Accepting Payments on the World Wide Web
If you are planning to launch a web site that will be engaged in ecommerce then you will need to have some method by which your customers can pay for the goods they will be purchasing. There are two main ways in which web sites takes payments, through a third-party provider or with a merchant account.
A third-party provider is a company that will process credit card payments for you. The best-known of these is PayPal, though there are a few others. The advantages in using these third-party providers is that the accounts are normally easy to set up, they have no monthly fees, and don’t require any minimum time commitment. However, there are drawbacks with using these providers. Firstly, although they have no monthly fees, the per-transaction charge is typically higher than you would pay with a merchant account. For example, PayPal currently charges 2.9% of the transaction value, plus a $0.30 fee per transaction. Also, not all third-party providers have proven to be totally reliable, and if your choice of provider has problems then your customers may not be able to complete their purchases. Finally, some people don’t like paying through third-party providers, and would prefer to use a different system
A merchant account is the other method used for accepting payments over the Internet. This service may be provided by your bank, or you could use one of the many companies that provide this service. A new company may find it difficult to establish a merchant account, as most require that your credit rating is good. This could make it difficult or impossible to find a merchant account provide willing to set up an account with you.
In order to set up a merchant account, you will first need to find a provider. As mentioned above, your bank may offer this service, but there are many other companies offering the same service. With most of these companies, in order to open an account you will need to pay an application fee, ranging from $25 to $100. After this, if you are approved, you will be charged a monthly service fee, normally around $10. There will also be a monthly minimum charge, normally $25. This means that if the transaction fees you pay during a month total less than $25, you will have to pay the minimum charge. This all starts to sound expensive, compared to the third-party providers mentioned above; however merchant accounts normally have lower transaction fees, typically around 2.1% – 2.4%.
What does all this mean in real life? As your sales rise, so do the costs of accepting payments, whichever method you choose to use. There is a point where merchant accounts will become less expensive than third-party providers, due to the lower transaction rate. Once you start doing some research on current plans and prices you will be able to see where that point lies. If your expected sales lie above that figure then you will make more money by choosing a merchant account. However, if your expected sales are less than this then a third-party provider will leave you better off.
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