Payment services providers

I got a fair bit absolutely loads of help with this article from my mate Andy, which likely explains the decrease in frequency of typos, thanks Andy.

While there has been a paradigm shift in recent years towards generating revenue online via Pay Per Click advertising programs such as Google AdSense and the Yahoo Publisher Network, selling products online has taken a back seat for many newcomers to the internet. It may well be easier to setup a new blog and start writing about your hobby, but how many blogs are actually making a profit? Making a living from blogging is an attractive lifestyle, but for the vast majority of webmasters it is an unobtainable object of affection.

Unlike starting a blog, ecommerce takes more effort to set-up and maintain. There are many things to take into consideration such as sourcing stock, shopping cart development, order fulfilment and shipping. However, it can be extremely lucrative!

Ecommerce hinges almost entirely around one thing and one thing only; trust! Your customers are most likely never going to see you and many won’t even get to talk to you. So how do you go about building up trust between your online store and a prospective customer? There are many ways:

  • Prominent ‘About Us’ page: this page is so important, it’s where a customer goes to find out about what you value. So take your time, get your photograph up there and convince them that your company is trustworthy.
  • Dedicated ‘Contact Us’ page: customers need to know that you are contactable, so display a telephone number, fax number, email and street address.
  • Toll-free telephone number: make it easy for a prospective customer to contact you.
  • Display your SSL certificate: customers are well aware that in order to purchase online they need to disclose their personal and credit card information. You need to reassure them that your checkout process is fully secure.
  • Ease of use: when a new customer arrives at your online store they’ll be looking for signs of quality. That means no 404s, a professional design and above all, ease of use and navigation.

And last but certainly not least:

You may ask why you would want to drop PayPal? It’s simple, not everybody is a webmaster with a PayPal account. You have to keep in mind that your average customer is just getting used to purchasing online and most likely has never heard of PayPal, which can be a real dealbreaker. If you want to improve your conversion rates and start making more money then I couldn’t empasise enough the importance of moving away from PayPal.

The definition of a payment service provider, or payment gateway, from the Wikipedia:

A payment gateway is an e-commerce ASP service that authorizes payments for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar. It is the equivalent of a physical POS(Point-of-sale) terminal located in most retail outlets. Payment gateways encrypt sensitive information, such as credit card numbers, to ensure that information passes securely between the customer and the merchant.

If you have an existing online store selling product then you may well be using a third party credit card processor such as WorldPay or 2CheckOut to handle your payments. However, these payment processors are not doing your business any favours. Why?

  • High transaction fees: Third party credit card processors typically charge a premium, charging roughly 4 – 5% per transaction. Sit down, work out how much that costs you per annum and be scared.
  • Fund deposited slowly: Using a third party processor can complicate your cashflow. Even though they charge a large commission per sale, you will typically not have your funds deposited for up to 2 weeks (2CheckOut) or 5 weeks (WorldPay). This slow remittance of earned funds makes it a challenge to pay suppliers, especially if you are on a pro-forma payment basis!
  • Monthly charges: Some third party processors are known to charge you a monthly rate for the use of their services. This is on top of their per transaction commission!
  • Loss of trust: Using a third party credit card processor may be easy to integrate with your shopping cart, but customers still have to leave your site. The problem here is that a customer may get spooked by being bounced to another site for payment, reducing your conversion rates.
  • Slack fraud screening: They may claim to have cutting edge fraud screening, but the bottom line is that they don’t. Just because your third party processor has been around for a while doesn’t mean they are any good with spotting fraud.

All in all, third party payment processors are not a viable option in the long term. If you are serious about making money off your online store then there is only one way to go and that’s with a dedicated merchant bank account and a payment gateway. It sounds complicated but it isn’t.

You need a merchant banking account, which is basically a bank account that lets you take credit and debit card payments. Once you have that setup you can find a suitable payment service provider who will be the link between your online store and your merchant account.

So why should you ditch your existing credit card processor and go with a payment service provider?

  • It’s cheaper: There’s no better reason that cost cutting! A payment service provider will typically charge you a flat rate per transaction instead of a percentage of the transaction, saving you hundreds if not thousands of dollars every year.
  • It looks better: Customers don’t like having to leave your site to pay on another site. A payment service provider allows you to keep the customer on your website, which they trust and expect to stay on.
  • Faster remittance: You’ve worked hard and the sales are rolling in, but with a typical third party payment processor you won’t get remittance for at least a couple of weeks. With a payment service provider you get the funds in your account within a couple of days.

So who should you choose? Well there is a wide choice of payment service providers out there. Here are a few of the more established companies in this sector.

