Who exactly is touching YOUR money? The big difference between Direct Merchant Accounts and 3rd Party Processors
December 20, 2011
Owning a Merchant Account is a necessity now days. In order to stay competitive and to allow your customers the ability to pay via Visa, MasterCard, Discover and American Express, you will need to make a decision between the hundreds of Processors available. There are several factors that you should take into consideration before jumping in to a contract. I am writing this blog to help inform you of a few things to watch out for and to help you make the best decision for your business!
First off, I would like to discuss a few differences between an ISO/MSP and a 3rd party processor.
“Independent Sales Office” / “Member Service Provider” is a term used to designate a business that has gone through the extensive due diligence, financial review and verification process with both VISA, MASTERCARD and its Sponsor Bank. While there are many ISO’s out there, it is very important as a merchant that you make absolutely sure you are dealing with a REGISTERED ISO/MSP. Make sure to take a look at their website, review the contract to ensure the company is a registered ISO/MSP, and verify their sponsoring bank along with its location. Here is an example of what that would look like:
Advantages to using a Registered ISO/MSP would be:
- Only the merchants DBA (Doing Business As) Name and phone number will appear on statements
- Funding is generally 1-2 business days
- They do not withhold a security reserve (in all but the most high risk cases)
- They are underwritten by an FDIC insured bank
- They have STRICT Security guidelines
- You are able to directly dispute chargebacks
- You own your own cardholder data
- You are in complete control over every transaction
In contrast, 3rd Party companies do not have the same guidelines as ISO/MSP’s and would assume all the risks when it comes to processing. This can have a negative effect on the Merchant if they decide to hold the funds for any particular reason. In fact, in many cases a lot of 3rd Party Processors have very low thresholds – sometimes as little as $1,000 – after which a merchant exceeds their “comfort zone” and they start to monitor aggressively or require additional documentation.
Here are a few common complaints we have run into with 3rd Party Processors:
- High processing fees
- Order abandonment – shoppers get confused & alarmed
- Long and delayed payment schedules
- Funds are not FDIC insured
- Security reserve which could be as much as 10% or more
- Merchant’s name missing on credit card statements
- You have limited transaction control
- No guarantees as far as security
Here is a chart to break it all down for you:
Area | True Merchant Account | Typical 3rd Party Processors |
Branding | ONLY the Business DBA and # Appear | 3rd Party Processor’s Name Typically Appears on Statement |
Funding Time | 1-2 Business Days | Varies |
Security Reserve | None | Often 5 – 10% |
Transaction Cost | Lowest and just a $10/month fee | Higher % Fees and Total Cost |
Customer Perception | Ideal | Questionable and concerning to many |
Control over Transaction | Complete | Limited or Non-Existent |
Reporting | Highly Detailed | Varies greatly |
Financial Stability | Underwritten by an FDIC-insured Bank | Operated by a non-regulated 3rd party |
Privacy & Security | Operated within tight guidelines | No guarantees whatsoever |
Ability to Directly Dispute Chargeback | Complete | None |
Do you OWN your Cardholder Data? (ex: Portability) | YES | No |
Secondly I would like to discuss a few things when shopping for a Merchant Account Provider. The internet can aid you in your search as there are Forums that will compare companies advantages and disadvantages for you. I would suggest not to solely rely on the Forums but to also do your own research. What does the BBB say about this company? How long have they been in business? Are there any complaints about this company? Do they have full contact information on their website? These factors should play a HUGE role in your decision when searching for a Processor.
Once you have narrowed your search down here are is a list of questions you should as the processor:
- Do they have a minimum contract length?
- Do they have a Cancellation or Early Termination Fee?
- Do they have a set up fee of any kind?
- Do they have an annual fee of any kind?
- Do they have a monthly minimum?
- What kind of payment gateway would you be using?
- What is the payment gateway fee (Setup/Monthly/Per Transaction)?
- Are there any extra fees for gateway features like Recurring Billing, Fraud Protection, Tokenized Vault or other related services?
- What are the AVS Fees?
- What are the PCI DSS Fees?
Lastly, once you have chosen your processor, I would like to encourage to review your statements carefully. Make sure that all the math is correct and that they are only charging you what they said they would. Sometimes there may be miscellaneous fees that you should be aware of. If you are unsure about anything they should be able to clear everything up for you
As I stated in my introduction, I am writing this to help educate and inform potential/current merchants when choosing a Merchant Account Provider. CDGcommerce is a processor among many but what differentiates us from our competitors is our drive and willingness to help YOU! Our goal is to provide a service that we can be proud of, one that will treat our merchants with a respectful, courteous, “We are here for you” attitude! Not only are we set apart by our helping attitude but our services as well! All of the fees I mentioned above are NOT fees that we charge our merchants. In addition, with CDG you have an option to utilize our industry leading FREE Payment Gateway program powered by the Quantum Gateway.
You can find more information on our company by researching us online or via the links below to our website as well as our social sites. Please feel free to contact us with any questions/concerns you may have!
Thank you for reading!
Suzanne Landsaw www.cdgcommerce.com 888-586-3346 x. 1