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If you are in business selling some kind of product or service, then you should be offering customers the convenience of paying by credit cards. Business establishments that provide you with the capability of offering credit service to your customers are called Merchant Account Providers, of which there are two categories:

1. Banks and Financial Institutions: These institutions, like Citibank, Bank of America, Chase, Washington Mutual etc., provide you with your own merchant account including your own payment gateway. A payment gateway links a merchant’s shopping cart or order page with secure banking networks. It also authorizes, settles and provides reports of transactions.

2. Private Parties:   These institutions, like PayPal, WorldPay, 2CheckOut, etc., allow you to use their merchant account and their payment gateway.

Opening Your Own Merchant Account

            The advantages of opening your own merchant account are that you can process large amounts of transactions, the relative fees are lower than a third party counterpart as transaction volume increases, and you have a transparent, secure checkout process. Customers need not leave the merchant’s web site (secure certificate is necessary), providing a seamless transaction method.

            Opening your own account also offers you the ability to present a professional business appearance and image because customer statements have your business’s name on it. This is an important point, because third party processors include their name on customers’ statements which increases the risk of customers disputing charges (also referred to as chargebacks), because they don’t recognize the vendors. Moreover, you can negotiate rates with the bank and you have your own separate processing gateway.
            The disadvantages of having your own merchant account are, first, a check of your business’ credit has to be performed before you can get the account. As a result, if you have a low volume business or bad credit, you may not get your credit card processing application approved. Second, if you own a high risk business, you can be charged a higher rate and you may also have to accept a multi-year contract with a possible reserve. You may not want to keep a percentage of settled transactions in an account controlled by the merchant account provider.

Going With a Third Party Processor

            The advantages of selecting a third party processor are first, it is easier to obtain, especially if your business has been rejected for a merchant account of its own. There is no credit check and you can use the third party merchant’s account even if your business appears in the Match File or the Terminated Merchant File (TMF), which are also referred to as the industry’s blacklist. Second, additional fees and charges involved with merchant accounts are not applied. Instead, third party providers usually charge a fee when a payment is accepted via a credit card. Third, there is no set up fee, monthly fee or even a monthly minimum. In addition, there are no cancellation fees and, typically, no hidden charges. This makes it ideal for small merchants with low volumes or high risk businesses that are generally penalized with high rates by banks or a financial institution merchant account providers. And with a third party processor, you can cancel the service at any time.
            One disadvantage with third party processors is that merchants are using their merchant account and must accept all of their rules, even if deemed arbitrary or capricious. Moreover, a third party processor can freeze a merchant’s account so that funds are not released for a long period of time. This could happen for a variety of reasons, including when a merchant’s volume increases too fast, the merchant accepts a large dollar transaction, fraud is, and more. This can also occur with a bank or financial institution merchant accounts, however, but the frequency of frozen accounts appears to be less and the chance of winning chargebacks seems greater.
            Other disadvantages associated with third party processors are that the rates you have to pay are not negotiable, the fees may become exorbitant when a large volume of transactions occur, and customers must leave the merchant’s web site to pay.
            In addition, many third party processors demand that the merchant’s customers first sign up with them. This may discourage some customers from ordering, because they may feel that it is too much trouble to fulfill the requirement.
            Finally, with a third party processor, it will generally take you several weeks to secure funds that are deposited into your account. In contrast, your own merchant account allows you access to your funds in about two to three business days. HBM

Andrew Lax is the account manager for IntelliCollect, a merchant account service provider, affiliated with United Bank Card. He has been involved in the merchant account credit card service industry for five years. Visit the IntelliCollect web site for more information at:

http://www.intelli-collect.com