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Authorize.Net is NOT a Payment Processor

One of the biggest misconceptions out there right now is that Authorize.Net is a payment processor. Often times I will hear or read about someone who is looking for a new payment processor and a common answer is, “try Paypal or Authorize.Net”. While I am sure Authorize.Net is thrilled that they are so commonly considered by merchants as a payment solution, unfortunately by itself their product is useless.

What most people do not seem to understand is exactly what Authorize.Net offers. Authorize.Net primary service is their payment gateway. A payment gateway connects a merchant’s website (usually through their shopping cart) to their merchant account. The payment gateway takes the transaction information, passes it on to the processing bank. It then receives the results of that transaction and presents it back to the originating website so it may react accordingly. Basically, it performs the same function as a credit card terminal does in a retail store.

What is important to note about this is scenario is that without the merchant account on the other end, the payment gateway is useless. Without someone to send the transaction to the payment gateway cannot function as by definition the gateway serves to connect the website to the merchant account. Having no merchant account means an incomplete setup.

Examples of Gateways:
- Authorize.net
- NMI.com
- UsaEpay

Payment Processor Examples:
- Crescent
- Clarity
- Quad Payments
- Entrust

An important reason why this is important to know is some merchants may sign up for an Authorize.Net account thinking they are getting everything they need to process credit cards online. In reality they are missing the most important piece and have even more fees in store for their business. This might not be the best option for their business especially if they will be a low volume business.

So, when you see someone recommending Authorize.Net as a payment processor, keep in mind they are only a tool for processing payments. They are not the ones actually processing the payment. That is the role of the merchant account.

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5 Responses to “Authorize.Net is NOT a Payment Processor”

  1. Konan

    Hi,
    What you’ve said about the difference between payment gateways and procesors has helped clear things up for me a great deal.
    Do specific gateways have links or partnerships with specific banks that make it easier or even necessary to open merchant accounts with their partner banks? I’ve been shopping around for a gateway and merchant account for a little while now and am considering First Atlantic Commerce…are they any good? I’m hoping to get more personalised service by going with a smaller firm.

  2. Jim Conners

    Gateways aren’t usually associated with banks directly but rather have a working relationship to ensure transactions can go from the gateway to the processor and back again smoothly. Otherwise they typically do not prefer one bank over another.

    I haven’t heard of First Atlantic Commerce but that can be a good thing as that means they haven’t had anything too bad said about them.

  3. Konan

    Haha..I’m going to hope that’s the case (no one’s said anything too bad about them). I got in touch with them late last week and have had quick responses thus far. Let’s hope they keep up their enthusiasm!

    So if I understand you correctly when the text on the first atlantic commerce website says: “Our international merchant accounts offer multi-jurisdictional”: I wouldn’t actually have a merchant account with them but rather with a bank they partner with and doing so will make transactions smoother for them? Will I gain anything by opening an account with one of their partners? Here’s the link, maybe you could look at it if you have a moment and tell me if I’ve understood it correctly. Thanks!
    http://www.firstatlanticcommerce.com/merchants/international_merchant_accounts.aspx

  4. Jim Conners

    Their pages doesn’t say much so I am unsure how they are doing it. It couldn’t hurt to give them a call and ask some questions. That definitely doesn’t commit you to anything.

  5. Robert Chamberlain

    Authorize.net is to the Web as POS terminals (the things you swipe your credit or debit cards in) are to brick and mortar retail stores. Authorize.net and other payment gateways just connect your merchant account to your business checking account to process the payments. When selecting a payment processor it is a good thing to evaluate what services are most important to you and to your business. Most businesses will do just fine with Authorize.net; but there are cheaper alternatives out there if you just search for them and do not need all the bells and whistles. The most important thing to consider is how easy it will be to implement into your current software and what plugins, support and upgrades will be available in the future.

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