If you are going to open a paysite, it will really have no purpose without some way to receive payment from your new members. Perhaps this has been said about other elements of a paysite, but it is even truer for this lesson. You open a paysite so you can get paid. Your task is to decide what method you will choose to accept and process online financial transactions.
Basically, there are two choices for you: Merchant account or third-party billing. This lesson will familiarize you with both to help you make an informed decision about how you will go about obtaining payments from your customers.
When you buy something at a store and pay with a credit or debit card, the clerk will usually slide your card through a machine, wait for approval and once approval is determined, you get to walk out with your merchandise. That store was able to accept your credit or debit card because they had a merchant account. On the web, a merchant account does basically the same job as that little card-slider thingy, except with out the slider-thingy. What allows the shop owner to accept credit cards involves approval from a bank and arrangements with the credit card
company.
The advantage to having a merchant account is that you don't have to pay out as high a fee to process the transactions as you would with a third-party processor. Even though you are the one taking the money, the credit card companies you deal with will take a certain percentage of your charges as part of their provision. The good thing is, this fee is usually somewhere around 3% percent of your individual sale. In other words, with a merchant account, you get to keep more of your money.
The hardest part of setting up a merchant account is the Acquiring bank. It's difficult for an at-home or small business owner to find a bank willing to handle their credit card transactions. You see, the credit card companies penalize for chargeback ratios of over one to two percent. A chargeback happens when the cardholder disputes the charge. The credit card companies have managed to assign this responsibility to the merchant first. If the merchant cannot handle the penalties and fees of chargebacks, then the bank is held responsible. So, naturally the
acquiring bank only wants to handle merchants who have a good deal of existing assets, not to mention a spotless credit history. You will also have to provide a healthy deposit to your acquiring bank just to open a merchant account.
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The second and more costly disadvantage to a merchant account would be those pesky chargeback penalties. If as little as one percent of your customers dispute their credit card transactions or chargeback to you, your bank may assess a penalty fee and can even freeze your account so that you cannot make any sales or receive any money. Of course, clear
terms in your memberships terms and email confirmations of memberships will help you prevent a lot of chargebacks, but sometimes it's almost impossible to protect your merchant account from unscrupulous customers.
Merchant accounts will get you the most bang for your buck, but you had better be prepared to handle the awesome responsibility and possible
costs of such an endeavor.
Third-party processors are a sort of middleman between the bank and you. If you are a small business or have new to being a merchant, you will find it quite difficult to find a bank willing to take on the responsibility of handling your credit card transactions. Third-party merchants were created so that those who suffer this dilemma can take payments.
Third-party processors already have their own merchant accounts and relationships with an acquiring bank. When you deal with a third party, they will take on many of the headaches you would have encountered if you had your own merchant account. They will take care of your shopping cart, credit card authorization, customer service and billing inquiries.
Of course, the drawback to a third-party processor is that you will pay them approximately 15% percent of your sales for their services. But if you take into account the costs and headaches of a merchant account, that single fee doesn't seem so costly.
Some third-party processors can even arrange your account so that you can accept credit cards, checks and even some of the "virtual money" services. You will also see a faster turn around with your money from a third party than you will with a merchant account.
We at Cozy Academy recommend that if you are new to paysites and online transactions, you would probably be more satisfied with the services of a third party processor. Once you have built up a secure and reliable income base from your paysite, and then you can look into obtaining a merchant account.
Whether you choose third party or merchant, remember that accepting payment is an awesome responsibility. Once you have taken your customer's money, you owe it to them to give them the best content possible and make their membership the kind of experience they'll want to continue.
To see a listing of the companies who will help you set up a merchant or third party system for your paysite, visit Cozy Frog's billing listings at: