Third-party payment processing, also known as merchant account services, is a popular way for businesses to accept customer payments. Nevertheless, there are various reasons why hiring a third-party processor may be harmful to your company. In this article, we'll explore those reasons. We'll also advise on selecting the best payment processor for your company.
What is third-party payment processing, and how does it work?
Third-party payment processors are companies that allow businesses to accept credit cards and other electronic payments. When a customer purchases a business that uses a third-party processor, the processor will typically hold onto the funds for some time (usually two to three days) before depositing them into the merchant's bank account.
There are various reasons why this type of agreement may be detrimental to a company:
The fees associated with third-party processors are often higher than those charged by processors integrated with eCommerce platforms. Businesses that use third-party processors pay an additional fee for each transaction.
Third-party processors often limit the types of payments that businesses can accept. For example, some processors only allow businesses to accept credit card payments. It can be a problem for businesses that want to offer their customers the option of paying with PayPal or another payment method.
There is occasionally a lag between when a client makes a purchase and when the monies are deposited into the merchant's account. This delay can cause problems for businesses that regularly need access to their funds.
Third-party processors typically require businesses to complete a lengthy application process before they can start using the processor. This system can be time-consuming and difficult, particularly for small enterprises just starting.
Third-party processors often have strict rules and regulations that businesses must follow. For example, some processors require businesses to maintain a specific sales volume level to keep their accounts active.
Third-party processors can be difficult to contact and may not offer the same customer service level as processors integrated with eCommerce platforms. It can be a problem if you have questions about your account or need help troubleshooting an issue.
When you use a third-party processor, you give up your business control. It is because the processor will typically have access to your customer's financial information and will manage every part of the payment procedure.
Third-party processors can be unreliable and may experience outages or other problems that can cause disruptions to your business.
If you stop using a third-party processor, you may be required to pay a termination fee. This fee can be expensive, especially for businesses using the processor for an extended period.
Third-party payment processors are often located in different countries, making it difficult to resolve issues or get help if something goes wrong.
You can see many reasons why employing a third-party payment processor can harm your business. In many cases, it's better to use a processor integrated with your eCommerce platform. This processor typically offers lower fees, more features, and better customer service.
The benefits of using a third-party processor
Despite the challenges, there are also some benefits to using a third-party payment processor.
- Third-party processors can offer businesses the ability to accept various payment types. It can be helpful if you offer your customers multiple payment options.
- Third-party processors typically have lower transaction fees than processors that are integrated with eCommerce platforms. Businesses that use third-party processors pay an additional fee for each transaction.
- Third-party processors often have shorter wait times for deposits into merchant accounts. It can be helpful if you need access to your funds regularly.
Alternatives to third-party processors
If you want to avoid using a third-party payment processor, there are a few options that you can consider.
- You can use a processor that is integrated with your eCommerce platform. This processor typically offers lower fees, more features, and better customer service.
- You can employ the services of a Payment Service Provider (PSP). A PSP is a company that allows businesses to accept payments online. PSPs typically have lower fees than third-party processors and may offer additional features and integrations.
- You can use a traditional merchant account. A merchant account is an account that is used to process credit card payments. Merchant accounts typically have higher fees than third-party processors, but they can offer businesses the ability to process payments offline.
- You can use a cryptocurrency payment processor. Cryptocurrency payment processors typically have lower fees than third-party processors and may offer additional features and integrations.
You can use a mobile payment processor. Mobile payment processors typically have lower fees than third-party processors and may offer additional features and integrations.
Conclusion
Using a third-party payment processor can harm your business in many ways. In most cases, using a processor integrated with your eCommerce platform is better. This processor typically offers lower fees, more features, and better customer service. However, there are also some benefits to using a third-party payment processor. If you're unsure which solution is right for your business, we recommend contacting a payments expert to help you find the best option for your needs.