Choosing the right payment provider to process payments for your business is an important task. There are different factors to consider if you are getting paid online vs. getting paid offline at a brick and mortar location. Let’s talk about some of the factors that you need to consider.
Getting Paid Online vs. Brick and Mortar
Here are a few typical questions that a business may ask when looking at payment providers.
Brick and Mortar
For a brick and mortar store you typically ask:
- How do my customers want to pay (VISA / Mastercard / AMEX / Discover / Debit / Check / ACH / PayPal)?
- How convenient is is for both the customer to make a payment and my business to accept a payment?
- How fast will my business see the cash?
- How much will it cost me?
Online
When accepting payment online you will ask all of the above, and then these additional questions:
- Can it be integrated with my ecommerce site, shopping cart, or online
accounting software? - What are the integration costs?
- How good is the reporting?
- Can inexpensive, non-credit card payments be accepted (ACH / PayPal Business Payments)?
Dedicated vs. Aggregated Merchant Accounts
A common difference between brick and mortar and online focused payment providers is that brick and mortar solutions tend to involve dedicated merchant accounts whereas online solutions tend to involve aggregated merchant accounts. “Dedicated” means you get your very own merchant account, whereas “aggregated” means you share a merchant account with many other small businesses.
Dedicated Merchant Account
The features of the typical dedicated merchant account are:
- Application process can be time consuming and take weeks
- A reserve – which is a safety deposit against bad transactions – may be needed
- Lower discount fees for swiped transactions
- More overhead fees (monthly fee, cancellation fee, other miscellaneous fees)
- Less chance of account being suspended or funds being frozen
- Better for existing businesses with higher volumes
- Application and fees can be complicated
A big name in online payments is Authorize.net, which is a payment gateway that doesn’t actually provide you with a merchant account (although you can sign up for a merchant account via Authorize.net through one of their partners).
Aggregated Merchant Account
Some typical features of an aggregated merchant account:
- Application process can take minutes
- No reserves needed
- Lower discount fees for keyed transactions at lower volume levels
- No overhead fees (no monthly fee, no cancellation fee, costs are not usually hidden)
- More chance of account being suspended or funds being frozen since a thorough underwriting process is not taken
- Better for new businesses with low volumes
- Application and fees are straightforward
PayPal, Stripe, and Square only offer aggregated merchant accounts. PayPal and Stripe are focused on online, while Square is focused on mobile. Accordingly, while PayPal and Stripe’s base rates offer 2.9% + $0.30 discount fees for online transactions, Square offers 3.5% + $0.15. Likewise, PayPal and Stripe have integrations with many online accounting software’s e-invoicing products, while Square has no integration capabilities.
A Mix of Both Worlds
QuickBooks Payments and Sage Payments offer dedicated merchant accounts, but are now providing some of the features found in aggregated merchant accounts; a quick and easy sign-up process, straightforward fees, and the ability to cancel at anytime with no penalties. However, their rates for online transactions are more expensive than the aggregated merchant accounts options. This is because online transactions fall under their “keyed” discount fee rate. For example,
Braintree is a company that provides both aggregated and dedicated merchant accounts. The default account type in the U.S. is an aggregated merchant account. Their aggregated merchant account discounts rate for online transactions is also 2.9% + $0.30, like PayPal and Stripe. While Braintree is a popular integration solution for ecommerce stores, it’s not as popular an integration with online accounting software (among the popular online accounting software, only FreshBooks and Zoho Books offer this integration, whereas Stripe and PayPal are a lot more common).
Choosing and Working with an Online Focused Payment Provider
When choosing a payment provider, one factor to look at is the location of where will you be processing transactions. Will it be a fixed brick and mortar location, various locations where a mobile device is needed, or online? There are payment providers that
Something that can be just as, or more important, than shaving off a fraction of a percentage point from a discount fee, is being able to use the payment provider to reduce the time spent on accounting. Here are some points to consider when choosing a payment provider that will work with your online accounting software:
- Can the payment provider can be used in your online accounting software’s e-invoicing solutions (i.e. can it be used as a payment method when you send an invoice from your accounting software)?
- If the payment provider can be used, is it a simple integration process, or will it require expensive and time consuming custom software development?
- How does the data flow into my online accounting software? Will things like taxes, line item details, discounts fees, and shipping charges be included in the data sent over?
- Can sales data be batched together or is each transaction sent over?
- Will it require a lot of reconciliation work or can the process be automated?
- Does it allow me to choose which payment methods I give my customer to use?
- Does the customer have a choice of which payment methods to use?
- If I have problems with the payment provider, am I able to switch to using another one? In other words, am I forced to use a single payment provider or do I have the option to choose from many?