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Merchant Accounts For Small Merchants or Third Party Processors

Which Is Better?

Officially, there is no specific name for an eCommerce merchant account for small merchants. These merchant accounts are regular types of merchant accounts and processors with special rates and fees for small online businesses. By special rates and fees higher prices is meant. An e-Commerce merchant account for small merchants will always apply slightly (or not so slightly) higher fees, and, perhaps, more strict terms and conditions. Why so? Simply because the business is rated a small business, and small online business do not bring much profits. Therefore, a processing service company for small online merchants will not be able to have much profit either. So what merchant account for small merchants providers do is establish higher rates, otherwise, it will not be convenient for the processing gate provider.

The higher fees and rates that merchant account providers for small e-Commerce merchants may be:

  • High Discount Rate – instead of the usual 2-5%, small merchants will have to pay 6-12% to the provider for each transaction.
  • High Membership Fees – setup fee, membership fee, monthly fees will usually be a little higher in price.
  • And others…

So why do e-Commerce merchants turn to these web credit card processing accounts for small online businesses? Simply because nowadays a small e-Commerce business will, most likely, never survive with a regular online credit card processing account. All local banks and regular merchant account providers have a monthly volume minimum, which means that a registered e-Commerce merchant will have to process a total minimum sum of money in order to stay registered. For example, if my online hi-tech gadget shop makes my online credit card processing gateway service process $3,000 monthly, and the monthly volume minimum of my e-Commerce merchant service is $2,000, I’ll be eligible to keep using their service for another month. But, if my new online bookstore is making $500 per month, my merchant file will become terminated (TMF status), as my small online business has not processed enough transactions. Small merchants, along with their small online business, cannot afford to red mark their credit card processing histories, and that is why they turn to e-Commerce merchant accounts for small merchants.

The word ‘small’ does in no way mean the number of products available (your web-store can have as many as 2000 different types of trouser belts, and still be considered ‘small’ due to the low processing volumes), in no way does it mean the size of your e-store visitors either (you can have thousands of unique daily visits, but if your visitors do not buy anything by credit card, you’ll still be ‘small’ due to the low processing volumes). As you can see, low processing volumes are a nightmare for small e-Commerce merchants. Merchant accounts for small merchants have no minimum volumes policy, or it is very flexible and low. That is the only advantage of e-Commerce merchant accounts for small e-businesses and merchants.

Third party merchant accounts and processors enable e-Commerce merchants, including those who are ‘small’, i.e. have low volume online businesses, to join up into using one merchant account. The advantage of getting a third party online credit card processor is in having absolutely no monthly minimum volume processing limitations, or very convenient low volume processing policies. A third party e-Commerce merchant account usually involves no monthly membership fees, enabling you to save on initial fees. Nevertheless, third party merchant account services are rendered at higher processing fees and discount rates.

When an e-Commerce merchant is the owner of a newly established business, still fresh and obscured by all the other major websites, it is already extremely hard for him/her to start off and break through the search engine ratings, to say nothing of the advertising expenses. Even more importantly, e-Commerce merchants with new businesses and little financial resources will not be able to afford spending much on online credit card processing services and automated shopping cart scripts. And it’s never expected for any online business to rise without being able to process credit card seamlessly and rapidly. So, instead of turning to a local bank for regular credit card processing services, which, especially in the U.S. are extremely hard to work with, e-Commerce merchants with small online businesses are recommended to turn to either a merchant account for small merchants or a third party e-Commerce merchant account. Which one is better?

Having scouted even a few of the Internet resources dedicated to both merchant accounts for small merchants and third party credit card processors, one will almost at once notice the differences between the two. These have already been said above, but their uses in different cases – type of business, location and so on – can play a vital role in the uprising of one’s e-Commerce business.

For instance, high risk e-Commerce merchants (pharmaceuticals, online gambling, etc.) may not be approved for online credit card processing services for small merchants. In this case such merchants [high risk merchants] will have to use third party credit card processing, as most third party merchant accounts may approve some high risk online businesses. Third party merchant accounts are also cheaper than merchant accounts for small merchants, but some e-Commerce merchants prefer to have a private account, i.e. no need to share one account, as when being a third party merchant. It is important to know, nevertheless, that there is absolutely no hassle involved in setting up a third party processor, as the merchant account providing company handles and coordinates the whole process. The payout schedules vary from one type of merchant account to another. E-Commerce merchant accounts for small merchants are more flexible when it comes to terms and conditions, while when joining a third party processor service program an e-Commerce merchant cannot change anything to suit the business (which is most often unnecessary).

With third party processors there is no need to upgrade when an online business grow out of its’ ‘smallness’, as there are no limits. It is recommended to find an alternative when volumes rise, as one can get lower discount rates and transaction fees, but this is sometimes needless as e-Commerce merchants often feel comfortable keeping on using third party credit card processing services. E-Commerce merchant accounts for small businesses and merchants, due to their high rates and low monthly volume restrictions, will surely prove to be inconvenient once the business flourishes and the volumes rise.

Small businesses, as any other online businesses, need credit card processing. We recommend third party merchant accounts and processors, as they are suitable for almost any e-Commerce merchant. It is still up to the merchant to decide, and regardless: a merchant account for small merchants or a third party processor – credit card processing is a must.

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