E-PROCESSING
As it seems to be a regular hot topic on the chat boards and articles, in our first YNOTNews column, we wanted to compare the differences between third party processing vs.E-PROCESSING
As it seems to be a regular hot topic on the chat boards and articles, in our first YNOTNews column, we wanted to compare the differences between third party processing vs. transacting with a payment gateway using your own merchant account. No one will deny the fact that more webmasters in the adult industry are familiar with and utilize 3rd party processing facilities. However, it is surely not the only choice, or the right choice for everyone. In the mainstream world, third party processing is rare compared to merchants that have their own accounts. Many high-risk (especially adult) merchants do not understand the flexibility, control, and money savings that having a merchant account can provide. But along with that control comes more responsibility and liability, which is the heavy-handed focus of this article.
Obtaining your own merchant account and freely choosing your payment gateway or choosing to utilize a third party processor will depend on the specific entities of your business and your particular business needs. The advantage or disadvantage of having your own merchant account will not differ greatly with respect to a company, according to the price of the business products, recurring billing, high or low risk, etc. When looking at the pros and cons in general, it is evident that obtaining your own merchant account is usually the most flexible way to go, but may not be the right choice for everyone as it takes more commitment to detail and steady transaction volumes.
With particular emphasis to a company’s sales volume increase, the flexibility of having your own merchant account unequivocally increases and is absolutely warranted to the continued growth and profitability of an online or over-the-counter merchant’s business. However, most merchants should not try to process credit cards with their own merchant account, without having a reputable processing company behind them, and there are several to choose from.
Using a third party processor will usually allow you to set up very quickly after applying online and faxing paperwork. Although the gateway set up is done usually within an hour, the merchant account bank does require an application to be submitted and reviewed before they will issue a merchant account. The thought that there is great difficulty in obtaining and maintaining a merchant account is slightly antiquated and outdated. The ease of obtaining a merchant account has increased over time with the influx of competing sales forces within the banking industry. Visa and Mastercard can be rigid on high-risk businesses, which include adult, gaming and travel etc. However, a merchant that has fairly decent credit, does not live in a third world country, and is willing to follow proper operational procedures can usually get a merchant account without difficulties. The key factor is not simply getting the account, but maintaining it as well; a topic that will be discussed in an upcoming column.
One of the benefits with third party processing is that you are not ultimately responsible for the merchant account. However, as new Visa and Mastercard association rules come into play regarding third party processing, the gap is not as wide as it used to be. Merchants with high rates of fraud were not too long ago, able to hide behind a third party processor without much risk of getting shut down. These new rules will require third party processors to individually report each URL that they process for and the associated fraud levels of those web sites. This will prevent merchants from jumping from processor to processor if the business moves in a negative direction.
Unlike three or years ago, today’s net savvy merchant is equipped with the knowledge of how to maintain his merchant account needs in accordance with bank compliance, even with the low tolerable chargeback thresholds. The savvy merchant will establish and follow good operational procedures. A reputable merchant account provider and processing company should assist the merchant in understanding required procedures. On the other hand, the not so savvy merchant has many tools supporting him with the advent of the full service processing gateways. In either case, the well-rounded merchant account gateways are providing the additional full services that perform all of the same functions as third party processors with the type of flexibility to the merchant that, currently, no third party processor provides.
Using a processing gateway that offers the proper tools will help you avoid the pitfalls of having your own merchant account and will increase the benefits. Many merchants think that if you have your own merchant account, you need to do your own customer service, scripting, fraud scrubbing, etc. This is no longer the case. A few years ago many merchants attempted to maintain their own merchant accounts without the proper tools to do so. Today, if you process with a well-established gateway processor using your own merchant account, you can still have many of the same features that third party processing provides, although using a third party processor will in no doubt relieve some of the headaches involved in maintaining a merchant account. For merchants who wish to have control over the financial aspects of their business, these issues are part of the equation for success.
A few gateway processors (such as our company, Netbilling) will handle all of your customer service 24/7/365, take care of all of the back-end fraud scrubbing, and give you full control over all settings, email customization, form customization and require no scripting as they will handle the complete implementation and provide you with exceptional support as well. We must warn, however, that many companies do not provide the same tools and are not built to handle the extensive needs and requirements of high-risk merchants. So choose a processing company that is well known in the industry, has a strong track record, and is there when you need them, with live support, not just delayed email support. With a payment gateway you typically own the merchant data should you ever wish to move, leave, or simply stop processing. Using a third party processor, the data belongs to the processor as it is under their merchant account.
A few facts to consider…
Costs – Having your own merchant account will allow the lowest overhead costs associated with accepting credit cards. However, for high-risk merchants, there is a cost of startup, as the merchant must usually pay Visa and Mastercard registration fees. Mainstream merchant accounts are typically setup within one day from when the application is submitted and incur low or no application and setup fees. Most gateway companies work with several banks to help a merchant establish a merchant account as quickly as possible. Most third party processors charge between 13-20% in processing fees. Typically, when using a gateway company with a merchant account, the merchant will pay 7% on average and even less for mainstream merchants. For high risk, both third party processing and gateway processing typically require some sort of rolling reserve which usually starts being returned to the merchant after six months or less.
Getting paid – Having your own merchant account will allow you to receive funds transferred directly into your checking account within 2-3 business days. Third party processors pay the merchant by check or wire usually weekly, bi-weekly, or monthly. Some third party processors do not pass chargeback fees to the merchant, although most do. When you have your own merchant account, you are solely responsible for all chargebacks and any fees or fines incurred.
Business image – Customers tend to place more trust and confidence in companies that have their own merchant account. Many consumers are not comfortable when seeing a page that states, “Authorized reseller”. Unique descriptors can add to the legitimacy of a business in the consumer’s eyes. When using your own merchant account, customers receive their credit card statement with your company information displayed along with the processing company’s phone number if they are providing customer service for your online business.
In summary, both third party processing and gateway processing are viable solutions in accepting payments for your online business. The amount of involvement, flexibility, and customization you wish to have and the risk you are willing to take, play a big role in your decision and the path you take.
Sarah Farber is the CEO and David Amsellem is the VP of Finance for Netbilling.com.
