Payment Service Providers

Payment Service Providers (payment processing companies) are increasingly the way to go when it comes to accepting credit/debit card orders online.

Having your own SSL server and certificate and processing orders through your own systems used to be thought of as being somehow more professional than using a Payment Service Provider, but the recent introduction of the need for PCI-DSS compliance has turned this on it’s head.

PCI-DSS compliance not only has implications regarding the software and hardware used, but also requires the use of secure systems and physical security throughout all stages of processing payments. This  includes restricted access to computers used for processing payments, regular password changes, physical security of back ups and audit systems to provide a paper trail of evidence of compliance with these procedures.

Much of this is beyond the scope of  a small home based business, so in these circumstances, the use of a Payment Service Provider is the best option.

Rather than processing the payment yourself, and being responsible for the security of your customers card details, you can use a Payment Service Provider (PSP) to handle the card details and authorisation, and leave all the security headaches to them.

This means that you also do not need a separate Internet Merchant Account, which is ideal if you have not been trading long and cannot provide a well-documented operations history or you need more flexibility in the way in which you design and operate your website.

At the stage of entering their card details, the customer is automatically transferred to the Payment Service Provider’s secure website, where the card and payment details are taken. The payment service provider holds on to the funds for several days before transfering them to your acquiring bank. Payment Service Providers charge a percentage of the transaction value, or a set monthly fee.

These fees vary greatly, and it worth shopping around. Some of the better known ones, such as Worldpay, tend to be quite expensive and not really suitable for start up businesses. It is best to go for a payment service provider that charges a fixed monthly fee, particularly if you are a start-up, as you can budget better.

SecPay charges a fixed fee of £10/month for 100 transactions/month on their Starter 10 package, so if you are likely to do a small number of high-priced transactions, this would be a good option. Other options are available – check their website for details.

Protx offers a fixed price of £20/month with 1000 transactions/quarter and no transaction or setup fees. They provide secure online credit card and debit card payment solutions for thousands of online and mail order businesses across the UK and have achieved the highest level of compliance under the Payment Card Industry Data Security Standard

PayPal has been around for quite some time and is very familiar to internet users. PayPal used to be viewed as not a serious option for established businesses, particularly as customers had to open a PayPal account in order to make a payment.

Now however, there is no need for customers to have a PayPal account – they can pay by credit/debit card just like any other payment service provider. Opening a merchant account is quick and easy and you can be accepting credit card payments within minutes.

Advantages of using a Payment Service Provider

  • Using a PSP saves you the administrative burden of managing customers’ card details and running an IMA.
  • They save you from having to set up secure payment processing systems.
  • PSPs have less strict application procedures than an Internet Merchant Account- you will not need to supply them with details of your business plan, or have a trading history.
  • Your application can be processed much more quickly than for an IMA.

Disadvantages of using a Payment Service Provider

  • Customers get transferred to another website during the payment process, which could be disconcerting. However, this is now a common and accepted part of purchasing online, and should no longer be a problem.
  • Payment Service Providers hold on to payments for a settlement period – it can often be 30-60 days before they transfer the money to your account.
  • Transaction charges are usually higher than for an IMA. However, it is worth shopping around as costs are falling and the market is competitive.

For most people, especially small and start up businesses and home-based businesses, the best option for accepting credit/debit card payments is via a Payment Service Provider.