For many new online businesses, accepting credit cards and figuring out the correct integration for their website is the first step toward success. However, when it comes to choosing between a payment gateway and merchant account, or a payment aggregator like Stipe or PayPal, the e-commerce world can get a little confusing. This is especially true if your product or service is considered “high risk.”
We’re here to help you decide
When it comes to choosing a payment processing service, you have two options: ‘payment aggregators’ or ‘merchant accounts’. Many small businesses lean toward aggregators, or “payment facilitators” like PayPal and Stripe as they don’t charge a monthly fee and offer nearly instant sign-ups. However, their ability to accept payments for high risk products and services like supplements and coaching is far more limited than it is for high risk payment gateways and merchant accounts.
Payment aggregators and merchant accounts have entirely different structures. Failing to understand this difference has caused many online merchants to lose thousands of dollars or even experience a complete business shutdown. At E-commerce 4IM we are committed to guiding you toward making a right choice for your online business.
Understand the differences and choose wisely
This post will help you understand the difference between payment aggregators and traditional merchant accounts, as well as give an overview of how they work.
Why Accepting Credit Cards is Sometimes “Risky”
There is risk involved in every credit card transaction. When your customers make purchases using their credit cards, they generally get a 6-month grace period from their credit card company during which they can dispute the transaction.
As a merchant, you fear the risk of chargebacks at any point during this six month period. If a chargeback is issued, the money you made from that sale will be automatically removed from your business checking account.
On the other hand, your merchant account provider has some serious risks as well. For example, if after making a lot of sales, you shut down your business, the credit card processor is also on the hook for all your refunds and chargebacks.
What Makes Payment Aggregators Different?
Payment aggregators such as PayPal, Stripe, and Square allow merchants to process credit card transactions without having to sign up for a merchant account. This works by setting up a single merchant account which is shared by thousands of businesses that process payments.
Payment aggregation enables a quick setup process that allows you as a business owner to accept credit cards almost immediately.
Although it may look easy, there are still some things that you should keep in mind:
Since there’s no real, upfront underwriting involved, the aggregator has limited knowledge about you and your business. Due to a lack of information and reliability, they might take action. Often, they freeze your account or hold your money if they find anything suspicious or discover you are selling an item that falls under their prohibited use policies.
Also, aggregators are monitored very closely by Visa and Mastercard. If your sales go up to $1,000,000 annually, then you will have to open an individual merchant account for your business anyway. All things considered, you can see why using aggregators might not be a viable long-term solution to accept payments.
What Makes Merchant Account Different
Applying for a traditional merchant account is like applying for credit. The process is a bit more complex than with aggregators. However, in the end, you may have greater control over what and how you process credit cards through your account.
Multiple screening checks are performed by the processor when you apply for a merchant account. First, the provider will assess your credit history. Then, they will check your business credit and your business model. This will help them get a better idea of who you are as well as the financial standing of your business. They’ll try to get an understanding of the risks involved in your business even before the payment processing starts.
Now let’s say that you had a spike in sales volume or start receiving a larger number of chargebacks. The right merchant account provider will offer you the tools necessary to mitigate these risks, and especially if you have an experienced processing agent involved, you will possibly be able to work through a plan to get back in your processor’s good graces.
If you are dealing with high risk products, it’s crucial that your merchant account provider also specializes in high risk industries.
When to use Payment Aggregators
- If you are a startup, and still deciding on your business viability, then PayPal is the best option for payment processing. With a quick setup and no overhead expense, you ’ll instantly be able to start accepting credit cards.
- If your product is low risk and your sales volume is under $5,000 a month, there is no point in acquiring a merchant account.
When to use a Merchant Account
- You believe that your business idea is working, and your sales will increase.
- Your monthly sales volume is projected to exceed $80,000.
- You operate in a high risk industry.
Pick the Right Payment Processing Solution for You
In a nutshell, if you’re low risk, starting small, and need a quick and easy way to accept payments, go for PayPal or Stripe. Once you have established yourself as a successful business, and you see a good increase in sales, you may want to add a traditional merchant account.
Multiple merchant accounts managed through one gateway
Creating multiple merchant accounts for different websites and product offers is important. This spreads the risk and lowers the chances of your business suffering. With traditional merchant accounts, you can manage this pretty easily. Simply put, you have diversity and back-ups if you can’t accept payments through a certain merchant account due to unforeseen circumstances. Additionally, card rules often require different accounts for different product offers.
You may find it difficult to manage multiple merchant accounts. We can offer a solution. We will set you up with a payment gateway like NMI. Using NMI, you can automatically route your sales across your various merchant accounts, and we can show you how.
We Will Help You
Choosing between a merchant aggregator and a traditional merchant account really comes down to understanding the credit card processing needs of your business. If you need help, contact E-Commerce 4IM today. As payment industry experts, we have helped many high risk businesses secure merchant accounts.
E-commerce4IM ensures that the merchant accounts we suggest meet our high risk clients’ unique needs. We offer businesses the specialized support they require.
Call us for more information at 1-800-570-1347.