What is 3rd Party Credit Card Processing?

With all of the industry mumbo-jumbo, it's hard to understand what the difference is between having your own merchant account of using a third party processor. But it's actually not as confusing as it needs to be.

When you sign up for a merchant account, you are essentially opening a bank account. You are given a merchant ID number (MID) and you are responsible for reaching out to customer service, etc if something isn't working properly. You'll be given a terminal to process the credit cards and the money you make off of those transactions will be transferred to your merchant account or another bank account of your choosing.

When you use a third party payment processor, you are using that company's merchant account (not your own). You aren't given a MID. You pay them to process your credit card transactions for you. Typically the rates are a higher than that of a traditional merchant account, but that depends on how much volume your business does.

There are advantages and disadvantages of using a third part processor. The advantages include:

1. Businesses can often get a approved more quickly and when they are just starting out.
2. If you're doing less than $1000 per month.
3. There are often no monthly fees for the account.

Of course, there are some downsides:

1. The fees end up being more if you are doing more than $1000 per month as a rule of thumb.
2. When you are processing online, customers are taken off of the website to the third party's site to process the payment.
3. The name of the third party processor is what appears on the customer's statement, not necessarily the merchant's name which can get confusing.
4. The money that you earn from the credit card transactions can be held for a longer period of time than that of a traditional merchant account.

Three of the most well known third party payment processors include PayPal, Clickbank, and 2Checkout.