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Square Up and PayPal are Payment Aggregators | Benefits and Drawbacks

Posted by Alex Neir on Fri, October 19, 2012 @ 01:56 PM
Payment Aggregator
First let’s discuss what a payment aggregator is. A payment aggregator establishes a merchant account and then lets other businesses accept credit card payments and bank transfers on the aggregators account. The payment aggregator facilitates the credit card transaction or bank transfer on behalf of the business. The business is then paid by the aggregator for the completed transactions.

The benefit of using an aggregator’s account to facilitate electronic payments (Square Up or PayPal) include:

  1. Fewer requirements for establishing the account. Most aggregators require only simple contact information and rarely require any financial documentation or credit information.
  2. Simplicity of set up.  Most of the time the account can be applied for and set up immediately.
  3. Ease of use. Most aggregators have identified a niche market and have simplified their system to accommodate their target market. For example Square Up is ideal for low volume mobile merchants that want to achieve a swiped card rate. PayPal’s niche is low volume internet businesses that want a simplified payment processing solution for website stores.
  4. Cheap. Most aggregators pricing, for facilitating electronic payments, is less expensive than a traditional merchant account up to a certain volume level. At what volume should you switch off a Square Up account? At what volume should you switch off a PayPal account?

Drawback of using an aggregator’s account to facilitate electronic payments (Square Up or PayPal) include:

  1. Money is not your money. The business receives a payment from the aggregator. The funds collected from customer’s credit card transactions or bank transfers are the property of the aggregator. The aggregator then makes a payment, equal to the total received from all the transactions, back to the business. Less fees of course. Now these businesses would not be in business long if they withheld funds from businesses that use their account. But it is very important to know that if you violate your terms of agreement they can hold your funds indefinitely. You don’t own that money.
  2.  Expensive at higher volume levels. Once your monthly volume exceeds a predetermined level, the cost associated with using an payment aggregators service is more than a traditional merchant account. When using Square Up, once your volume exceeds $4,300 it is cheaper to establish your own merchant account. When using Paypal, once you exceed $2,000 a month you are better off with your own merchant account.
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Tags: Merchant Account, Payment Aggregator, PayPal Comparison, Merchant Account better than Square Up, Square Credit Card Reader

Credit Card Processing with your local Bank | A good idea?

Posted by Alex Neir on Thu, October 04, 2012 @ 04:19 PM
Bank Credit Card Processing

It is often thought that opening a merchant account with the bank that handles the business checking account is the best way to ensure good rates and quality customer service for credit card processing. While there are instances where this is true, especially with very large business, often times it is the exact opposite.

Here are a few reasons why this is the case.

1.) Credit card processing in not their core competency

Most banks specialize in storing and lending money. Most, if not all have little to no experience in credit card processing and only see it as a way to leverage their customer relationships to increase revenue. Credit card processing is often outsourced to a third party where additional markup is added as a referral to a third party processor. Credit card processing is a completely different industry from the banking industry. The assumption that a bank is most capable entity for the set up and maintenance of a merchant account is similar to assuming a dentist can fix a broken arm.

Your business is much better served through seeking the assistance of a specialized company that only works with credit card processing accounts. Similar to the medical industry, you will be much better served through the use of a specialist and unlike the medical industry you will achieve a much better rate.

2.) The sales represenative is a 9 to 5’er

When working with a local bank to set up an account for credit card processing you will be working with a sales representative that has no financial interest in seeing that your account is set up and set up correctly. More often than not the representative will be a salaried employee working 9 to 5, or worse an hourly employee that will have no financial incentive for helping set up your account.

You would be much better served with a processor that has a sales force that is financially connected to the account creation and maintenance. If the representatives salary is connected to the processing account’s they set up, it’s amazing how efficient and available they become.

3.) Lack of flexibility

Most banks do not have the flexibility to set up merchant accounts on multiple networks. There are a handful of processing networks available and some are better than others depending upon the source of the transaction. For example the Omaha network is better than Nashville for retail swiped transactions. Again, it comes down to the fact that banks are not set up to handle the unique demands of credit card processing. Save yourself a lot of hassle and cost and seek a company that specializes in credit card processing.

Would you like information from a company that has specialize in credit card processing for over 10 years?

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Tags: Credit Card Processing Account, Credit Card Processing, Credit Card Processing for Small Businesses