A Guide To Online Payment Processors

A Guide To Online Payment Processors

‘Free’ Accounts or​ Merchant Accounts?

Anyone who does business online (and actually takes money from other people) must, at​ some point, bite the bullet and choose a​ credit card processing company – this can be quite an​ expensive decision.

There are effectively two different ways of​ going about this; you can either go for the free accounts or​ the specific merchant accounts.

But what is​ there to​ distinguish the two? After all they both allow you to​ accept a​ payment from a​ credit card holder right?

Well yes, they both allow you to​ accept payments from people with credit cards – but there are some underlying and fundamental differences that you should be aware of.

Lets have a​ look at​ merchants accounts (ICann, WorldPay or​ 2Checkout – just as​ examples), when you register with one of​ these guys you will have to​ provide information relating to​ your business and prove that you are actually a​ registered business.

You will also have to​ pay a​ setup fee, from personal experience I know that this can be in​ the order of​ several hundred dollars, you will also pay a​ yearly subscription or​ support fee – again this is​ typically a​ couple of​ hundred dollars a​ year.

You might think that this is​ OK – but don’t forget you are also paying a​ percentage of​ the transaction value, this can be anything up 4.75%.

From this information alone we can see that for the little guy this is​ quite a​ high cost – especially if​ you’re just starting out and you don’t even know if​ your product/service is​ going to​ take off.

There are also other things that you need to​ be aware of​ when looking at​ professional merchant accounts, for instance 2Checkout will, from time to​ time try and actually call your customers (a selection of) and verify that the goods have arrived – if​ they can not do this then they will potentially refund ALL currently held sales.

I mention this as​ I was made aware of​ 2CO’s operating policy (this morning) by one of​ my fellow online marketers – this guy lost $5,000 because 2CO phoned the wrong person and lets face it, once you’ve delivered the products and given a​ refund how many people are going to​ say ‘Yes, here are my credit card details again’ – not very likely – and then cancelled the merchants account without so much as​ saying sorry.

So in​ other words make sure you read the fine print – there is​ typically stuff in​ there which is​ not really in​ your interest.

Anyway, that’s enough about merchant accounts, now lets consider the free accounts – and the first thing to​ be aware of​ is​ that there is​ no such thing as​ ‘free’. With the free accounts you typically don’t pay a​ setup charge or​ even a​ yearly charge – you do however pay a​ percentage of​ the transaction value, this can be anything from 1.5% up to​ 4%.

The two main suppliers of​ free accounts are PayPal and StormPay. it​ should be noted that although they both provide pretty identical services there are advantages and disadvantages associated with each of​ them.

For example, StormPay typically charge slightly more per transaction then PayPal – however PayPal charge more to​ get your money out then StormPay. PayPal is​ also VERY quick to​ respond to​ allegations of​ foul play (whether it​ exists or​ not) and typically very slow to​ do anything about it​ (besides locking your account).

PayPal also has some bizarre habits when it​ comes to​ money laundering rules, for instance my younger brother plays on Ebay and makes a​ few dollars here and there – nothing suspicious about that right (especially seeing as​ Ebay owns PayPal) but for some reason when his balance went past $50 they locked his account for a​ couple of​ weeks and sent him mails requesting proof of​ ID and wanting an​ explanation of​ where the money had come from.

No such problems with Storm pay, they validate you when you sign up by effectively linking you to​ your credit card to​ your address – any suspicious transactions are followed on a​ more gentlemanly basis. as​ of​ the time of​ writing I have not heard of​ anyone using Storm Pay having their account locked for questionable reasons.

In terms of​ signing up for the service StormPay is​ by far the quickest and in​ terms of​ market saturation is​ also on the up and up (PayPal is​ the established norm but StormPay is​ catching up quickly).

One thing to​ remember no matter which type of​ payment processor you use is​ that if​ a​ customer demands a​ refund 9 times out of​ 10 they’re going to​ get it​ – unless you can satisfy your processor that you have done everything that they require (so for PayPal if​ you’re sending tangible goods you need proof of​ postage that identifies what you’ve sent and in​ the case of​ allegations of​ ‘no delivery’ proof that it​ has been received – and then there’s still no guarantee that they’ll rule in​ your favor).

One important distinction between payment processors will relate to​ geography, i.e. where in​ the world they accept payments from. Most of​ the free services do not accept payments from central Africa or​ south East Asia, this is​ purely to​ do with level of​ fraud (Just think Nigeria).

To summarize, for the brand new business who has little or​ no client base and has no idea if​ their offering is​ going to​ be picked up by the market it​ is​ better to​ start with a​ free account, my personal recommendation being Storm Pay. if​ your business later grows and requires specific merchant account functionality then you can always upgrade or​ pick one from the market.

If you would like a​ StormPay account use the following link: http://www.stormpay.com/?2430996

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