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Pros and Cons of Third-Party Payment Processors

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Last editedFeb 20233 min read

Accepting online payments is a must for today’s businesses. It’s easier than ever to start processing payments straight away by using third-party payment providers. Fast, efficient, and secure, they take care of the technical details so you can focus on providing the best possible customer service. But is there a downside to using third-party payment services? We’ll break down the advantages and disadvantages of third-party payment processors below, so you can determine which option is right for you.

What are third-party payment providers?

Payment processors are companies that act as third-party mediators between the bank and the merchant. When a customer enters their payment details on your app or website, the processor takes these details and transmits them to your bank and the customer’s bank for processing. Third-party payment processor examples include companies like PayPal, Stripe, Square, and GoCardless.

Without this mediator, your business would be required to set up its ownmerchant account for processing payments and handle the logistics that go with it. There are some benefits of managing your own merchant account if you’re a larger company. Yet for small and medium sized businesses, the cost and hassle are often not worth the trouble.

Advantages of third-party payment processors

Using a professional third party to help process your customer card or bank payments offers an array of benefits. Here are just a few of the key advantages of third-party payment processors:

1. Reduced cost

While banks charge service fees for merchant accounts, you can cut down on this expense by using a third-party processor instead. There’s often no charge for setting up an account, nor are there any monthly contractual fees. One thing to take note of is that fees can vary widely between processors, so always check the cost before signing up.

2. Easy set-up

Small businesses can start selling immediately with a third-party payment processor. Setting up a merchant account requires a lengthy application process in comparison. You can choose a processor that integrates seamlessly into your ecommerce site and apps.

3. International payment processing

Processing international payments requires added layers of complexity and compliance. Using a third-party processor helps you navigate this sometimes-tricky world of tax and banking requirements. It also ensures a smooth transaction for global customers with tools like automatic currency exchange.

4. Payment security

Third-party services are also experts that keep up with all the latest high-tech security trends. Implementing the most current protocols can be time-consuming and costly for a small business. Let the payment processor take care of identity verification, fraud protection, and security checks. They’ll keep your customers’ financial information safe using tools like tokenization and encryption, while keeping your business PCI compliant.

Disadvantages of third-party payment processors

On the other hand, third-party payment processors aren’t perfect and there may be some downsides. These depend on the service you choose, but here are a few potential disadvantages to keep in mind:

1. Transaction fees

You usually won’t need to pay monthly subscription fees, but third-party processing services typically charge a fee for each transaction. Be sure to shop around and compare fees before choosing a provider.

2. Less control over accounts

Sometimes the advanced security features can cause a headache. For example, PayPal freezes your account if they detect suspicious activity. Your account will be unfrozen once the investigation concludes, but in the meantime, it can be a problem if you don’t have a backup processor.

Third-party payment processors: the bottom line

It’s clear that the pros far outweigh the cons when it comes to using a third-party payment processor. While you will be charged transaction fees, this is still far less than what you would pay to manage a merchant account. There are occasionally issues with frozen accounts due to suspicious transactions, but this isn’t universal to every processor and is no more than a slight hassle necessary for fraud prevention.

GoCardless offers a safe, secure, and convenient third-party payment processing service. We make it easy to collect both recurring and one-off payment directly from customer bank accounts. Beef up your security with our Success+ and Protect+ payments intelligence tools to fight fraud and reduce payment failures. Get paid on time, every time, by retaining full control over the timing and amount of customer payments using ACH direct debit. We can help you enjoy all the advantages of third-party payment processors, for reduced stress and improved cash flow.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.

Over 85,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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Interested in automating the way you get paid? GoCardless can help
Interested in automating the way you get paid? GoCardless can help

Interested in automating the way you get paid? GoCardless can help

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