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Third Party Payment Payment Processors

A third party payment processor deals with payments on behalf of another organisation. They offer a range of services which help business deal with payments. These include aiding transactions using card terminals (chip and PIN machines), online payments via a payment gateway, and mail order and telephone order (MOTO) payments.

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Accepting Credit and Debit Card Payments

Today, accepting card payments plays a crucial role in any new businesses growth.

Customers expect to be able to pay using their credit or debit card. As a business, it is important not to lose out on valuable revenue.

One solution is to open a merchant account with an acquirer or acquiring bank. These are simply banks and other organisations that are licensed by MasterCard and Visa to process their credit cards. Businesses can then accept payments using chip and PIN machines and online via a payment gateway.

There are two potential problems with this solution:

  • When businesses collect card details from their customers they must comply with strict legislation and achieve PCI DSS accreditation. This can be difficult and expensive to implement and not a realistic solution for many SMEs.

  • Acquiring banks won't grant all businesses with a merchant account. Merchants that operate in high risk business sectors such as travel and adult entertainment may be excluded. Equally, businesses without a good trading history will be penalised.

The other solution is to use a third party payment processor. They are third party because they provide services for merchants that don’t have a direct banking arrangement with them. A third party payment processor might use its own deposit account for processing transactions. Alternatively it will set up a separate deposit account on behalf of its merchant client.

All third party payment processors provide a fully hosted payment solution which means that merchants don’t need to have full PCI DSS security compliance. Some processors such as Amazon Payments and PayPal don’t require merchants to have a merchant account..

How to Choose a Third Party Payment Processor

Choosing the right kind of payment processor for your business will depend on several factors. Your business model, industry, trading history and trading volume, and credit risk should all be considered.

New businesses may well find that some processors decline their application or charge them high card processing rates and/or demand large rolling deposits. Such merchants may find that processors such as PayPal offer the best solution.

More mature businesses that operate in low risk industries will find better deals with processors that also provide a merchant account. While these might require up-front and monthly payments, they will charge considerably less per transaction for payment processing. As an example, PayPal charges from 3.4% plus 20p on each transaction, an established merchant might be able to negotiate fees of 1.9% per transaction with an alternative provider.

What to Look For When Choosing a Third Party Payment Processor

  • Up-front and set-up fees – these can vary from free through to several hundred pounds

  • Regular fees – many providers require monthly fees. These can vary from £0 - £50 a month or more

  • Processing costs – these are usually quoted as the cheapest prices for processing regular MasterCard and Visa credit cards. These can range from 1.5% to 6% or even higher.

  • Chargeback fees – these are charges imposed on the merchant when the processor has to refund a transaction to a customer. They can be severe.

  • Deposits – some providers insist on rolling deposits which can be as high as 10% of transactions per month for up to 6 months.

  • Settlement period – this is the time delay between when the customer makes a payment to when those funds become available to you. This can vary from a day or so through to a month or longer.

Next Steps

It is clear that you will need to do some research to find the best payment processor for your business. Let us help you filter through the information by filling in our form. Several merchant accounts providers will then be in touch with tailored quotes.