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Third Party Processors

Third Party Processors are typically a good option for high risk businesses that want to accept credit cards. When payment gateway and merchant account services are limited, third party processors may be what you need. Keep reading for more on third party processors.

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A Third-Party Processor (TPP) is an alternative to a merchant account. The security risks of a number of online and storefront businesses may lead their applications for a merchant account to be denied, and a Third-Party Processor gives the merchant or e-merchant an alternative means to be able to accept credit cards without signatures.

The types of industries that typically end up in the situation of seeking a Third-Party Processor include merchants and e-merchants offering any type of adult products or membership sites, pharmaceutical sales, subscription services of any type, debt collection and bail bond companies, gun dealers, pawn shops, use cars, weight loss, VoIP sales, pre-paid telephone cards, timeshares, and fortune telling and horoscope businesses.

Merchants and e-merchants in industries that are usually easily accepted for merchant accounts may also be denied a merchant account if their credit history flags them as being high risk. This could include a history of large chargebacks and having had a merchant account shut down in the past, which places a merchant on the "Terminated Merchant File," a form of blacklist. If a business is not registered or if the business is new and the owner does not have credit or has poor credit, this is another reason why a merchant account may be refused.

Another reason for using a Third-Party Processor is to test a fledgling business without the investment in a payment gateway and merchant account, since a Third-Party Processor combines these functions and may be obtained without a long-term contract.

A Third-Party-Processor may also be a benefit for those with a very small sales volume: without a certain critical mass of sales, a merchant account and payment gateway cost too much to be a good choice. This type of use of a Third-Party Processor has a much different "feel" to it. For e-merchants in this type of situation, PayPal is an example of a typical solution. In this case, there is no taint of enormous risk or having made bad decisions in making the choice.

It is important to know that a Third-Party Processor is something like a merchant account reseller. Instead of having your own account, as you do with a merchant account, you are using the Third-Party Processor's merchant account.  This means that the Third-Party Processor may set their own particular rules for how the account operates. It also means that they have complete control of your account: they can cancel it (read the terms of service carefully); their business name will appear on statements that go to your customers; while their rate may be higher than those of standard merchant accounts, they may waive other fees.

The best approach for anyone is to make a comparison across several reputable Third-Party Processors (and a standard Merchant Account and Payment gateway, if you are in a situation and industry that might make this an appropriate choice)  using a guesstimate of the average ticket price and the volume of sales per month. Play this out for a year and see what the costs for each are in order to make the best decision for your business.

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