Merchant Account Comparison
Determine which merchant account is best for your business
Author: Jim Conners
Rating: 10.0
When to consider a true merchant account
The first thing most merchants think of when they think of accepting credit cards online is that they need a merchant account with a payment gateway and for good reason. Every major, and even medium sized player, uses a true merchant account with a payment gateway. The reasons for this include:
- Process large volumes
Although true merchant accounts have additional fees not associated with third-party providers, large volume merchants will pay less with a true merchant account then almost every third party processor due to the difference in the discount rate they will be charged. The discount rate paid to a third-party provider can be as high as 6.00% with a transaction fee of a dollar or more. A true merchant account can offer rates less then half of what most third party processors offer. As a result, as a merchant's volume rises, their savings with a true merchant account grows. Very large volume merchants will easily clear the threshold where a true merchant account becomes a financially superior option.
- Total control over the account
With a true merchant account you have more control over your merchant account as it is your merchant account as opposed to your business being allowed to use someone else's merchant account. This means it is your name that appears on your customers' statements, you get customer support directly from the processor and do not have to go through the third-party provider, and you have less restrictive rules as to how you can use your account. Third-party providers tend to take the rules set forth by their processing bank and tighten them further to protect themselves. This is because they are at risk of losing their account (the same type of account that they allow you to use) if it is determined to facilitate too many rule violations.
- Transparent checkout
Most gateways offer an API (Application Programming Interface) for interacting with their services. This allows for a programmer to communicate with the gateway from server-to-server instead of taking the customer to the gateway's website and back again. As a result the transaction seems to only occur on the merchant's website. This alleviates the problem of the customer leaving your website and not feeling comfortable with their purchase.
- Professional image
Many customers have a preconceived notion about what a professional website is. In the scope of this article, that means a checkout process with pages that have the same look and feel as the rest of the website. It also means never leaving the website to complete the transaction. With a true merchant account utilizing the API of a gateway you can achieve a transparent checkout and maintain that air of professionalism expected from your customers.
Other minor points to consider
Besides the key points detailed above, there are other things to keep in mind when considering choosing a true merchant account. Some work in their favor. Others do not.
- A credit check is performed
- Cannot be used for personal use
- High risk businesses pay much higher rates
- Rates are negotiable
- Can be used with a separate processing gateway
- Business name appears on your customers' statements
- You may be locked into a multi-year contract
- Funds are usually deposited within 1-3 business days
Side-by-side comparison
Ok, so it has been established that there are quite a few differences between a true merchant account and gateway when compared to a third party processor. Sometimes these factors ultimately decide which type of account a merchant will choose as one or the other fills a very specific need for the merchant. But we have only barely touched upon the primary factor the majority of merchants use to determine which is right for them: cost.
Many times, although other factors may weigh in the decision, those factors pale in comparison to which type of merchant account will save the merchant the most money. Most ecommerce startups have a tight budget and small margins.
Naturally, comparing the costs of each merchant account provider is the best way to see which one is best for your business. But what do you need to compare? Can you name all of the third party providers available for you to choose from?
This is where our previously mentioned calculator comes in. To make the task of comparing a true merchant account and gateway to a third party processor easier, I have rounded up the rates and fees of the more popular third party providers and added them to an interface that will allow you to add the information quoted to you by a true merchant account provider. With this information it will tell you which option will cost you the least amount of money.
To access the calculator, go to /articles/tmpvstpp-calculator.php. Feel free to follow along and use the calculator to make the same comparisons made in this article.
The goals of the comparison
It's fairly difficult to do an apples-to-apples comparison because the needs of each business will vary as will the offers they will receive. But we can take the core principles involved in doing a cost comparison and get a very good idea of where each provider stands relative to one another.
This article will go beyond a simple "whose rate is lower?" and look at what every business should be paying attention to: their short and long term costs. Our cost comparison will not only look at the monthly costs associated with accepting credit cards, but will also look at costs incurred before a merchant can accept credit cards straight through their cumulative costs for one full year.
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