The below article addresses the pros and cons of these startup accounts.

Unless merchants are small enough to store inventory under their beds, they’re going to need more than PayPal or Google has to offer. “You rarely see a merchant accepting MasterCard but not Visa,” Roy Banks, President of Authorize.Net, said. “That’s because the merchant wants to – needs to -accept the payment form their customers dictate.

“Anything else, and they’re leaving money on the table. And no matter how much PayPal or Google grows, they’re just not going to replace credit cards anytime soon.” Merchants who earn or have the potential to earn $20,000 a month are candidates for a merchant account and online gateway service.

They are likely to qualify for lower commission rates when using a merchant account than when using third-party payment services like PayPal. A quick comparison of costs may be all that’s necessary to illustrate this. Buying by price alone may not be the best strategy. Most online merchants are somewhere between bootstrapped and taking in $20,000 a month.

While price is likely to be an important factor for any merchant, it’s not likely to be the only one. After all, if a family member is seriously ill, do you select a doctor on price alone? The way a business processes payments can be critical to the health of the business, and most successful business people are too smart to leave that to chance. Remember, ISOs and MLSs offer invaluable services Google or PayPal don’t offer.

Get creative with customer service and consulting

The payments industry’s technology, rates, and regulations change at bewildering speed. There are hundreds of options for merchants. Mistakes can cost them a great deal both financially and in aggravation, particularly over the long term. It’s a full-time job to keep up with the changes. Although vital, bankcard processing is only one small part of a merchant’s business. Merchants are experts in their fields; they should be able to rely on an industry consultant’s expertise in the payments field.

A consultant’s ability to help merchants select the best of many options for a merchant’s particular circumstances is something with which PayPal or Google cannot compete: They offer what they offer and have no reason to screen other options or distill industry information for their merchants.

“Since the MLS is offering a personal service to online merchants that the other third-party providers aren’t offering, we should consider actually increasing the fees slightly,” Thompson said. “We may as well charge slightly more for our personal services to merchants, once they realize that the cheaper service isn’t always best, especially for the small/mid-sized merchant that needs a real expert opinion on which options they should choose. These new services may actually turn out to make the MLS‘ expertise more valuable, which increases our value, to say the least.”

Additionally, PayPal reportedly suffers from customer service concerns. Some are real, some are perceived. Stories abound of merchants whose accounts were frozen by PayPal when a chargeback was disputed.

The PayPal phishing scam barrage also makes some merchants uncomfortable: It’s so incessant that it appears PayPal is not taking action. People wonder, What if PayPal‘s customer accounts are locked because of unauthorized activity (which one of the scams threatens), and the only payment alternative a merchant has is PayPal? What if the PayPal system is compromised by hackers?

Real or not, these concerns expose an underlying fear: If PayPal (or something like it) is merchants’ only payment option, PayPal has more control over their payments – and therefore their income – than the merchants themselves.

Emphasize control and branding

Having their own merchant accounts gives merchants more control in resolving payment disputes, such as those involving customer chargebacks. Many merchants think PayPal tends to decide such disagreements in favor of the purchaser. A merchant account also gives merchants control over their customer data, which potentially could provide valuable marketing opportunities.

Eric Remer of PaySimple believes his company, a provider of Web-based accounts receivable software, provides several benefits neither Google nor PayPal offers. “PaySimple is dedicated to promoting our customer’s brand, not our own,” he said.

“With either Checkout or PayPal your customer is building a relationship with the payment processor, because a Checkout or PayPal account must be opened by your customer in order for you to accept their payment via either of those vehicles. Further, Google and PayPal both process the actual transactions for merchants, taking on even further ownership of the relationship … potentially profiting off float time between settling and transferring funds to merchants. And, both Checkout and PayPal actively market to these customers and may even promote your competition to your customers.”

Remer said PaySimple‘s solution can function completely on the back-end with “our customer’s own shopping cart, or we can create custom-branded secure Web pages for shopping cart payments or online bill-pay. In contrast with PayPal, the transition to a PaySimple payment screen is seamless. Purchasers don’t have to go to a separate site for payment processing.”

Banks thinks the value of a merchant account goes beyond a simple payment process. “It’s a proven business model that has evolved over time,” he said. “It’s a true merchant banking account: The merchant has a relationship and a history with the financial institution, and it is FDIC insured. Access to the funds cannot be withheld.”

A big challenge for merchants is that most online merchants are actually multichannel. They aren’t just selling online. They may have a storefront. They may process MO/TO sales, or even mobile sales. This is a huge opportunity for ISOs and MLSs.

“The ISO is in the perfect spot to not only explain the merchant’s cost of processing to them, but to help them find one solution that provides the best option for every type of transaction they use, or may want to use,” Banks said. “Who else can give them that kind of information?”

Become a solution provider

To compete with alternative payment solutions, such as PayPal or Google, that bundle shopping cart and other online benefits, processors or ISOs need to create solutions that specifically fit the needs of online merchants.

“I think that in the future ISOs will be solution providers, not just payment providers,” Banks said. “If the online merchants don’t find their needs met by ISOs, then other solution providers will start bundling merchant services. A reseller can look like a real hero to the merchant if they not only set up processing but also help them streamline or market their business better. And in the future I think those things will all be integrated.”

Silver highlighted the need for processors to offer shopping carts. “For the profitable accounts, the lack of a shopping cart is more of a problem than PayPal itself,” he said.

Dan Schatt, Senior Analyst with Celent LLC, thinks payment providers need to move beyond the tactical work of serving as a gateway or processor.

“As merchants search for any edge that can increase loyalty and lower shopping cart abandonment, they will enlist a new breed of provider that can do more to increase their profitability than what has been offered in the past,” he said.

“The most effective payments capabilities will be hard to discern from a merchant’s merchandising program and will blend into the look and feel of the merchant site.”

Schatt thinks today’s alternative payment options will not only address many industry fraud issues head-on, but they will also couple authentication and payment options with strategic marketing capabilities to become an extension of a merchant’s marketing program.

“The most innovative products will allow merchants to promote unique offerings, spurring loyalty and retention benefits that ultimately make a merchant more profitable,” he said.

Merchants need their needs and boost their profitability in ways so creative that leave the PayPals and Googles of the world stuck in the Web, ready to fold.

Article published in issue number 060801

Bill Hoidas
District Sales Manager
Larger B2B/MOTO/Internet Accounts
Matrix Payment Systems
(847) 381-3482 office
(847) 381-4289 fax
John 3:16 For God so loved the world, that he gave his only begotten Son, that whosoever believeth in him should not perish, but have everlasting life.