If you’re looking for a payment processor to handle all your business’s credit card transactions, all the industry jargon could get pretty confusing. In this article, we’re going to give you an overview of third-party payment processors, what they are, and if you should use them for your credit card processing needs.
What is a Third Party Payment Processor?
A third party payment processor lets you accept online payments without a merchant account of your own. They’re nonbank processors, but they are bank customers that provide payment processing services of their own to merchants. They let you use their merchant account with the bank under their own terms of service, typically with little setup required. So the bank doesn’t have a direct relationship with you, the business owner.
For some businesses just starting out, using a bank-owned merchant isn’t cost-effective. This is where a third-party payment processor comes into play. Instead of having your own merchant account, which often comes with setup costs, you’ll instead work with a third party who has their own relationship with a merchant services provider.
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What are the Advantages of Using Third Party Payment Processors?
Merchant accounts with financial institutions (banks) tend to be expensive and time-consuming to set up. Unlike merchant accounts with banks, many third party payment processors don’t charge you a huge deposit fee for setup.
You’re only charged for the transactions you make. Stax doesn’t charge any of the outrageous monthly fees. Here’s a list of some fees you’ll see from other banks and processors, but never from us:
- No termination fee: Some termination fees are fixed while others are variable – both of which can be costly. This is very common for contract-based merchant services providers.
- No customer service fee
- No statement fee
- No IRS Report fee: These are fees you might be charged by other providers for reporting transaction information to the IRS (1099-K).
- No batch fee: A batch fee can be charged when a business sends their transactions for the day to their bank for payment. Businesses must close a batch at least every 24 hours to avoid higher
rates from the card companies. Many processors charge per batch, so companies are forced to wait until the close of business to save on the additional cost. - No annual fee
- No contract fee
- No added PCI compliance fee: Some PCI fees are charged by the Credit Card Industry itself in order to fund the industry’s efforts to track, check, and maintain provider compliance. These are the PCI fees you should expect to pay. However, some payment processors levy a PCI compliance fee on merchants in exchange for keeping your business PCI compliant. Stax maintains compliance without the need to levy additional fees.
Third-party processors could especially benefit merchants who sell just a few products online or those who live outside the U.S. If you don’t want the hassle of handling your own merchant account and prefer the ease of a third party handling your payment processing, then a third party processor is perfect for you as well.
What are the Disadvantages of Using Third Party Processors?
The only disadvantage to third-party payment processors is that the transaction fees are usually a little higher than with a typical merchant account. This isn’t really a disadvantage though considering the added cost is made up for because you’re not charged high markup or ancillary fees.
Increasingly, many merchants have found that third-party payment processors are the way to go for their merchant account services. They’re quicker, easier, and more cost-effective than financial institutions. The trick is to find a perfect third-party credit card processor with low rates.
If you’re considering a third-party processor to handle credit card processing for your business, check out Stax’ affordable subscription plans. With no markups, no ancillary fees, and no contract, you get the processing solutions and services you need for the price you deserve.
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Reach out to a Stax Payments Consultant and request a custom quote.
