Benefits of a full merchant account

A true merchant account, from aCharge or another provider, has several very important benefits - especially when compared to a Person-to-Person (P2P) payment system, like PayPal� or Billpoint�.

What is a third-party payment service?

Third-party payment services, a.k.a. P2P payment services like PayPal or other master merchant accounts, are services that provide individuals with the means to pay each other with credit cards. Although it is not a merchant account, on the surface it seems to act like one.

How does a P2P account differ from a merchant account?

The main point that separates P2P services from a true merchant account is that funds are not processed through the merchant's own merchant account. All transactions are processed through one or more large bank accounts that the merchant needs to access to get his funds. They are not directly deposited into the merchants checking account.

The accounts where these funds get pooled are typically too large to be FDIC insured. Another drawback is if something should happen to the bank or the payment service's processing capabilities, many merchants could be unable to access their funds all at once.

This method of clearing and settling transactions skirts the rules established by Visa and MasterCard as well as state and federal bank regulations. Because of these practices, PayPal faces potential challenges from state bank regulations. During the past several years, California and Idaho have questioned whether PayPal is operating an unauthorized bank. Meanwhile, officials in Louisiana and New York have gone a step further and stated their opinion that PayPal is doing just that. In Feb. 2002, Louisiana went ahead and asked PayPal to halt service in that state.

Fraud Prevention vs. Satisfied Merchants

PayPal and other P2P services mainly got their popularity from being a method of payment for eBay sellers and shoppers. Originally, PayPal had enabled auction payments without first authenticating the sellers. Moving money between unknown parties without authentication or a clearly-established dispute process brought out the inevitable fraud. PayPal has since begun attempting to authenticate its sellers and has been sucessful in curbing fraud.

Unfortunately, its current handling of risk is seen by many PayPal merchants as ruthless and in some cases, completely unwarranted. Merchants are at the complete mercy of PayPal and get their accounts frozen for "suspicious activity" with little or no recourse.

Because services like PayPal cater to both consumers and merchants, many merchants feel that PayPal does not sufficiently represent the interests of merchants in fraud cases. This causes many merchants to second-guess their decision to have a P2P service handle their business funds.

A regular merchant account offers the merchant reasonable recourse against fraudulent consumer transactions and also chargebacks. The merchant's prosperity is important to merchant services providers, like aCharge, which offer real merchant accounts, as only the merchant is their customer.

Conclusions

P2P Payment Services do serve their purpose when it comes to individuals selling personal items on auctions or other web sites that offer some sort of selling service. However, they are not merchant accounts, and do not offer the protection and services that an actual merchant needs to sell products for their business. Merchants that have a business will enjoy better customer service, protection and even better discount rates with a real merchant account.

For a side-by-side comparison between a P2P payment service and a merchant account, please check out the information provided below.