Should I choose a Merchant Account or a 3rd Party Processor?

Before deciding whether to choose a merchant account or a 3^rd party processor such as PayPal we need to understand the differences between the two options.

Merchant Account with a Gateway – When a customer submits their credit card information on your website their details must pass through a gateway. Your shopping cart will send this encrypted information to the gateway and the gateway company passes that information to the merchant account bank. The merchant account bank then requests authorization from the bank that issued the customer’s credit card. The response to that request is sent back to the bank, to the gateway, and then your website.

3^rd Party Processors – These processors are a gateway and merchant account rolled into one. An order is submitted on your website, a request is sent to the processor, and then the response is returned to your website. For this simplicity you will pay a little more but this is often a good place to start. You can always apply for a merchant account when you discover your transaction volume has increased enough to realize a significant cost savings by going with a separate merchant account and gateway. Some examples of 3^rd party processors are PayPal and Google Checkout.

 There are several things to consider when searching for a payment solution. They are:

• Fees and Payments
• Per Transaction Fees
• Monthly Minimums
• Monthly Maximums (Some companies will shut your account off if you exceed a certain sales volume)
• Shopping Cart Compatibility
• Fraud Prevention and Security Measures (If you are going to process transactions online then you will eventually be the victim of fraud)
• Reporting
• Account Management
• Chargeback and Refund Costs

Carefully read any contract you sign and make sure you understand the policies of the company you choose. This decision deserves extra attention because a lack of research on your part could result in some costly surprises just when things are starting to take off for your website.