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What are third-party payment providers?

Understanding the online payments ecosystem is an important part of a business. Whether you’re looking for alternative payment methods or just starting your entrepreneurial journey, choosing the right payment provider can save you thousands of dollars.

Therefore, it is important to understand all the benefits and risks that can come with working with a payment service provider.

In this article, we will try to understand the role of a third-party payment processor and its impact on the online payments industry, identify points to pay attention to, and discuss methods for reducing the risk for the business as a whole.

What is a Third Party Payment Provider?

A third-party payment provider is a service that provides merchants with the ability to accept online payments without requiring a merchant account. These organizations have their own merchant account, which they use to process payments for online business owners.

As more and more people move away from cash in favor of online transfers, many businesses are forced to transfer their business online to sustain development. A prerequisite in order to be able to accept credit card payments online is a merchant account

A merchant account is required to securely receive and process payments from customers around the world. After opening a merchant account, the business can accept credit card payments 24/7.

Submitting an application and registering a merchant account is generally a simple process, but it can take many months. Banks ask for a significant amount of documents that can be difficult to obtain. In addition, requirements change frequently.

As a result, companies that for some reason cannot open their own merchant account are still able to accept online payments thanks to third-party payment providers.

How Third-Party Payment Providers work?

Now that you understand what a third-party payment service provider is and why you need one, let’s take a look at how it works.

After you have registered an account with the payment processing platform, a payment page will be installed on your website. Payments that will go through this page will be processed on the server of the payment gateway. This means that it is not the business owner who is responsible for the security of the transaction, but the processing company.

When To Apply For a Third Party Payment Processor?

As mentioned above, for merchants without their own merchant account, working with a third-party payment service provider is the best option.

However, this option is not suitable for everyone. While for some businesses this may be the only way to scale, some merchants is better off opening their own accounts.

If you have a subscription business, or large volumes of transactions, then when you open a merchant account, commissions can make up a significant percentage of the payment amount.

In such cases, third-party payment providers will be a better solution. It will also be the best solution for startups or small businesses.

Pros and Cons of Third Party Payment Processors

The advantages may include:

  • No monthly fees. Usually, you have to pay a monthly tax for owning your own merchant account. In many cases, only large business owners can get individual rates or discounts. For other companies, tariffs can be prohibitive. For such companies, there are third-party payment processors.
  • Easy verification. In order to start accepting payments using a third-party payment gateway, you just need to register a personal account and upload the required minimum of documents. Consideration of documents and setting up payment methods often takes no more than 3 business days.
  • Risk management. 3rd party payment processors are responsible to payment systems for ensuring payment security. All financial institutions are regulated by PCI DSS – an international protocol for securing the storage and use of customer banking data. In addition, all payments are transmitted over secure channels using modern fraud prevention technologies.
  • No restrictions. Many merchant account providers require their customers to process a certain number of transactions each month. There are no minimum transaction requirements when using third party processors, making them a great choice for companies of all sizes and all types.
  • Fast integration by using API and ready-made solutions(plugins) for popular CMS (WooCommerce, OpenCart, PrestaShop).

The only possible drawback of third-party payment providers is that transaction fees can be slightly higher than when working with merchant account processors. However, this price is lower when compared to the fees of traditional payment providers. Many business owners are increasingly turning to third-party vendors for cooperation. In addition, the presence of high-level competitors in the online payment market contributes to an improvement in service and a decrease in prices.

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