Third party payment processors allow business to accept online payments without needing to open a merchant account. Processors allow businesses to use its payment processing infrastructure or its own merchant account to process payments for a fee. The merchant does not directly deal with the Acquiring banks and the processor is the one that handles the risk. The processor served as the aggregated merchant account provider. This is an economical option especially for those businesses that are just starting out and for those who do not want to spend on merchant account setup cost.
How do third-party payment processors work?
A third party payment processor takes a sales transaction from the merchant and sends the money from the customer to its own merchant account before sending the funds to the merchant’s bank account.
Ways to determine the best third-party payment processor
Several factors must be weighed and analyzed before choosing a payment processor. Below are some important insights in determining the best third-party payment processor.
- There must be brand recognition from the processor’s payment pages because being known builds authority and trust.
- It must be able to integrate well with the chosen e-commerce platform.
- It must provide cost-effective rates and fees for the business.
Are Third-Party Payment Processors Necessary?
Although signing up with third-party payment processors is way easier and cheaper than to get a new merchant account, there are still many things to consider in determining if a business needs a third party payment processor. A right choice must be made where the positives outweigh the negatives.
Setting up a merchant account comes with set up fees and per transaction percentage fee. Startup businesses generally processes a low volume of sales and may not be able to afford the necessary set up fees for a merchant account. It can be said that third-party processors are vital for startup business with low sales because party processors have higher transaction fees and for businesses that process the high volume of online sales, a third-party payment processor can be more expensive.
Advantages of having third-party payment processors
Availing of the third-party payment processors have proven advantageous for some business. Here are some reasons why.
1. It is fast to setup since the merchant doesn’t have to go the tedious process of opening up a merchant account. It can be done in a few working hours by filling out an online application and submitting the KYC documents for companies.
2. It entails low initial investment, unlike the traditional or dedicated merchant account that requires a setup fee.
3. A quick basic integration is offered by the third-party processor for the merchant’s website. The usual procedure is the third party processors provide an HTML code that can be placed on the merchant’s website to create a button indicating buy now.
4. There is no need to provide previous processing history since there is no direct relationship between the merchant and the acquiring bank.
5. No committed minimum or maximum volume of sales. The merchant can then accept the low or high volume of transactions. This is beneficial for a startup business that finds it hard to forecast sales since there no actual transaction to be used as a basis.
6. Offers easy integration to the e-commerce platform being used is also offered by providing readymade codes and plugins that can be used to easily connect to the merchant’s website. This readymade payment gateway plugins are really helpful for companies that are just starting up that doesn’t have a dedicated technical team.
7. It gives flexibility to the merchant since there are no long-term contracts involve and the merchant can terminate the services availed at any time.
Disadvantages of having third-party payment processors
Both the advantages listed above and the disadvantages listed below must be properly evaluated before signing the of the merchant account agreement and be tied up in a contract.
1. Third party processors charge higher transaction charges to make money and earn profits since they don’t generally charge set up fee. Higher transaction fees may be fine with smaller business but for large companies with voluminous transactions, a higher transaction fee adds substantial cost to the overall operation of the business.
2. A monthly sales capped is implemented by third-party processors over time based on the activities of the business because of the reduced credit risk involved for the merchant. A restriction to accept massive transaction volume can impact negatively the revenue generation of the business.
3. A cancellation or termination fee may be charged once the merchant decides to terminate the services. Some contracts may ask for cancellation fee that ranges between $100 up to $500. The termination and cancellation clauses of the contract must be thoroughly read and understood before signing the agreement.
4. The logo of the processing company and the details of the processing company can be found on the hosted payment page. Unlike if the business gets a dedicated merchant account, the merchant can customize the payment page to make it appear similar to the other pages on the website.
5. A delayed settlement is provided by third-party payment gateway companies whereas a merchant has to wait a little longer than the usual direct account fund transfer to merchant’s account.
6. Third party processors do not offer a dedicated account manager and a dedicated customer service; some may have also no phone support but instead provides an online support ticket system which can make a merchant dissatisfied with the services as well as the cardholders that transacted with the business.
7. A generic descriptor is only provided by the processors since they have limited merchant IDs. The exact business name of the merchant may not be shown in the billing statement of the cardholder and can be a reason for friendly chargeback and return request since there are customers who forget the transactions they have recently made and providing a more specific transaction descriptor can be of great help.
To Know More about Third Party Payment Processor
Give us a call at+44 800 776 5988 or get in touch with us through our website. Even if you’re not a customer of ours, we want to help you understand the process so you can make the best decisions for your business. We believe transparency and proactive education is the best policy.