When is it time to get a merchant account? Chances are if you’re selling online and processing credit cards, you’re probably using PayPal, Braintree or a similar online payment provider. These solutions are great for startup advertisers and online business owners. However, if you’ve been using the service for a while and are increasing your volume over $10,000/month, now might be time to upgrade to a merchant account.
This is especially the case if you want to control your order process, keep or use your customer data for in-house marketing (instead of giving it to a third party), or try a more aggressive marketing strategy. These efforts may lead you to be considered a high-risk merchant. (By high risk, we mean an online business with reputational risk, little to no processing and other factors that might bring scrutiny toward your business.)
Not sure if and why you need a merchant account? Keep reading to learn more.
PayPal is not a merchant account
Let’s be clear: A PayPal account is not a merchant account! PayPal is a third-party payment solution provider. In other words, the transactions that you and millions of other sellers process are aggregated through PayPal’s own merchant accounts. PayPal typically accepts all new users of their service then scrutinizes products and websites after. This means you can start processing and a month later they decide you violate their terms and shut you down without notice. If you’re gaining traction on your business, this can be a huge roadblock to growth, especially if you’ve paid for ads or recruited affiliates. It’s always best to have a back up solution when using PayPal if your business is considered high risk.
Why online businesses start with PayPal?
Online businesses new to the Internet turn to payment processing services like PayPal for several reasons. Firstly, it’s easy to sign up! Also, PayPal is widely used around the globe. According to Statista.com, “In the third quarter of 2017, more than 218 million accounts were active worldwide.” Therefore, you can count on a product like this to have robust capability for online businesses.
PayPal caters to multiple business categories and sub-categories (e.g. software, medical equipment and supplies, religious and spiritual books, etc.). You can expect support for international currencies and acceptance of all major credit cards.
This sounds fantastic, but there’s issues that almost all merchants never foresee: frozen funds, no flexibility in customizing your order page and giving your precious shopping cart data to PayPal. Once a customer goes to order your product, should he/she abandon, you lose out on behavioral pattern data and other analytics to determine where the disconnect is.
PayPal can freeze your account at any time
Many merchants often come to us desperate for a merchant account. Why the desperation? Well, PayPal can and will freeze your account at any time should they become suspicious of your business or see high refunds and chargebacks. They may suspend you if your account shifts from your typical sales pattern. A few extra refunds, chargebacks or an increase in sales can trigger their alerts. This could go on until they contact you and determine your sales patterns are normal.
Businesses are fluid so it’s important to find a provider that can help you navigate your online payments, which are the lifeblood of all online businesses. You could be processing payments and think that your operations are running smoothly. Then out of nowhere, your account is frozen or your funds are held! Worse, you have no idea why!
PayPal doesn’t vet businesses that sign up to use their service. Easy entry might seem awesome at first, but eventually PayPal may take issue with your content and product(s). Moreover, if there are signs of fraud or high chargebacks, PayPal may no longer service you. If this happens, you can expect to lose all access to your funds and it could be a long time before you recover that money. This is disastrous, especially if this is your only payment solution. One freeze could spell the suspension or closure of your business. Calling a big corporation is also tough as you are dealing with multiple people who have to follow stringent rules and rarely have direct and timely answers.
Merchant accounts are set up with actual acquirers
There’s only one way to get a legitimate merchant account and that’s with an acquiring bank. Working with a reliable and reputable payment service provider will allow you to rely on their solid relationships with acquiring banks. Connections like this save you time and give you a direct contact you can work with as your business evolves.
Unlike PayPal, the banks screen new customers and businesses before they approve processing. You’ll be asked questions about your business model. You may also need to provide information like financial statements, proof of address and more. Banks use this information to assess any potential risks working with your business. You probably did not go through this process with PayPal, but don’t be deterred. A merchant account has major advantages over PayPal.
To start, your merchant account is exclusively yours. Not PayPal’s. It’s not shared with other businesses. An acquiring bank provides a stable platform to process transactions with access to multiple international currencies. Also, you decide the order process, you can design and test different checkout pages to optimize conversions; as well as keep and analyze shopping cart abandonment data.
Partnering with high-risk merchants is big business for some acquiring banks, which is a very good thing. They will already be familiar with your product type and industry. They welcome high-ticket items and high-monthly volume. Unlike PayPal, your funds won’t be frozen without warning or a very good reason.
Your payment service provider cannot only help connect you with the right acquiring solution, they can help you diversify too. Remember, if you’re only processing through PayPal, your funds could get stuck in one account. You have more options available in the world of merchant accounts.
When it’s time to set up a merchant account
If you launched a successful digital or online product and are getting close to generating sales of $10,000/month, it’s time to apply for a merchant account. If you’re selling smoking accessories and paraphernalia and are generating a high volume of daily transactions, it’s time to apply for a merchant account. And, if your online store has high ticket offers, nutraceutical items, continuity, chargebacks, refunds and/or fraud ratios, it’s definitely time to speak with a reputable payment service provider. They can help you with securing a merchant account.
Furthermore, if you have a seasoned payment service provider, they will find you flexible domestic or offshore solutions tailored to your business. It’s a good idea to explore solutions in multiple regions if you take cross-border payments and have a corporate setup in another country. It’s not uncommon to have both a domestic merchant account and an alternative account in Canada, the United Kingdom or some other part of the world in order to minimize costs and maximize your conversions.
One final note: PayPal does offer great perks and can be a great backup strategy or part of your payment offerings! Depending on the third-party platforms you use, setup and integration with your CRM is relatively easy and customizable. You also have access to reliable tracking and reporting.
Be that as it may, most low and high-risk merchants mistake PayPal as the only solution for business. This strategy isn’t secure! Banks offering merchant accounts provide a stable framework for you to safely and securely process transactions. Frozen funds aren’t unique to PayPal, but wouldn’t you rather solicit the help of a payment service provider that will be your advocate, help your business grow, and save you from payment processing roadblocks?
To learn more about how DirectPayNet can help you secure a merchant account and coach you with upgrading from PayPal, contact us today!