5 ms·

The difference is between the company having their own merchant account with a bank (which is what most large companies do) using an online payment gateway, and

by joecot 4y ago

The difference is between the company having their own merchant account with a bank (which is what most large companies do) using an online payment gateway, and not having one and leveraging the processor's instead (which is what Stripe, Paypal, etc provide). When you apply for a merchant account you get that approval and underwriting, but with a hefty application fee for obvious reasons. If your payment gateway shut you down, you can just switch to a different one, but there'd be little reason for them to do so. Your bank is much less likely to shut you down, because you were preapproved. The main reason would be for high fraud/chargeback percentages. When you use Stripe or Paypal or similar, you don't apply for your own merchant account. You make transactions using their merchant account. If there's a fraud or chargeback percentage issue, the banks will have a problem with them, not you, but it also means the service needs to be proactive in policing their clients so the banks never come after their merchant accounts. When starting up a company, use a Stripe or a Paypal to get up quickly, but probably ramp up to using multiple quickly, so you have backups. As your revenue increases, apply for a merchant account and move your transactions over to that. There is an upfront cost, but the processing fees are significantly cheaper, and no one will pull the rug out from under you without quite a bit of correspondence. Even when using your own merchant account, you can find processors who will handle all the credit card input and transmission on their end instead of on your site, which greatly limits your PCI compliance requirements. Regardless, when you build your service, abstract the payment process such that you can easily add or switch providers. Don't be married to a single one, because at the least you should be switching to a merchant account when the application fee is lower than the transaction fee percentage difference. Source: I also worked for (and was the principle developer of) a high risk payment processor, providing a processing gateway for individual merchant accounts serviced by an ISO. We tried to look at becoming an IPSP (I think that's the acronym), letting customers leverage our merchant accounts like Stripe or Paypal do, but it was significantly more work and process with credit card companies than we wanted to deal with.

