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Tuesday, January 11, 2005

Merchant Accounts

When it comes to finding a way to accept payments from customers, most new web-entrepreneurs will go to PayPal. Why? Because they're very popular, most web users have heard of them and millions already have an account with them; but also because setting up an account with them takes but a few minutes before you can start accepting payments.
Paypal is a "Third Party Processor", this means that they accept payments through credit cards or echecks on your behalf from the customers.
Paypal is great to get started, but serious website owners who wish to remain in business for long and grow their business pass the stage of "passtime" should seriously consider getting their own merchant account to accept credit cards directly and not rely on Paypal or any other third party processors.
I've had bad experiences with paypal with one of my business, granted I was lucky because it was just a small one earning me perhaps an average of 500$ per month. Nevertheless however, I did see it disapear and loose all my clients overnight because paypal missinterprated one of my website as being against their terms and conditions (in this regard, if you read their terms of use, they give themselves pretty much every right immaginable including keeping your money if they decide to close your account with no rights to appeal, but that just the tip of the iceberg, checkout, some of these folks lost more than I did). Even if they agreed I was right that they had missinterprated the website, they would not let me appeal the decision or give me the amount I had in balance for 6 months so not only did I loose all my clients but I also didn't have the right to my money for all this time.
This is the problem with 3rd part processors and the exact reason business owners should consider getting their own merchant accounts.
Because they accept the payments on your behalf, they also store all your customer's information (i.e. credit card information) so you do not have an alternative way to bill your clients if they shut down your account.
Getting your own merchant account is however, quite another story, especially if you are not so lucky to be outside the United States like myself who is in Canada and has limited choice when choosing a merchant account.
I've had bad experiences here also, so I advise anyone going down this road to start early and deal with more than one company at a time and NEVER accept the rates they give you initialy, this is something they will of course not tell you but these rates are almost always negociable, even the setup and monthly fees. Just let them know that you are in discussion with a number of other companies to ensure ease of negociation ;) hehe.
The first Canadian-based company I opened an account with,, decided overnight to stop all their processing for 3rd party processing (yes, you learn by your mistakes...damn 3rd party processing, you should always have an alternate, more reliable solution to billing).
The second company I dealt with, WorldPay approved me for one of my websites but wanted a monthly fee for each additional website I operated and were very picky about the "risk" of each site, even though I am the same owner for all these sites.
My last and best choice ( I really wish I had done this a year ago) was to go directly through my bank and apply for a merchant account directly... I always avoided this option in the past because of the higher cost and the fact I had to apply for each type of card seperately. In the end however, this proved to be the best choice. So if I can give any advice concerning accepting payments on your website it would be the following, please learn from my mistakes :):
1) Always have an alternative way of billing your customers and not rely solely on 3 rd party processors.
2) The cheaper or easier alternative is not always the best.
3) Make sure you store your customer data yourself and always have an alternative billing method (i.e. a backup merchant account with another company wouldn't be a bad idea)
4) Never accept rates given by merchant account providers, these rates are negociable. They want your business so always let them know you are dealing with other companies and are comparing rates.
5) If you think Paypal won't close your account, think again and read if you're still not convinced.


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12:39 AM  

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