How Using Third-Party Processors Like PayPal Compares to Getting Your Own Merchant Account

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Using third party processors such as PayPal, Nochex, and Moneybookers may seem to business owners to be a simple, ready made solution for accepting credit card payments that does not require the hassle of a complicated application process for a true merchant account. At first glance, they also appear to be cheaper than a true merchant account but then comparing costs is difficult and the fee structures change depending on the level of credit card transactions that are being processed making comparison even more problematic.

 

In this brief article we are going to look at the issues surrounding which route to take – True Merchant Account versus Third Party Processor – and giving you some answers.

 

The Transaction Volume

 

If you are processing large volumes of credit card transactions you will be charged less with a merchant account than with PayPal. The discount rate that is levied is negotiable with a merchant account whereas with PayPal you are simply slotted into whatever tier your transaction level places you and that is that. Merchant account providers are open to negotiation as to the rate and will take the time to look at your business when working out a fee structure, PayPal will not.

 

Equally, if you are processing a low volume of credit card transactions but they have a high value, typically above $50, you will find a merchant account is more economic than PayPal to process these payments.

 

Business Image

 

Many customers will already have an idea about how you will be processing their credit card payment. A merchant account is unique to your business and you control the information that is being provided and how it is represented to the client on their credit card statement. ABC Business charges $100 for a piece of work and the client sees “ABC Business” appear on their statement with the amount charged.

 

Compare this to PayPal and a client will see “PayPal” appear on the statement prompting questions such as “Who is this company?” and “What is this charge for?” - it just will not look like you! There is a more serious aspect to consider and that is the security of information concerning a customers credit card details. In no way am I suggesting that PayPal is not a secure recipient for processing credit card payments however your clients may not too impressed that their financial information has been given to a third party by you.

 

Merchant accounts provide you with total control and the ability to seamlessly process credit card payments without involving third parties your clients know nothing about. Using a merchant account projects an aura of professionalism when managing customer payments for your business that PayPal and it's competitors simply cannot do.

 

E-Commerce Issues

 

The bulk of sales that are lost on the internet are as a result of issues in processing payment. If the payment process s not smooth and quick the customer will go elsewhere. If the customer is unsettled because they are concerned at the safety and security aspect of giving out credit card details they will leave. Using the web coding provided by a merchant account (known as an API) your web design team can provide your customers with transaction payment that appears to handled completely and securely on your site.

 

Paypal was set up in order to facilitate web transactions that are small in nature and usually were between trusted parties who already knew each other. Ebay and other auction sites have made great use of PayPal within their businesses and achieved tremendous success. That being said, PayPal is not totally adaptable to how you do business on the web and only a merchant account can offer a seamless checkout process that keeps your customers where you want them – on your site!

 

Merchant account providers will supply the coding necessary to implement a checkout process from your website without the need to take the customer off to a third-party site that may very well offer other attractions. To see what I mean simply preview the advertising that PayPal's new homepage is offering when customers need to log-in to their account.

 

Business Control

 

Third party processors like PayPal have a rigid set of rules that they impose upon users as if they receive too many violation notices then they run the risk of losing their own merchant account they are effectively sub-contracting use of.

 

With a merchant account it is your business that is in control with your name appearing on credit card statements and if a customer has an issue it is your customer service team that will deal with them. You are also free to use the merchant account as your business needs dictate whereas there PayPal will not process credit card payments for certain business classes and to or from certain geographical areas.

 

Conclusion

 

the decision to use a merchant account or a third party processing service is not simply a financial one. Nor is the decision one of simplicity or expediency as merchant accounts can be established with a simple telephone call.

 

If your business is looking to project a professional image and satisfy customer preconceptions as to how you will manage their payment and keep their credit card information secure, then a merchant account trumps any third party processor.
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