hartator 4y ago
Interesting. What will be the provider you recommend? Any local banks?
- joecot 4y ago
  Unfortunately I know little about the process for actually applying for a merchant account or where to get it from. That's what the ISO we partnered with handled. Also it was "high risk" accounts (cough adult cough), that is different banks than you'd be using. Same with the competitor payment processors I'm aware of. If you're unfamiliar with the process and can't find a bank to walk you through it, an ISO is not a bad idea. They'll walk you through the process and help you find a bank, and also a processing gateway. They'll also add a margin on the processing fee, but it's not a big one, and certainly less than paypal or stripe. For processors starting out, there's nothing wrong with using Stripe or Paypal etc. When you ramp up to using your own Merchant Account, Authorize.net isn't too bad as long as you're not doing recurring payments (those get tricky), or maybe even Rocketgate.
- tough 4y ago
  I think the best solution here, is add a payments orchestration solution to your stack. There are others, I know of this spanish startup integrating with stripe. In this way,you can have both your bank TPV/ Payments and Stripe working alongside, if any fails just put the other, or the one giving better prices by default, etc https://monei.com/es/features/payments-orchestration/ https://monei.com/es/features/payments-orchestration/
  - joecot 4y ago
    If someone uses WooCommerce for their store, they have 79 different payment integrations, including Stripe, Paypal, Amazon Payments, along with merchant account gateways like Authorize.net. Some of them are paid extensions but rather cheap considering the use. https://woocommerce.com/product-category/woocommerce-extensions/payment-gateways/ https://woocommerce.com/product-category/woocommerce-extensi...
    - tough 4y ago
      What Im talking about is to add another abstraction layer, so you can have both payment processors and decide which use on the fly, both integrated with any ecommerce framework you use
hn_user2 4y ago
One thing that is almost impossible to do on your own is to get a merchant account that you will be using to process payments on behalf of others. So if that is your business model, you are almost certainly in for the fight of your life with banks and merchant providers, along with some stupidly high reserve funds. Stripe makes this super easy, but it is a house of cards based on stories like this one. So I agree, you still need to get your own merchant account, and not rely on stripe as you get larger, but depending on your business model it might be taking more of your time generating due diligence documents than an acquisition.
- joecot 4y ago
  Yes, this is why my previous company never went the IPSP route (letting customers accept payments with your merchant account). They are incredibly arduous to get approved, you practically need to have a bank CEO as your godfather to get it. Also you need to be at least PCI Level 1, which involves actual auditors going through your business and policies. That part is significantly easier than the IPSP though. OP doesn't sound like they were trying to do that though. They talk about their client's individual Stripe accounts being turned off. This is probably what a business like OP's would need to do. When their customers are small, use a processor like Paypal or Stripe. But as customers get larger, OP should probably do what we did: partner with an ISO, who can get the customer their own merchant account. OP still does the processing for them, but the risk and finances run directly through the client, not OP. The ISO can also add in a margin on the transaction fees for OP if that's part of their business model.
- shadowgovt 4y ago
  More specifically: if you're in the business of processing payments on behalf of others, you actually have "bank" as a core competency / requirement of your business model and need to make your plans accordingly (or carry the added risk of having your core business model outsourced).
  - derefr 4y ago
    What magic wand do banks possess that enables them to declare-into-existence a merchant account, anyway? I mean in a technical sense, not a legal sense. What are payment gateways and other banks seeing, that allows them to know that a particular merchant account X is a "real" account, that can be targeted with credit card payments, rather than a made-up one? Is there an X.509-based hierarchical bank registrar system for charge-origination signing certificates, for putting charges onto the card networks? Is there a DNS registry of merchant accounts for pre-checking charges before attempting them? Do banks underwrite other banks into existence by signing their certs?
deleted 4y ago
[deleted]
bslorence 4y ago
What is a "large company" in this context? My employer is on track to run about $5m through Stripe this year, which will be our fourth full year using Stripe. Our first year we did about $2.75m. This year I've been getting occasional emails from a Stripe sales rep for the first time, which suggests that we've crossed some sort of threshold...
- joecot 4y ago
  Your stripe transaction cost is probably around the advertised fee, 2.9% + 30¢ With an actual merchant account you can probably get closer to 2% or at least 2.5% + 25-30¢ At 5 million in transaction revenue, a .5% decrease would be 25k a year. You can probably get a larger decrease depending on how much risk your company's business has. Stripe's sales rep might be contacting your company because you've hit the threshold where it's probably worth getting a merchant account, and they want to see if you're considering leaving to give you a discounted rate to stay. You're pretty much in Stripe's retention department because of your volume. It is definitely worthwhile at this point for your company to shop around for a merchant account. Some don't even have application fees if you're not a high risk business. At the least they can get an idea of how much they could save, and use that to leverage lower fees from Stripe. I would still consider trying for a processing gateway that handles all the card transmission, though, even at a slightly higher margin. Handling the card at all means you need PCI Compliance. At your revenue you're probably PCI Level 2 or 3, which only requires a self-assessment questionnaire (that is lengthy but doable), and a quarterly vulnerability scan. At 6 Million transactions a year, you'll be PCI Level 1, which means you'll need an auditor to come in and look at your processes and policies.
  - adrr 4y ago
    Stripe will offer interchange plus model so you are actually paying the real interchange rate + whatever they tack on for settlement probably 25 basis points and some fixed rate of 0.05 a transaction. You shouldn’t be paying a blended rate if you’re doing significant volume. If you’re using a gateway, there are some that Handle tokenization so you never have to touch the PANs and you don’t have to worry about PCI levels and audits. There’s no reason your systems should be touching PANs unless you’re really large and using multiple payment processors for scalability and redundancy like if you need to process a million transactions in a few hours.
StickyThink 4y ago
Had to verify this information. https://www.merchantmaverick.com/what-is-a-merchant-services-provider/ https://www.merchantmaverick.com/what-is-a-merchant-services... Seems what they posted above is accurate.

by joecot 4y ago

hartator 4y ago

Interesting. What will be the provider you recommend? Any local banks?

joecot 4y ago
Unfortunately I know little about the process for actually applying for a merchant account or where to get it from. That's what the ISO we partnered with handled. Also it was "high risk" accounts (cough adult cough), that is different banks than you'd be using. Same with the competitor payment processors I'm aware of. If you're unfamiliar with the process and can't find a bank to walk you through it, an ISO is not a bad idea. They'll walk you through the process and help you find a bank, and also a processing gateway. They'll also add a margin on the processing fee, but it's not a big one, and certainly less than paypal or stripe. For processors starting out, there's nothing wrong with using Stripe or Paypal etc. When you ramp up to using your own Merchant Account, Authorize.net isn't too bad as long as you're not doing recurring payments (those get tricky), or maybe even Rocketgate.
tough 4y ago
I think the best solution here, is add a payments orchestration solution to your stack. There are others, I know of this spanish startup integrating with stripe. In this way,you can have both your bank TPV/ Payments and Stripe working alongside, if any fails just put the other, or the one giving better prices by default, etc https://monei.com/es/features/payments-orchestration/ https://monei.com/es/features/payments-orchestration/
- joecot 4y ago
  If someone uses WooCommerce for their store, they have 79 different payment integrations, including Stripe, Paypal, Amazon Payments, along with merchant account gateways like Authorize.net. Some of them are paid extensions but rather cheap considering the use. https://woocommerce.com/product-category/woocommerce-extensions/payment-gateways/ https://woocommerce.com/product-category/woocommerce-extensi...
  - tough 4y ago
    What Im talking about is to add another abstraction layer, so you can have both payment processors and decide which use on the fly, both integrated with any ecommerce framework you use

