Commerce
Choosing Wisely: Credit Card Processing for Success
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Aug 17, 2024
Aug 17, 2024
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Best Ways to Choose a Credit Card Processing Company for Your Online Business

Choosing the right credit card processing company is a crucial decision for any online business. This choice impacts how you process customer payments, the costs associated with transactions, and even your website's performance. In this article, we'll explore the best ways to choose a credit card processing company, comparing true merchant accounts with third-party processors to help you make an informed decision.

Understanding Your Credit Card Processing Options

When setting up an online business, you'll encounter two primary methods for processing payments: using a true merchant account or opting for a third-party processor. Each method has its benefits and drawbacks, and the one you choose can significantly affect your business operations.

True Merchant Credit Card Processors

A true merchant account is a dedicated account that a business owner opens directly with a bank or financial institution, often through a sales agent. This account is specific to your business, giving you full control and responsibility over the transactions.
Key Features of True Merchant Accounts:
  • Full Control: As the account holder, you manage all aspects of the account, including compliance with credit card companies like MasterCard, Discover, and American Express.
  • Separate Gateway Required: Typically, a true merchant account does not include a payment gateway. You'll need to choose and integrate a gateway separately, although some providers may offer bundled packages.
  • Direct Relationship with Credit Card Companies: When you accept payments, you deal directly with the credit card networks, adhering to their rules and regulations.

Third-Party Credit Card Processors

A third-party processor allows businesses to accept credit card payments without having their own merchant account. Instead, you share the processor's merchant account, which means you must follow their rules and guidelines.
Key Features of Third-Party Processors:
  • Ease of Access: Third-party processors are ideal for businesses that are not registered, have poor credit, or only process a small number of transactions.
  • No Credit Checks: These services often do not require credit checks, making them accessible to a broader range of businesses.
  • Processor’s Name on Statements: Transactions will appear under the third-party processor's name on your customers' credit card statements, which can impact your brand's visibility.
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Comparing True Merchant Accounts and Third-Party Processors

When choosing between a true merchant account and a third-party processor, consider the following factors to determine which option best suits your business needs:

Cost Considerations

Cost is often a deciding factor for businesses, especially those just starting out. Here's how costs compare between the two options:
  • Setup Fees: True merchant accounts often have higher setup fees, including gateway setup costs. Third-party processors usually have lower or no setup fees.
  • Discount Rates: True merchant accounts typically offer lower discount rates, which is the percentage of each transaction taken by the processor. Third-party processors often have higher discount rates due to the added convenience and lower entry barriers.
  • Transaction Fees: Both options charge a transaction fee, but these can vary significantly. True merchant accounts often have lower fees for high-volume transactions.
  • Monthly Fees: True merchant accounts may have monthly maintenance fees, while third-party processors might offer plans without monthly fees but with higher per-transaction costs.

Control and Flexibility

  • Merchant Account Control: With a true merchant account, you have full control over the payment process, from customer transactions to dispute resolution. This control allows for a more professional and streamlined customer experience.
  • Third-Party Processor Flexibility: Third-party processors offer flexibility for businesses that may not qualify for a merchant account due to high-risk products or poor credit history. However, this comes at the cost of having less control over your transactions and how they appear to customers.

Customer Perception and Branding

  • True Merchant Accounts: Transactions processed through a true merchant account appear with your business name on customers' credit card statements, enhancing your brand's credibility and professionalism.
  • Third-Party Processors: Since the processor's name appears on statements, customers might not immediately recognize your business, which could lead to confusion or distrust.
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Factors to Consider When Choosing a Credit Card Processor

When selecting a credit card processing company, consider the following factors to ensure you choose the best fit for your business:

1. Transaction Volume and Average Purchase Size

Estimate the number of transactions you expect to process each month and the average transaction amount. This will help you calculate the potential fees and costs associated with each option.

2. Business Type and Risk Level

If your business is considered high-risk (e.g., selling certain types of products or services), a third-party processor might be more accommodating. However, be aware of the higher costs and potential limitations.

3. Customer Experience and Checkout Process

Consider how the checkout process will appear to customers. A seamless, on-site checkout with a true merchant account may offer a more professional experience compared to a third-party processor, which might redirect customers to another site for payment.

4. Speed of Fund Deposits

True merchant accounts generally offer faster fund deposits, typically within 1-3 days. Third-party processors might take longer, sometimes up to a month, to deposit funds into your account.

5. Contract Terms and Negotiability

True merchant accounts often come with contracts that may lock you in for several years. However, the rates are often negotiable, especially for businesses with high transaction volumes. Third-party processors usually offer more flexible terms but with less room for negotiation on fees.
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Conclusion: Making the Right Choice for Your Business

Choosing the right credit card processing company is a critical step in setting up your online business for success. Whether you opt for a true merchant account or a third-party processor, each has its own set of advantages and challenges. By carefully considering your business needs, transaction volume, and customer experience, you can select a credit card processor that not only meets your financial goals but also enhances your brand's reputation.

Frequently Asked Questions

What Are the Costs Associated with Credit Card Processing?

Credit card processing costs can include setup fees, discount rates, transaction fees, and monthly maintenance fees. True merchant accounts typically offer lower transaction costs but higher setup fees, while third-party processors might have higher transaction fees but lower upfront costs.

How Does a True Merchant Account Differ from a Third-Party Processor?

A true merchant account is a dedicated account for your business, offering full control and branding. A third-party processor allows you to share their account, which may be easier to set up but offers less control and can impact your brand's visibility.

Which Option is Better for Small Businesses?

Small businesses with low transaction volumes and tight budgets may benefit from the flexibility and lower upfront costs of third-party processors. However, businesses looking to scale and establish a professional brand may prefer the control and lower transaction fees of a true merchant account.

How Important is the Payment Gateway in Credit Card Processing?

The payment gateway is crucial for securely processing transactions online. With a true merchant account, you may need to choose a separate gateway, while third-party processors often include a gateway in their service.

Can I Switch Between Credit Card Processors Later?

Yes, businesses can switch between credit card processors. However, consider any contracts or termination fees associated with your current processor before making a change. It's essential to choose a processor that aligns with your long-term business goals.
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