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How Payment Processing Works

One of the most important decisions that you as a merchant will make is the method you will use to accept payments. Today, advancements in technology have given merchants many options to choose from. Some business owners choose to handle orders themselves through a merchant account, while others choose a third party service provider. Selecting the proper payment method will have a major impact on your business, so it’s important to choose carefully.

Merchant Accounts

There are a number of differences between authentic merchant accounts and third party services. With authentic merchant accounts, the merchant will submit an application to a processing bank, which will sometimes require a sales agent.

Once the application is approved, this gives you the right to open a merchant account which is totally dedicated to your business. Businesses are responsible for their merchant accounts, and if they operate an e-commerce site, they will also need a payment gateway.

Some processors will bundle payment gateways with merchant accounts, but in most cases you can choose any payment gateway you want. Your merchant account is directly connected to MasterCard and Visa. However, these companies have regulations that must be followed, so it’s important to be in compliance with these rules.

Costs Associated With Merchant Accounts

True merchant accounts are susceptible to a number of fees that merchants should be aware of. Some of these include a monthly charge for maintaining the account, and there may also be a monthly fee for maintaining the payment gateway, and a separate fee for setting it up.

At the bare minimum, a merchant who wants to open a merchant account should expect to spend hundreds of dollars upfront just to set everything up, and they will continue to pay monthly fees afterwards. Merchants also have many modes of payment, including mobile devices and credit card terminals. Most of these payment methods will require a merchant account, but these types of accounts should only be used by larger merchants with a higher sales volume.

Third Party Processors

Third party processors allow merchants to process credit card payments through the merchant accounts they control. They have become popular due to their ease of use and affordability. Merchants that wish to use them must apply, and the third party processor will have its own set of criteria that you will need to meet. However, these processors are far less stringent than those who offer merchant accounts directly. Third party processors also offer payment gateways automatically, which means you don’t have to worry about setting them up yourself.

Costs Associated With Third Party Processors

Third party processors are good for those who have bad credit, past bankruptcies or who are simply denied the opportunity to open true merchant accounts. These processors are also routinely used by merchants who operate in high risk industries. Additionally, if a merchant processes a lower volume of transactions, a third party processor is also more cost effective.

Have more questions about payment processing? Take a look at these questions: