Most successfully businesses use one or more 3rd party payment processing services to process their credit card orders on Internet, since this doesn’t require to obtain a direct merchant account or to setup expensive SSL certificates. The 3rd party payment processing services handles payment by credit card (and usually can handle checks and other forms of payment as well), and sends the seller a monthly (typically) check or wire transfer, minus various processing fees, which vary from service to service.
These 3rd party payment processing solutions give the seller a link to a secure webpage where they can redirect their customers to, for completing the order. While the method has many benefits, it also has disadvantages.
Below I would like to make an introduction of the basic terms and concepts used by the standard payment processing services, to help sellers
Understand better what they need to compare when choosing a payment processing service.
– the time interval during which orders are taken for one payment. Can be monthly, bimonthly, weekly, etc. After each payment cycle ends, the payment should be sent to the seller.
Payment Holding Time
– unfortunately every payment processing service deliberately holds the payment for an amount of time that varies between a few days up to several months. They do not send the payment immediately after the payment cycle has ended, but instead they hold the payment for the specified payment holding time. They say this is to protect them against fraud, chargebacks, and it also helps them with increasing their profit (by holding the money in bank for an interest). For example, for a monthly payment cycle and a payment holding time of 15 days, the money resulting from orders during October will be sent to you on or after 15th November. This is not a big issue if the payment holding time is not long, but some services have a payment holding time of 2 months or more, and you will receive your payment for October sales in January the next year.
Payment Processing Day
– is the date of the month (for monthly payment cycles) when the payment cycle should end, and the payment calculated. Usually this is the last day of the month, but some services let you specifically set it.
– the fee for signup. Some charge non-refundable fees, other application fees, other do not charge a fee at all.
– the per transaction fee, usually a percentage with a minimum fixed value.
– when a chargeback occurs ( it happens in case of fraudulent orders or when the customer is not satisfied with the product ) not only that the payment processing service takes back the amount of the order, but it also charges you with a chargeback fee.
Some payment processing services have additional fees, such as product download fee (for virtual goods), monthly fee, statements fee, refund fee, wire transfer fee, contract canceling fee. You need to ask them about all these fees, because most services do NOT clearly specify it on the website nor in easy to find documentation; and you might have unpleasant surprises later if you do not. Especially with the payment holding time, it’s disappointing to expect to receive the first payment just to find out that it will be sent to you months later.
It is a good practice to read the TOS (terms of services) and the contract before signing up, as many payment processing services state they reserve the right to terminate or suspend their services to any customer, for any and no reason at all, without notice, and they also state that the last payment will be held 6 months, for chargeback protection.