Third Party Merchant: To be or not to be?

[IPSKeith]

That is the question

To be or not to be a third party merchant? And, do you even have a choice? Its sometimes frustrating to get a merchant account for ?hard to place? online businesses. As a rule, credit card processor service providers are reluctant to service businesses that are high-risk, start-up, unaccredited, or that fall into categories like online entertainment, pharmaceuticals, tobacco and alcohol. For some, a third party solution might work? for others it won?t. If you are lucky enough to have a choice, how do you know which way is better for your business?

First, the advantages of third party:

Versatility. Third party merchant accounts, as a rule, offer more kinds of credit cards and payment methods. The market size of paying customers supported worldwide might be up to three times larger than a given direct merchant bank might be able to serve.

Fewer and simpler fees. Yes, despite what some may say, third party payment solutions typically have fewer and lower startup fees ? even zero startup cost, depending on the merchant. By contrast, legitimate direct merchant accounts will always involve more up front cost, paperwork and direct risk and responsibility. And when all the various kinds of transaction, reserve, service and gateway fees are figured in, the total cost is often comparable to third party for medium-to-large online businesses. For startup or small volume online merchants, direct accounts are almost always costlier, as well as being higher risk.

Statistics and Strategies. Third party merchant accounts provide statistical information, such as number of transactions (filtered by date, time, country, and so on), which is provided instantly online, and is updated in real-time. These reports and other sophisticated ecommerce tools allow you to manage your products, pricing and purchase experience and improve your business strategies and effectiveness ? especially when you are working with an ecommerce provider experienced in advising online businesses.

Of course, third party credit card processing has a few disadvantages too, such as a higher total cost in most cases. You also don?t have full ownership of the customer data or control of every step of the purchase experience. The direct merchant account allows the merchant to maximize their returns through the lowest possible rates and the greatest degree of control. As a consequence of that ownership and control, direct merchant accounts inherently carry more liability for the merchant when compared to third party merchant accounts.

For merchants who have the choice of third party payment processing or a merchant account there are many factors to consider -- the type of business and its risk profile, location, customers and markets being served, revenue volumes, technical complexities and more. Although you should not need to be a Wharton graduate to make the best choice, there will be math ? you will need a full picture of your income prospects versus your total expenses to support your commerce operations.

Third party merchant accounts in most cases are the best solution for new businesses, as fewer expenses are involved to start accepting credit cards. In addition, the start up may have a very difficult time getting approved by a bank for their business model. When the revenues grow, purchases grow and business matures, it will be time to look toward direct merchant accounts to support that growth and greater sophistication. The best of all possible worlds is to find a trustworthy, experienced and accessible merchant service partner who can forge a long-term relationship with you that spans ALL these phases of the growth of your business.

Regards,
Keith
[email protected]
O.800.439.1974 ext.122