Last editedApr 20222 min read
There was a time when cash was king. Now, the king is dead. Long live card payments. Payment preferences have changed, and businesses have had to change with them. Debit and credit cards, direct debits and electronic wallets are now de rigueur when it comes to making payment for goods and services.
Appealing to the preferred payment methods of your customers can build value in your brand, prevent lost sales and mitigate against missed opportunities. Once upon a time, small businesses needed to open a merchant account in order to accept and process these payment methods. In the age of open banking, however, they have an alternative known as third party payment processors. But are they the right choice for your SME?
What is a third party payment processor?
Simply put, third party payment processors allow merchants to accept card or online payments without the need to set up a merchant account.
Instead, they act as an intermediary between the merchant and buyer’s banks. They transfer funds from the buyer’s account into their own merchant account before transferring the funds into the seller’s account.
They essentially provide SMEs with the facilities of a merchant account, while also insulating them from the obligation, unpredictable charges and administrative hassle associated with getting their own.
Advantages and disadvantages of a third party payment processor
Some of the advantages of using a third party payment processor include:
flexible contracts without the long-term obligation of a merchant account
higher rates of acceptance with more varied risk appetites than merchant accounts
merchants get a simple service that provides a payment gateway and merchant account, simplifying their operations
However, there are also some disadvantages to using a third party payment processor. These include:
fees may be higher when compared to a merchant account and payment gateway, especially at low transaction volumes
while payment gateways are usually customisable, they may not provide a seamless transition from your website, potentially compromising your branding
deviate from the provider’s terms and conditions and you may be locked out of your account, preventing you from taking payments
What to look for in a third party payment processor
There are hundreds of third party payment processors of all shapes and sizes. Before entering a third party payment processor agreement, you need to know that a processor is a good fit for your SME’s needs.
Among the things you’ll need to consider are:
processing rates and pricing tiers
which payment types are supported
does it offer the right software and hardware integrations for your infrastructure?
do you have access to 24/7 customer support?
whether their policies match your operations (such as minimum transaction volumes)
Who is the best third party payment processor?
There is no ‘best’ third party payment processor. It all depends on how well their services and charges align with your needs and budget.
For instance, GoCardless is easy and cost effective for both recurring and one-off payments, enabling merchants to take one-off and recurring payments from their customers' bank accounts. We handle all interactions with banks, ensuring that transactions are compliant.
We offer flexible, high-converting payment pages including hosted pages, drop-in modules, and custom options. Our easy to use dashboard improves cash flow visibility, showing statuses and payment requests.
As well as using our own API, GoCardless integrates with over 300 partners, including Xero and QuickBooks.
We can help
If you’re interested in finding out more about whether a third party payment processor is the right choice for your business, then get in touch with our financial experts. Discover how GoCardless can help you with ad hoc payments or recurring payments.