US Payment Service Providers

UK Payment Service Providers

So in conclusion, do your business a favour and move away from third party payment processors as fast as you possibly can. If you are just starting out selling products online then of course it is good sense to minimise your risk with a PayPal account, but as your business (hopefully) grows you need to think about moving away from PayPal as your primary method of taking payments.

Those of you who have gone with a third party credit card processor such as 2CheckOut or WorldPay and are getting a steady volume of orders are advised to think long and hard about continuing to use their services. If you are reluctant to switch to a payment service provider, just think about all the cash you are missing out on.

If you are already operating with a merchant bank account and payment service provider, well done! However, you can always try and eek out just a little more by negotiating with for better rates with your merchant bank account provider or shop around for better deals available with other payment service providers. It’s such a competitive market that you’ll most likely find a better deal somewhere else.

About Al Carlton

Al quit the 9 to 5 rat race in January of 2007, before then he was a software engineer and systems architect of financial system. Nowadays Al spends the days running his various businesses and experimenting with different ideas and opportunities.
Al can be found on twitter at AlCarlton.


  1. I think it’s a mistake to ditch PayPal. Even if you don’t offer the standard pay-via-PayPal route, their merchant account services (released last year) are every bit as good and inexpensive as any of the other payment service providers that you list. They’re super easy to use and give you a flexibility that I haven’t found elsewhere — all without any setup costs at all.

  2. Paypal pro is a great improvement negating the need to register and acting more like a proper payment gateway and they do have better rates now than standard Paypal, however Paypal pro has only recently been released in the UK Shane, we are a bit behind the US so I think Al would be referring to standard paypal rather than Pro.

  3. Great post. I personally use PayPal as a primary method for my eCommerce company (ActiveTuning). The one thing I do is in my checkout process, I put big credit card logos next to the PayPal payment option and put a note that says “credit cards processed through PayPal, you do not need to have a PayPal account”. This seems to work out well, but I know that we would definitely generate more sales taking credit cards directly. I’ve considered PayPal pro, but there are issues with only accepting cards in the countries they support…which does limit some of my market.

    Not supporting charging cards directly has been more of an issue in setup with osCommerce without having any other issues than anything else. I’m hoping in the next version of osC (3.0) there is better support for all of this stuff. If not, it may be time to actually have to hire a company to work with osC and get everything setup specifically the way that I want.

  4. I have used protx for one of my client’s sites and it has been great, although they requested paypal be added as they were getting lots of requests from customers who wanted it.

    For someone just starting out in ecommerce, paypal can be a great way to get started and then they can migrate to a slightly cheaper option (in terms of fees) like protx when volumes through their site allow the additional monthly fees.

    I do think, however, that paypal still doesn’t give a professional look to the site and may still put people off as people don’t realise that you can still pay via credit card without a paypal account if the store’s paypal account is set up that way.

  5. Danny Gold says:

    What about payment options for the rest of us! PaidByCash for those of us that prefer cash. ACH/Billing for those that trust bank accounts. Or a delayed, post-paid option?

  6. um PayPal does accept credit cards.

  7. The gist of the post was meant to be ditch Paypal as the primary means of payment. Paypal certainly has it’s place but it will put off some non techie shoppers.

    Thanks for all comments and feedback guys.

  8. We used to use SecureTrading at the company I worked at in the UK, just thought it may be a worthy addition to your list.

    I think PayPal is fine for smaller business, or for taking smaller payments. For credibility and the more serious online businesses though, I agree that it should be ditched or at least only offered as a secondary alternative.

    – Martin Reed

  9. Paypal is ok but if you want to make real money using E-commerce having a merchant account connected to a shopping cart is a must.

    I offer Paypal but as a second tier payment option. Offering only Paypal leaves money on the table and thats not good business.

    • Don’t confuse PayPal as a payment method and PayPal as a payment service provider. You can use them just like a merchant account, for less cost, without ever having to offer them as a payment option.

  10. Today you don’t need to be a paypal member or have a paypal account to pay a merchant.

    So I guess it can be used too

    • Right, but the fact that it’s not integrated to the cart…meaning the customer has to leave your site in order to pay via PayPal, loses customers. I’ve had this happen first hand in multiple ocassions where people have told me…can’t imagine how many haven’t told me.

  11. Actually with PayPal Website Payments Pro you don’t need to leave the site if paying by credit card. PayPal basically acts as the merchant account provider and the gateway – you collect and keep the data.

    Also, there is no mention of the minimum monthly fees for merchant accounts. Yes if you have a higher volume a merchant account is pretty much always better, but for lower volumes, it may not be.

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