Running a business comes with a whole set of tasks and potential difficulties, and accepting payments is a huge part of it. Therefore, choosing a payment processor that is going to assist you in the success of your business is very important. Especially today where most of us prefer to pay by card rather than cash.
What Is a Payment Processor?
A payment processor is a bank, financial institution, or company that handles the credit card and debit card transactions for a business. The payment processor often provides the credit card machines and other equipment you use to accept credit card payments. So when your customers come and pay by card you can process the payment directly through their own account and be done.
What is a Third Party Processor?
A third-party processor is a service that lets you accept online payments without a merchant account of your own and will let you use their own merchant account.
How does a Third Party Processor work & how is it different from an Actual Processor?
A payment processor takes a transaction request from the merchant and liaises with various banks to move money from the customer’s account to the merchants’ account. A third party processor works in the same way except, instead of sending the money to your merchant account it sends it to its own merchant account. It acts as an intermediate step before sending the funds to your bank account.
With a third party processor sign up is easy and you won’t have to pay any monthly or start-up fees, just some transaction percentage fees. This makes a third party processor suitable only for those who are not expecting a high volume of card payments.
The major problem that you may just face when using a third party processor is the lack of security. When you have your own dedicated payment account, your business has gone through the process of underwriting, and you are protected against fraudulent transactions. You would also know exactly when to expect the funds. With a third-party payment processor, transactions can be held at any time. This makes it impossible for you to accurately depict your cash flow.
Whether you’re just checking out your first merchant processor or deciding whether to switch or not, I hope this helps. Make an informed decision that will benefit your business now and in the future.