|
3rd Party merchant accounts are an alternative payment method offered by a credit card processing provider. The reason to choose a 3rd party merchant account is if you are having trouble obtaining your own through a domestic processor or even an offshore merchant provider. The fees will be quite a bit higher but it will allow you the opportunity to start obtaining credit card processing history.
3rd party merchant account will operate just like your own merchant account. You will have to set up your own e-store and integrate to the payment gateway or hosted 3rdparty payment page that will be branded to you with your logo.
WHAT YOU CAN EXPECT WITH 3RD PARTY MERCHANT ACCOUNT:
PRO’s
- Easy integration
- Online view of your transactions 24 / 7
- State of the art fraud scrubbing
- Accept most major credit cards
- Set up in 48 hours or less (banking days only)
CON’s
- Higher costs to do business
- Longer funding cycles
- Generic descriptor
With a 3rd party merchant account, there is a complete outsourcing of the credit card processing. The shopping cart software can usually be easily integrated into the e-retailer’s website using code insertion. Alternatively, the customer can be redirected to the third party processor’s hosted payment page via a hyperlink. In the former option, the entire process is fairly standard in appearance, there is one slight difference. In case of the third party processor, the said process is actually acting as the seller and the customer will see the processor’s name on the credit card authorization page as well as credit card statements. For example, the seller description may be something like IP-UNIVERSALSALES 1-877-689-4598. Hence, there is a slight disadvantage in terms of trust and image building for the retailer, when it comes to the third party processing option. The retailer will usually have to clarify this information to the customer both at the checkout stage as well as in the monthly statements, to ensure that there is no confusion.
It follows that this option is more suitable for an online store that are just starting their eCommerce operations. The third party option offers significant advantages in terms of setup ease and costs. In terms of ease, the third party processor option involves simply signing up with the third party processing company (such as Paypal, a popular option, particularly for retailers selling on Ebay) and inserting the provided shopping cart on your website. The third party processor will not charge setup fees, but will charge a substantially higher merchant account transaction fees, ranging from 7.5% to 15%, along with a per-transaction fee as well as a rolling reserve, to cover the risk of chargeback’s. This leads us to the second advantage of substantial cost savings in setup. For instance, a merchant account will charge several fees including set up charge, transaction charge, address verification (AVS) charges, monthly statement fees and others that may vary from one merchant account provider to another. In many cases, merchant account providers may also impose a minimum monthly value of transactions that a retailer must have in order to avoid a penalty.
For a retailer just starting out, a third party credit card processor is a great option as they are easier to set up and obtain than a merchant account, and much simpler to maintain, especially in terms of costs. In the following example, it is clear that at a low transaction volume, a third party processing option is viable whereas at a higher transaction volume, the third party processing option proves to be more expensive, supporting the industry-wide contention that a third party processing option will prove more expensive in the long run.
|
