There are advantages and disadvantages to
using a 3rd party processor. You may use this as a guide to
help you determine whether P2P is right for your business.
Low Start-Up Costs: Many
3rd party processors offer free set-up as a way to persuade
small businesses. Other processors may require a small fee
to set-up, but is normally less than that required to set
up a merchant account.
Low Maintenance: Since
all processing is done on their end, there is no need to
purchase a Secure Sockets Layer (SSL) certificate, or any
other component involved in acquiring a merchant account.
Just about everything is taken care of for you.
Quick Set-Up: Since most
3rd party processors offer automated sign-up, set-up can
be done completed in a matter of minutes, and instructions
on how to forward your site is typically cookie-cutter style.
Credibility: One of the
primary factors you must consider as a merchant is your
credibility. Virtually any business and even individuals
(with select processors) can open an account through a 3rd
party processor. This particularly becomes a nuisance if
an illegitimate business decides to use the same 3rd party
processor as you. Customers that are "burned"
by this illegitimate business will remember the name of
the 3rd party processor and recognize them next time around,
deterring them from a purchase during the checkout process.
Redirection: Customers
are redirected to the 3rd party processor's website to complete
billing and possibly shipping information. The processor
may have the capability to return to your site upon completion.
Many customers are not comfortable with redirection. After
all, would you shop at a major department store website
and expect to be redirected to some other company to complete
the payment process? Redirection can also
mean redundant information input or unnecessary steps within
the checkout process.
Company Branding: Third
party processors typically brand the payment pages with
their company logo. Some processors allow you to
include a small copy of your logo as well (albeit it may
require special scripting or a secure server on your end),
but their logo is virtually always present.
Billing Errors: Your customers
may typically see a charge on their card statement listed
as the payment processor instead of your business name,
because the charge is actually placed by the processor,
not you. A customer could easily misinterpret this as a
fraudulent transaction and chargeback the transaction. (This
can get ugly, resulting in loss of sale, administrative
nightmares, and even worse- a suspended or closed account!)
Customer Service: In the
event of a chargeback by the customer, the merchant may
have less leverage since the charge is actually between
the processor and the customer, not you (the merchant);
you are subject to the 3rd party processor's rules and regulations.
Disproportionate discount fees:
Since third party processors also have to pay a
discount fee when using their merchant account, the cost
is passed along to you, along with an additional percentage
so that they can make some sort of profit. Essentially,
they serve as a middle-man.
Non-Insured Funds: Unlike
merchant accounts, fees collected via 3rd party processors
typically are not FDIC insured. This could mean big problems
when time to collect your money in the event your processor
finds itself in financial trouble!
