Online Payments

Some merchants may find it difficult to get a credit card merchant account with a bank. This particularly applies for start-ups and businesses that don’t have a long trading history. For these businesses a third-party payment processor, such as WorldPay, may be an attractive alternative in order to accept online payments.

Legally, the third-party payment processor acts as a reseller. Online payments are processed through the payment processor’s merchant account. This means that the merchant does not need to open a credit card merchant account with a bank.

Advantages of using a third-party payment processor for online payments include:

Quick approval and setup process. Instantly accept online payments through your website.
Because no credit card merchant account is needed, the solution is suitable for companies with a short trading history that normally wouldn’t qualify for a bank’s credit card merchant account.
Third-party payment providers are especially suitable for companies that want to process foreign currency transactions. For example, it is difficult for merchants that are located outside of the United States to accept US Dollar transactions. A third-party payment processor may be the perfect solution.
Use of a third-party payment processor may lend credibility to your site, particularly if the payment processor has a well established reputation. It gives customers the option of approaching the payment processor for a resolution in case of a dispute with the merchant.

There are also some disadvantages:

Third-party payment processors online payment fees are generally higher than the fees charged by banks.
Online payments are collected by the payment processor from your customers and then transferred to your bank account on a periodic basis. Unlike with a normal credit card merchant account, you will not receive payments immediately. Some payment processors transfer payments weekly, while others make fortnightly or monthly transfers. This means that your cash-flow situation is not as good, since you need to pay for goods before you are paid. Most third-party payment processors require merchants to ship goods immediately after a customer has paid, before the fees are transferred to the merchant’s account.
Your third-party payment provider’s details will appear during the checkout process and on the customer’s credit card statement. This means that you will loose a certain degree of control over your customer base. It can also lead to a higher chargeback rate, since customers may not remember the online payment processors name when they look through their credit card statement and think that their card may have been fraudulently charged. If you are using a third-party online payment provider, it may be a good idea to clearly show the providers name on your invoices, in order to minimise chargebacks.