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A Guide To Online Payment Processors
By: Paul Foley, Wed Sep 6th, 2006
'Free' Accounts or Merchant Accounts?
Anyone who does business online (and actually takes money from
other people) must, at some point, bite the bullet and choose a
credit card processing company - this can be quite an expensive
There are effectively two different ways of going about this;
you can either go for the free accounts or the specific merchant
But what is there to distinguish the two? After all they both
allow you to accept a payment from a credit card holder right?
Well yes, they both allow you to accept payments from people
with credit cards - but there are some underlying and
fundamental differences that you should be aware of.
Lets have a look at merchants accounts (ICann, WorldPay or
2Checkout - just as examples), when you register with one of
these guys you will have to provide information relating to your
business and prove that you are actually a registered business.
You will also have to pay a setup fee, from personal experience
I know that this can be in the order of several hundred dollars,
you will also pay a yearly subscription or support fee - again
this is typically a couple of hundred dollars a year.
You might think that this is OK - but don't forget you are also
paying a percentage of the transaction value, this can be
anything up 4.75%.
From this information alone we can see that for the little guy
this is quite a high cost - especially if you're just starting
out and you don't even know if your product/service is going to
There are also other things that you need to be aware of when
looking at professional merchant accounts, for instance
2Checkout will, from time to time try and actually call your
customers (a selection of) and verify that the goods have
arrived - if they can not do this then they will potentially
refund ALL currently held sales.
I mention this as I was made aware of 2CO's operating policy
(this morning) by one of my fellow online marketers - this guy
lost $5,000 because 2CO phoned the wrong person and lets face
it, once you've delivered the products and given a refund how
many people are going to say 'Yes, here are my credit card
details again' - not very likely - and then cancelled the
merchants account without so much as saying sorry.
So in other words make sure you read the fine print - there is
typically stuff in there which is not really in your interest.
Anyway, that's enough about merchant accounts, now lets consider
the free accounts - and the first thing to be aware of is that
there is no such thing as 'free'. With the free accounts you
typically don't pay a setup charge or even a yearly charge - you
do however pay a percentage of the transaction value, this can
be anything from 1.5% up to 4%.
The two main suppliers of free accounts are PayPal and StormPay.
It should be noted that although they both provide pretty
identical services there are advantages and disadvantages
associated with each of them.
For example, StormPay typically charge slightly more per
transaction then PayPal - however PayPal charge more to get your
money out then StormPay. PayPal is also VERY quick to respond to
allegations of foul play (whether it exists or not) and
typically very slow to do anything about it (besides locking
PayPal also has some bizarre habits when it comes to money
laundering rules, for instance my younger brother plays on Ebay
and makes a few dollars here and there - nothing suspicious
about that right (especially seeing as Ebay owns PayPal) but for
some reason when his balance went past $50 they locked his
account for a couple of weeks and sent him mails requesting
proof of ID and wanting an explanation of where the money had
No such problems with Storm pay, they validate you when you sign
up by effectively linking you to your credit card to your
address - any suspicious transactions are followed on a more
gentlemanly basis. As of the time of writing I have not heard of
anyone using Storm Pay having their account locked for
In terms of signing up for the service StormPay is by far the
quickest and in terms of market saturation is also on the up and
up (PayPal is the established norm but StormPay is catching up
One thing to remember no matter which type of payment processor
you use is that if a customer demands a refund 9 times out of 10
they're going to get it - unless you can satisfy your processor
that you have done everything that they require (so for PayPal
if you're sending tangible goods you need proof of postage that
identifies what you've sent and in the case of allegations of
'no delivery' proof that it has been received - and then there's
still no guarantee that they'll rule in your favor).
One important distinction between payment processors will relate
to geography, i.e. where in the world they accept payments from.
Most of the free services do not accept payments from central
Africa or south East Asia, this is purely to do with level of
fraud (Just think Nigeria).
To summarize, for the brand new business who has little or no
client base and has no idea if their offering is going to be
picked up by the market it is better to start with a free
account, my personal recommendation being Storm Pay. If your
business later grows and requires specific merchant account
functionality then you can always upgrade or pick one from the
If you would like a StormPay account use the following link: http://www.stormpay.com/?24
About the author:
The author is a well known webmaster and maintains the sites
http://www.HelpmeBuilda.Com and http://www.Cash-Sense.com The
HelpmeBuilda.Com site is dedicated to helping people technically
with building an online presence whereas the Cash Sense site is
dedicated to making money with Google Adsense. The author also