Different types of online payment providers

The online payments topic is treated dismissively even though it is very important. Merchant services are not exclusively responsible for quality mediation and safe money transactions, this is precisely why when choosing a provider the type, size and future perspectives of a business should be taken into consideration. Therefore, it's worth our time to get to know the characteristics of different types of payment providers so that our decision would be made fully aware of the facts and figures aiding our business.

E-Wallet

E-Wallet, or in layman's terms "electronic wallet", serves as one of the easiest payment solutions and frankly one of the most popular payment method. The idea behind it is that service providers create virtual accounts that can be loaded as pleased (like a pre-paid cell phone). Finally, a customer can use this e-wallet's virtual money to pay in every online store that accepts such a payment method. Our service providers role is to actually take the e-wallets funds and transfer them to the web store's account.

We can ask ourselves why would a customer want to trouble himself with loading an account, since usually he can just pay with real funds? Some people still find it uneasy (at least in some web stores) to type in their card or bank account information. The availability of e-wallets makes people feel safer and surer of the fact that no one will be able to obtain access to their bank account. Furthermore customers don't have to fill in their data every time they choose to pay with this method.

The most popular e-wallet is PayPal.

IPSP

A service provider opens a merchant account in an acquiring bank, which he then "leases" this account to individual entrepreneurs.

All things aside, what are the benefits of using this type of IPSP? First off, all the formalities are simplified. Every business has to gain the trust of an acquirer and prove that it is not a high-risk business that could potentially bring in more loss than actual income (typical high-risk markets consist of gambling, pharmaceutical, or erotic businesses). This is tied to a number of requirements that must be met. In this case a e-payment gateway alone goes through security checks, while taking responsibility for allowing his clients to choose different online payment methods. In other words, if an e-business begins to generate losses, the consequences (brought on by the acquirer) fall on the payment service provider that ‘leased' the merchant account. This type of approach is convenient for small and mid-size e-businesses.

PSP – Payment Service Provider

A PSP is a payment model that directly represents acquirers. The fundamental difference between the two is that PSP supports merchant accounts that belong directly to e-businesses.

What does this mean? First and foremost it means that having a merchant account is mandatory. Part of the PSPs spares their clients troubles in a sense that it provides them with merchant accounts, other PSPs only help with creating these accounts, while other only accept clients who already have a merchant account – this is something that should be looked into when choosing a PSP. The process of opening a merchant account requires the fulfillment of certain guidelines and formalities in order for an acquirer to accept an entrepreneur, this process usually last from 3-4 weeks. However, if this inconvenient start is overcome, and e-business will not only gain more payment possibilities but will also have solutions with greater prospects.

What makes this solution the most prospective? A business owner who has a merchant account is in closer contact with institutions like Visa, MasterCard, acquirers, issuing banks, and others. Whereas an IPSP is blocked by a barrier composed of a mediator who has his own account and is in contact with said institutions.

We're still left with a question of how this actually looks in practice. Well, an e-business now works on its own account and builds an online payment processing history, which can certainly come in use in future if a business will decide on negotiating better conditions or changing an acquirer. A PSP with which a business is cooperating may be changed, in this case this "switch" to another payment provider is quick and easy since the business already owns a merchant account.

Summing up the pros and cons, what solutions suit your e-business

Looking back what we discussed above, an e-wallet doesn't really make sense if it is they only payment method you offer. However, it is good to add one as an option just for the sake of it, because the more payment methods you have, the more customers will find one they will like. Consequently this is mean that the chances of a followed through purchase increase greatly.

IPSP is a more useful solution. In this type of a payment solution the focus is on making the process of creating a merchant account, registration, and integrating as easy as possible for sellers. The drawback of this solution is the fact that payments are essentially not very convenient for customers as they are redirected each time they pay and are required to fill in their information every time.

Entrepreneurs that have prospects for a large income, expansion to other markets, need more merchant accounts, or they just believe that it's better to start off by creating a good name for their business and a good credit card processing history, should think about getting a PSP.

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