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Reasons to Use a Third Party Payment Processor

Aug 15, 2008
Processing credit cards for your customers' purchases can easily comprise the bulk of your online store's sales volume. Without having the means to charge credit cards, the majority of your customers will simply leave your website. Fortunately, there are several options for processing payments. Business owners can choose between using their own merchant account or using a third party payment processor. There are reasons that support both cases. In this article, we'll discuss some of the reasons you may want to use a third party to process your credit card transactions.

Not Eligible For A Merchant Account

Even though merchant accounts are easier to secure than they were years ago, many business owners are still ineligible. There may be a number of reasons why this is the case. For example, the major credit card companies (Visa, Mastercard, etc.) only extend merchant accounts to registered businesses. If your business is not legally registered, you'll find it difficult to get a merchant account. Other potential issues include being considered a high credit risk (due to credit history or the type of products offered) or being blacklisted as a "terminated merchant." In each of these cases, using a third party payment processor may be necessary.

Small Number Of Products

If the number of different products that your business sells online is limited, a merchant account may be more trouble than it's worth. The extra fees for each transaction along with the myriad of other expenses attached to a merchant account might make using a third party payment processor appealing. Plus, the effort of finding a payment gateway, setting up a shopping cart and resolving any programming issues may require too much effort for your limited catalog of products.

Low Sales Volume

If your business processes a low monthly sales volume, the costs of maintaining a merchant account can have a significant effect on your profit margin. Most merchant accounts require a minimum sales volume. If that minimum is not met, a monthly charge may be incurred. If your sales volume is low, you may find that the merchant account is actually a drain on your profits. Using a third party credit card processor can be a less-costly alternative.

Less Maintenance

Processing credit cards through a merchant account requires that you use a payment gateway, a shopping cart and an API. While many business owners hire programmers to handle these details, doing so can become expensive. Small business owners may not have that option. If you don't have the budget to hire capable programmers, you may have to do the job yourself. If your own programming skills aren't sufficient, getting started with a merchant account may be difficult. You can effectively outsource many of the programming chores by using a third party to process credit card transactions. They'll take care of any coding issues and problems when they occur.

Potential Drawbacks

There are, of course, drawbacks to using a third party payment processor. First, you'll pay higher transaction fees (often up to 15% of the transaction amount). Second, you'll have to comply with the third party's rules (which can often seem inflexible). Third, using a merchant account looks more professional than using a third party payment processor. And lastly, you won't be able to build a credit history while using a third party.

In the end, there isn't a clear cut solution for every business. Circumstances will dictate which solution is most appropriate. When you're searching for a way to process credit card transactions, keep the above factors in mind while you weigh your options. That's the best way to find the solution that meets your needs.
About the Author
This article is brought to you by PaySimple, a leading provider of merchant account services.
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