hn_user2 4y ago

One thing that is almost impossible to do on your own is to get a merchant account that you will be using to process payments on behalf of others. So if that is your business model, you are almost certainly in for the fight of your life with banks and merchant providers, along with some stupidly high reserve funds. Stripe makes this super easy, but it is a house of cards based on stories like this one. So I agree, you still need to get your own merchant account, and not rely on stripe as you get larger, but depending on your business model it might be taking more of your time generating due diligence documents than an acquisition.

joecot 4y ago
Yes, this is why my previous company never went the IPSP route (letting customers accept payments with your merchant account). They are incredibly arduous to get approved, you practically need to have a bank CEO as your godfather to get it. Also you need to be at least PCI Level 1, which involves actual auditors going through your business and policies. That part is significantly easier than the IPSP though. OP doesn't sound like they were trying to do that though. They talk about their client's individual Stripe accounts being turned off. This is probably what a business like OP's would need to do. When their customers are small, use a processor like Paypal or Stripe. But as customers get larger, OP should probably do what we did: partner with an ISO, who can get the customer their own merchant account. OP still does the processing for them, but the risk and finances run directly through the client, not OP. The ISO can also add in a margin on the transaction fees for OP if that's part of their business model.
shadowgovt 4y ago
More specifically: if you're in the business of processing payments on behalf of others, you actually have "bank" as a core competency / requirement of your business model and need to make your plans accordingly (or carry the added risk of having your core business model outsourced).
- derefr 4y ago
  What magic wand do banks possess that enables them to declare-into-existence a merchant account, anyway? I mean in a technical sense, not a legal sense. What are payment gateways and other banks seeing, that allows them to know that a particular merchant account X is a "real" account, that can be targeted with credit card payments, rather than a made-up one? Is there an X.509-based hierarchical bank registrar system for charge-origination signing certificates, for putting charges onto the card networks? Is there a DNS registry of merchant accounts for pre-checking charges before attempting them? Do banks underwrite other banks into existence by signing their certs?

deleted 4y ago

[deleted]

bslorence 4y ago

What is a "large company" in this context? My employer is on track to run about $5m through Stripe this year, which will be our fourth full year using Stripe. Our first year we did about $2.75m. This year I've been getting occasional emails from a Stripe sales rep for the first time, which suggests that we've crossed some sort of threshold...

joecot 4y ago
Your stripe transaction cost is probably around the advertised fee, 2.9% + 30¢ With an actual merchant account you can probably get closer to 2% or at least 2.5% + 25-30¢ At 5 million in transaction revenue, a .5% decrease would be 25k a year. You can probably get a larger decrease depending on how much risk your company's business has. Stripe's sales rep might be contacting your company because you've hit the threshold where it's probably worth getting a merchant account, and they want to see if you're considering leaving to give you a discounted rate to stay. You're pretty much in Stripe's retention department because of your volume. It is definitely worthwhile at this point for your company to shop around for a merchant account. Some don't even have application fees if you're not a high risk business. At the least they can get an idea of how much they could save, and use that to leverage lower fees from Stripe. I would still consider trying for a processing gateway that handles all the card transmission, though, even at a slightly higher margin. Handling the card at all means you need PCI Compliance. At your revenue you're probably PCI Level 2 or 3, which only requires a self-assessment questionnaire (that is lengthy but doable), and a quarterly vulnerability scan. At 6 Million transactions a year, you'll be PCI Level 1, which means you'll need an auditor to come in and look at your processes and policies.
- adrr 4y ago
  Stripe will offer interchange plus model so you are actually paying the real interchange rate + whatever they tack on for settlement probably 25 basis points and some fixed rate of 0.05 a transaction. You shouldn’t be paying a blended rate if you’re doing significant volume. If you’re using a gateway, there are some that Handle tokenization so you never have to touch the PANs and you don’t have to worry about PCI levels and audits. There’s no reason your systems should be touching PANs unless you’re really large and using multiple payment processors for scalability and redundancy like if you need to process a million transactions in a few hours.

StickyThink 4y ago

Had to verify this information. https://www.merchantmaverick.com/what-is-a-merchant-services-provider/ https://www.merchantmaverick.com/what-is-a-merchant-services... Seems what they posted above is accurate.