processing

Third-Party Payment Processing:

  • The system is owned and controlled by a third-party provider
  • Typically offers more customization and flexibility compared to bank-owned payment processing.
  • Provides access to a larger network of merchants and B2B partner programs

In both cases, your business can accept and process payments from customers. Still, the level of control, customization, and security varies greatly depending on the type of payment processing solution you choose.


Bank-Owned Payment Processing


Some benefits of using bank-owned payment processing include the following:

  • Established Relationships: By using your bank for payment processing, you can build a stronger relationship with your financial institution, making getting help and support more accessible.
  • Known Reputation: Banks are well-established and reputable institutions, so you can feel confident in their ability to handle your payment transactions securely.
  • Increased Control: Bank-owned payment processing gives you more control over your payment transactions, as you have direct access to your funds and can make changes to your account without going through a third party.


  • Limited Customization Options: Bank-owned payment processing solutions may offer you a different level of customization than businesses need to integrate with their existing systems and processes fully.
  • Dependent on Bank’s Performance: The reliability and availability of bank-owned payment processing solutions are impacted by the bank’s overall performance and their investment in technology.


Third-Party Payment Processing


  • Customization: Third-party payment processing companies offer a wide range of customization options that cater to the specific needs of your business. This lets you choose the best payment solution that aligns with your goals, objectives, and payment processing requirements.
  • Security: Security is a top priority for third-party payment processing companies. They invest in the latest security technologies and employ teams of experts to protect sensitive financial information. Knowing that your customer’s data is secure gives your business peace of mind. iCG guides you in choosing the right secure payment systems for your business.
  • Integration Capabilities: These payment processors are designed to integrate with other business systems like your invoicing systems. This makes it easy for your business to manage its payment processing from one central location. This significantly improves efficiency, streamlines operations, and boosts productivity.
  • Technical Expertise: Third-party payment processing companies have extensive technical expertise, which they use to provide businesses with a superior payment processing experience. From setting up the initial integration to providing ongoing technical support, third-party payment processors are equipped to handle all aspects of payment processing.
  • Scalability: Their processing solutions are highly scalable, which means they can accommodate your business as it grows. This makes it easier for your business to scale up without having to worry about the limitations of its payment processing solution.
  • Innovation: Third-party payment processing companies constantly push the boundaries of what’s possible. They invest in new technologies and create innovative payment solutions to help businesses stay ahead of the curve.


Despite the numerous benefits, there are also some potential drawbacks to third-party payment processing:

  • Reduced Control: With a third-party processor, your business surrenders control over certain aspects of its payment processing, such as data security and compliance.
  • Lack of In-House Support: Your business has to rely on the vendor for technical support and customer service. This can be problematic if you require immediate assistance with payment processing issues.
  • Security Concerns: While third-party processors typically use encryption and other security measures to protect payment information, there is always a risk of data breaches and other security issues.


Real-Life Insights into the Power of Payment Processing Partnerships

Namely, a leading HR software company, is a success story of how to harness the power of payment processing partnerships to drive growth and enhance customer experience.

They struggled with multiple payment providers, which hindered their ability to access payment data during a critical growth period. They discovered BlueSnap, and they got into a partnership.

The decision to partner with BlueSnap provided them with an all-in-one solution for accepting credit cards and ACH from their customers in collections. This resulted in better access to payment data and a scalable solution that can grow with them.

Another success story is when WooCommerce partnered with Stripe to launch WooCommerce Payments, a new financial platform for its merchants.

Using a wide range of Stripe products, WooCommerce integrated payment solutions for in-person payments, local payment methods, recurring payments, and business financing to help its merchants grow. 

With fewer than 20 people on its team, WooCommerce launched the platform in 17 countries in just three months, allowing merchants to access new eCommerce opportunities and adapt to evolving customer expectations and habits.


The Key Factors to Consider While Choosing a Payment Processor

When considering the options for payment processing, it’s essential to weigh the pros and cons of both bank-owned and third-party alternatives.

For example, has your financial institution migrated to ISO20022? Which solutions does your third-party payment processing offer? Are you looking for a payment gateway or processor that supports the latest security protocols and technologies?

By March 2023, SWIFT estimates approximately 90% of high-value payments will have migrated to ISO 20022.

Therefore, understanding your business needs and researching various options will help you make an informed decision.

  1. Fees: Bank-owned payment processing charge higher fees than third-party providers, which affects a business’s bottom line. On the other hand, third-party providers may offer lower fees, but the costs may be offset by additional expenses, such as the cost of software services or the need to upgrade to a more secure solution.
  2. Security: Both third-party payment processing providers and bank-owned payment processing offer good security features, but it’s essential to understand the limitations of these features and whether they meet the specific security needs of your business.
  3. Integration: The required level of integration is another critical factor you should consider. Third-party payment processing providers offer a more comprehensive range of integration options and the ability to customize the solution to meet specific needs. For example,’s API and accounting plugins let you easily integrate with your invoicing software.


Implications of Choosing Bank-Owned vs. Third-Party Payment Processing

The type of business, the size of the company, and the industry in which it operates all play a role in determining which option is best for them.

For instance, a third-party processor might be the best choice if your business needs to process payments quickly and securely. But a bank-owned processor might be more suitable if you want to maintain better control over your business data and processes. You should also consider the customer experience. A payment solution that is fast, reliable, and easy to use can positively impact a customer’s experience, leading to increased customer satisfaction and loyalty.

So, why don’t you try We provide a wide range of payment processing solutions, like hosted payments, IVR payments, ACH processing, credit card processing, email invoicing, virtual terminal, and PCI scope. These solutions are designed to meet the needs of businesses of all sizes.

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