While direct credit card processors offer the best terms and rates in the industry, they also have strict requirements. Not every business qualifies for a merchant account. If you come from a high-risk industry, have a low credit score, or are prone to chargebacks, commercial institutions might reject your application. Luckily, you can turn to third-party processors.
Third-party credit card processors like Square, Stax, Stripe, and PayPal offer payment processing services through commercial banks. They do not have front- or back-end processing systems. Since third-party processors use their commercial accounts on behalf of their clients, business owners no longer need to open a merchant account.
Some third-party processors use short-term perks to trick unsuspecting merchants into agreeing to unreasonable contracts. Thus, be critical in choosing your processor. Haphazardly agreeing to long-term lock-ins and steep charges in exchange for an easy approval process would do more harm than good.
You should generally avoid processors that:
Whether you go with direct or third-party payment processors depends on your business needs. Do not blindly choose the well-known or cheaper option. Compare the features that your prospective processors offer, assess how your business would benefit from them, then see if you meet their requirements.
What happens after your front-end processor approves a transaction? Processing Card can give you a primer on the entire process! Read our quick guide on back-end processors and their roles in transferring settled funds to acquirers.
Florence Carpenter is passionate about ensuring that the process of opening merchant accounts is as straightforward as possible. She graduated from the University of Michigan with a bachelor’s degree in Marketing.
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