I'm going to go against the grain of this post and say that a merchant account isn't for everyone. I was surprised the author did not mention one of the big drawbacks to merchant accounts: fraud and charge backs. PayPal and Google Checkout, for example, handle most of that liability while a merchant account will make put that responsibility on your shoulders.
Generally it's not something to be afraid of, but if you're bootstrapping a business and/or your product tends to draw a lot of fraudulent shoppers (high price, rare, etc.), then it's something to consider.
During college we use to sell customizable, fix mounted projection screens online; they would range in price from ~$800 - $4,000+ depending on the screen material. We had so many fraud attempts in our first few months that we almost shut down the ecommerce section of the site. Getting our merchant account was a big headache and not something we probably needed to deal with given the low volume of transactions (less than 10 sales a month) in regard to the high number of fraud attempts.
I think it makes a lot of sense to deal with your own merchant account if you're doing high volume of sales, especially when it's usually relatively low cost goods/service/subscriptions. Scaleable web startups that rely on subscriptions apply here, our projection screen business wasn't exactly a "startup".
Using something like PayPal or Google Checkout is false security as far as chargebacks are concerned. They do have extra security features but, PayPal at least, has a lot of fraud.
I'm unfamiliar with Google Checkout but I have handled chargebacks through PayPal before. The buyer has exactly the same freedom to issue the chargeback through PayPal as they would if they had purchased with a card through your merchant account. PayPal hold you liable for any chargebacks, especially if the customer does it through their bank instead of the PayPal disputes console.
Having a merchant account allows you to do your own fraud checks against payment details - address, IP, etc. Good payment processors will do this for you. You can also do your own checking using something like MaxMind.
In terms of fraud, you're going to have to deal with it regardless of whether you use Google or PayPal (or anyone else).
I agree with you but I know first hand that Google Checkout and PayPal offer a first tier of defense against it, you pay for it in the higher fees. For some people and depending on the state of their business, it's probably worth the time-savings, that's all I was really saying.
I've tonnes of experience with merchant accounts too. But my chargebacks were never more than 2-3%. Most of the time I was selling digital goods.
What happened was each time someone did a chargeback, I would have to fill in a form to rebut it or accept it. I would always rebut it because I offered a 100% moneyback guarantee, no questions asked. So it did not make sense for anyone to do a chargeback; if they wanted their money back, they only had to ask, not chargeback. As a result, many of my chargebacks got thrown out and I simply refunded.
I think the lesson here is if you are selling physical goods, ESPECIALLY high ticker items, be extra careful. That could mean calling to confirm before shipping the item.
I have no experience with billing or merchant accounts. Why would you not just accept the chargebacks if you have a no questions asked moneyback policy anyway?
Thanks for the article. Well written and informative. What I can't understand is why this is still such a painful process. ecom was the hype back in 1999. If you're a payment gateway you should have SOAP and REST interfaces. You should have example code and tutorials for every popular web platform out there (struts2, rails, django, .net, phpcake, etc.). You should have detailed use cases for 90% of the typical payment requirements.
I should probably shut up or put up, but I'll have to look into what's involved in setting up a company like this first. The state of payment processing just seems so far behind.
What about merchant account vs the premium services like Paypal Website Payments Pro? Their fees are reasonable and the API looks like it accounts for the flexibility issues you would ordinarily go to a full merchant account for. I'm currently considering this myself and I'd be interested in anyone's experience or comparison :)
I've used cdgcommerce.com for payment processing. What stood out from them was their rates and customer service. You get an authorize.net account which exposes a rich api.
Generally it's not something to be afraid of, but if you're bootstrapping a business and/or your product tends to draw a lot of fraudulent shoppers (high price, rare, etc.), then it's something to consider.
During college we use to sell customizable, fix mounted projection screens online; they would range in price from ~$800 - $4,000+ depending on the screen material. We had so many fraud attempts in our first few months that we almost shut down the ecommerce section of the site. Getting our merchant account was a big headache and not something we probably needed to deal with given the low volume of transactions (less than 10 sales a month) in regard to the high number of fraud attempts.
I think it makes a lot of sense to deal with your own merchant account if you're doing high volume of sales, especially when it's usually relatively low cost goods/service/subscriptions. Scaleable web startups that rely on subscriptions apply here, our projection screen business wasn't exactly a "startup".