Third party payment processors allow you as a business owner or entrepreneur to accept online payments without opening a merchant account of your own. Whether or not choosing a third-party payment processor is good for the company or not depends on the type and volume of transactions you expect to be processing on a daily basis. When compared to other merchant service providers, third-party payment processors have their advantages and disadvantages. Let’s take a look at some of each.
Advantages of Third Party Payment Processors:
- Low price. It’s no secret that processing your company’s transactions via such third-party payment processors as PayPal or Venmo will cost you less than opening up a merchant account with a payment processing company. Because of this, small businesses and startups that don’t have a lot of initial capital are attracted to third-party payment processors.
- Quick and easy to set up. Setting up a merchant account can often require a lot of paperwork and time. When compared to getting a third party processing account, it’s easy to see why the latter is much more simplistic and stress-free.
- No monthly fees. This is a big advantage third-party processors have that makes they desirable. Especially when compared to merchant accounts that may charge a number of monthly fees- from payment gateway to PCI compliance –third party payment processors and their services are significantly cheaper to use.
- No monthly minimums. Similar to the last point, you as a business owner will not be required to process a certain number of transactions if you choose to go with a third-party processor.
Disadvantages of Third Party Payment Processors:
- There’s a reason Fortune 500 companies don’t process their transactions through an app that can be downloaded on their smartphone. Although third-party processors are by no means non-secure, they do not offer as much safety assurance that merchant accounts are able to provide.
- Lack of customer service. Even though dealing with a lot of company’s customer service reps can be painstakingly frustrating at times, there’s something to be said about being able to talk to another human to help solve your problems. Third party processors minimalistic structure is both a blessing and a curse in this case, but its lack of customer support is a definite drawback to its features.
- High transaction fees. Although you may be saving money elsewhere by choosing to partner with a third-party processor, where you won’t be seeing those extra savings will be with the transaction fees. Often times theses fees are as high as 3%, which is much higher than your average merchant account rate.
- Lack of a sense of professionalism. This isn’t to say that there aren’t a number of reputable and established businesses that use third-party payment processors; heck, even eBay uses PayPal. However, the general consensus is that using a third party processor will never be viewed as equally secure or trusted as some other well-known payment processors.