Even though the payment processing solutions market is not often highlighted, it is essential for card transactions. It allows card payments to make your customers’ shopping experience more pleasant. Studies reveal that 75 percent of consumers opt for credit and debit card payments for various activities like dining, grocery shopping, or attending events. Despite this preference, accessing card processing can be challenging for merchants especially those who are new or in high-risk sectors.
Numerous payment options recently have become available to businesses across the globe. That includes the payment processing solutions market which facilitates rapid payment acceptance without requiring an account. Nevertheless, using third-party card processors can involve disadvantages such as higher fees and limited security features.
Third-party payment providers enable merchants to handle credit or debit card payments. Businesses often choose this option because it provides a swift onboarding process. This allows them to start accepting payments without delay. The underwriting requirements for third-party card processors are often less stringent than those for conventional merchant accounts. This adds to their convenience for merchants.
Rather than providing separate merchant accounts, third-party payments operate with aggregate accounts. These accounts are shared among numerous merchants to proceed with the transactions. After processing a payment, the processor deducts the fees and deposits the remaining amount from the aggregate account into the merchant’s bank account.
Despite seeming intricate, this process does not compromise the payments accuracy you get. However, third-party card processing can result in extended wait times for funds. It is due to payments must be routed through the aggregate accounts before they reach your business. When third-party processors manage the merchant account, transparency about core fees decreases. They often add charges on top of standard processing fees. This can make your statements harder to decipher. Initially, it may appear that you are paying a simple processing fee. But overall costs may end up being higher in comparison to a conventional merchant account.
Since the third-party processors manage each transaction’s backend, they provide a more hands-off method for merchants. It is particularly advantageous for businesses who prefer not to engage with the complexities of payment processing.
The Benefits
The payment processing solutions market size is expanding due to the many advantages that it offers.
- Cost efficient
The initial investment for third-party processors is generally low. They often supply portable card reader and smartphone POS applications. This allows businesses to start accepting payments affordably and swiftly.
- Flexible contracts
The payment processors often have short-term or no contracts. So, businesses can transition to a different provider without facing substantial fees. Furthermore, they usually offer multiple contract tiers. It helps businesses of various sizes find a plan that suits their requirements.
- Can be cheaper in the short-term
Conventional merchant accounts may have lower fees over the long run. But third-party processors are more affordable initially. This is because they involve low setup expenses and lack lengthy contracts. It makes them a more viable alternative for businesses with limited initial funds.
- No requirements
While merchant account applications generally involve a prolonged underwriting process, it is not the case with third-party processors. Many allow for instant registration. This makes them a great choice for quickly starting to accept payments.
Nonetheless, immediate approval has its drawbacks. If the payment processor identifies problems with your business later on, it could result in a freeze or termination of an account. Moreover, you will still be bound by user agreements. Effectively managing disputes and chargebacks will be essential.
The Challenges
However, the payment processing solutions market also faces several challenges.
- Less security flexibility
With card fraud causing more than USD 25 billion in losses each year worldwide, it has become a significant area for criminal activity. Regrettably, the financial burden often falls on merchants. This makes it essential to implement robust security measures for card transactions.
Relying on third-party processors means your business is subject to their security practices. While some processors take security seriously, others may not. The lack of customization for security features with these processors can expose your business to potential risks.
- Additional fees
Many third-party processors avoid large initial investments or fees. But you might encounter higher charges in comparison to standard card processing rates. This is due to the premium cost associated with their quick and convenient payment access.
In contrast, merchant accounts provide more transparency and flexibility in payments but are typically harder to obtain. Many merchant providers will partner with small businesses to ensure account approval and negotiate improved pricing. This offers a personalized approach not available with third-party card processors.
- No priority
When partnering with a third-party processor, you may find that you are not a primary focus. Many of these processors deal with clients' high turnover rates. They prioritize rapid client acquisition over sustaining ongoing relationships.
This situation is not ideal for merchants. It suggests that their concerns may not receive the attention or priority they warrant. Third-party processors might lack the commitment to your business’ long-term success that you would expect from a more dedicated partner.
- Minimum branding control
Another challenge of the payment processing solutions market is the minimum branding control. For a checkout experience that fully aligns with your business’ branding, third-party processors can be limiting. They often use their branding on payment tools and gateways. This means you cannot feature your logos or branding elements on the website.