Third party processors act as both gateways and processors for online payments. They include Paypal, Square, Google Checkout, 2CO, CCNow,2Checkout, etc.
Usually 3rd party processors are cheaper for small businesses with low volume (<$5,000 revenue/month) because they offer lower setup fees and a fixed pricing model. But, they also charge a higher discount rate (as much as 5.5%). Merchant account providers have more monthly and up-front costs but charge a lower discount and per transaction rate.
Why the price difference?
- 3rd party processors have automated systems which allow them to add new low-volume merchants to their systems in a cost-efficient manner.
- 3rd party processors work exclusively with online merchants so they are more familiar with ecommerce business models.
- The higher price is because:
- There are fewer 3rd party processors, so there is less competition and
- They are doing extra work on the behalf of the small merchant and need to charge more to cover costs.
Some other important differences:
- When you use a 3rd party processor, their name will show up on the customer’s statement (not your business’s) which increases your risk for chargebacks.
- Depending on which 3rd party processor you use, they may route your customer to their site which may hurt your conversion rate.
- Because their underwriting is more automated and they focus on small online businesses, which have the highest fraud risk, 3rd party processors tend to be more aggressive in shutting down accounts that show suspicious activity. In many cases the suspicious activity is actually legitimate, which can be a problem for the business owner.
Let one of our qualified and professionally trained business consultants give you a free statement review and quote.
Industry Lowest Credit Card Processing Rates
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