Meet your new best friend in the world of business: third-party payment processors
If you’re running a business online, accepting digital payments isn’t just a “nice-to-have” feature. It’s a necessity.
Today, about 230 million customers shop online, which makes up about $3.5 trillion in retail sales. And this number is expected to nearly double in the next three years. If you don’t already have an online payment system in place, or if your existing platform is difficult to use, you’re eventually going to lose customers and hinder your digital success.
One way to make online payments easier, faster, and more reliable is to use a third-party payment processor. This article will walk you through the different benefits of using one, and how you can benefit when running an online business.
What is a third-party payment processor?
A third-party payment processor is a tool or software that allows you to accept payments from customers without having to set up a merchant account with a bank first. A merchant account is a bank account through which merchants can accept online or credit card payments from their customers.
If you already have a merchant account setup with your bank, you can choose to link it directly to your payment portal and accept payments directly into your business account for all online sales.
However, for some merchants, setting up a new business account may take a lot of time and can get costly — especially if they’re new to the business. In order to avoid delay and reduce expenses, they can use a third-party payment processor and start accepting payments from customers right away!
How do third-party payment processors work?
Third-party payment processors have a very simple job: to move money from your customers’ bank account, process it for you, and transfer the funds to your merchant account.
By processing, we mean that they use their own merchant account as an intermediate step before sending the funds to your bank account. This can be any bank account of your choosing, not necessarily a merchant account.
Benefits of using a third-party payment processor
Third-party payment processors are extremely popular among online merchants and some main advantages include:
- Fewer setup costs: Using third-party processors tends to be much cheaper as compared to setting up a merchant account and paying operational fees to traditional banks. For small startups and even medium-sized businesses, these costs can rack up pretty high. Using a third-party process can reduce costs and maybe more affordable to maintain in the long run.
- Minimal fees and charges: Merchant accounts come with a lot of maintenance and operational costs. Most banks charge a subscription fee, on top of per-transaction fees, payment gateway fees, and compliance fees. They only offer discounts to businesses that have a large order of volumes, leaving smaller businesses in a tight spot. On the other hand, third-party providers are less costly to use and come with very minimal ongoing expenses.
- Simple integration: Setting up a merchant account can be a frustrating process that can take up to weeks to integrate into your business. It requires a lot of paperwork and verification before you can set up shop. If you’re operating an online business, chances are you need a payment solution as soon as you launch your website. In this case, third-party systems can help because they require minimum effort or time to set up and run your business.
- Room for risks: Third-party processors are more resilient than banks and can take on greater risks. So they are more likely to accept higher risk merchants than traditional financial institutions.
- Flexibility: Third-party providers don’t tie you into long-term contracts, so you’re free to cancel the subscription or opt for another provider anytime. This is great for online merchants because you may come across a third-party processor that offers better rates or maybe running a promo that can save you more money. Also, you may find that some providers aren’t allowed to process payments in your country, so you may have to opt for another one that caters to your locality.
The downside of using third-party providers
Like anything else, there are obvious disadvantages involved with third-party providers — higher processing fees.
These providers are taking a lot more risk and doing all the heavy lifting when it comes to processing online payments for your customers. So, it’s understandable that they charge premium rates for their services.
Although, since competition is high with so many companies entering the processing service market, it’s expected that fees are likely to come down. With higher demand in the future, most third-party providers are poised to become more affordable and offer greater security features for both businesses and consumers.
Dibsy: A third-party processor you can trust
Dibsy is a third-party payment processor — we work directly with your bank to transfer funds on your behalf.
With our platform, you can drastically reduce the integration time of the payment gateway on your website, and provide a seamless and easy transaction experience for your customers.
Interested in learning more? Get in touch with our team to discover product features.