Merchant aggregators (PayPal, Stripe, Square) have gained traction in recent years as a simple way for new e-commerce ventures to accept payments.
Here’s the thing – simple isn’t always good.
Simple doesn’t account for the challenges that merchants – particularly high-risk online merchants – face.
When launching a new e-commerce business or expanding a brick-and-mortar online, one of the first items on the to-do list is to get approved to accept credit and debit cards. Merchant aggregators can be a tempting option; however, merchants should take care to consider all their options. Simplicity sometimes comes at the cost of less freedom and security.
Merchant Aggregators Aren’t Always the Best Option
As a business owner, it’s important to understand the best options available, and also how to protect the business by avoiding high overhead costs and fees, fraud and chargebacks.
Consider carefully the cost of doing business through a merchant aggregator platform. Costs vary by vendor, but the fees associated with merchant aggregators are typically higher over time than the cost of accepting credit cards through a merchant account.
Merchant aggregators’ cost structures include their merchant account costs, transaction interchange, and monthly fees. Even without monthly fees, there are other costs to be aware of. Such as:
- Most payment aggregators surveyed charge a per-transaction fee of 2.9% plus $0.30 for card-present transactions. The total is automatically subtracted from sales revenue paid to the merchant.
- At least one vendor raises fees to 3.5% plus $0.15 for card-not-present transactions when the card number is entered manually (as for mail order and telephone order (MOTO) transactions).
- Additional fees include those for international transactions (cross-border fee up to 3.9%) and currency conversion costs.
- Payment aggregators may pay merchants within one to two business days, unless the merchant’s required to manage their own funds transfers. And if a merchant wants to be paid more quickly, an additional 1% will trigger a faster payment option.
- Choosing to receive payment by check rather than funds transfer is available, for another $1.50 fee.
- And if a merchant chooses to dispute a chargeback, one surveyed payment aggregator charges a flat fee of $20.
- Some payment aggregators require merchants to maintain a stored value account, effectively holding the merchant’s money to allow for future purchases.
Cost Isn’t the Only Issue with Payment Aggregators
Some merchant aggregators support only payment card transactions, but not ACH or checks. So if the merchant’s business model includes working with other businesses to fulfill purchase orders, the merchant aggregator model won’t support that.
Perhaps the most important issue to consider is security of online transactions and customer data. Merchants are responsible for protecting both. Not all payment aggregators help them do it.
Payment platforms should support 3D Secure and PCI DSS (the Payment Card Industry Data Security Standard), both industry standards for online payment transactions. Without good security measures in place the cost of fraud can ruin a business.
It’s necessary to fully understand any fraud guarantees and the dispute process offered by a merchant aggregator as well. They may or may not guarantee against fraudulent chargebacks.
And know too that in the case of a significant issue, a merchant aggregator’s main course of action might be to freeze a merchant’s funds or terminate his account. They aren’t required to give a reason; it’s just game over.
There is a Better Way
Establishing a relationship with a trusted payments processor is a better option than choosing among merchant aggregators, particularly for startups. Even a dedicated merchant account costs less over time.
A quality merchant account provider will work with new online merchants to develop and implement the right solution for their specific needs.
They’ll help establish a merchant account with one of the many banks with whom they maintain relationships — especially important when high-risk merchants need a bank willing to work with them.
The right merchant account provider works with its merchants as partners to ensure a secure payment gateway is up and running quickly so the businesses can start accepting credit card sales.
And they’ll stick around to make sure that not only are a merchant’s current needs met, but also that the payments solution provides the desired flexibility and can scale up for future growth.
The right merchant account provider helps online businesses become successful — the “easy” way.