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Credit Card Processing Buyer's Guide - Types Of Credit Card Processors
Published: 03/28/2011
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Types Of Credit Card Processors
There are several types of credit card processors you can turn to.
Bank
The bank you use for your business finances should be the first place you contact. Banks can be the easiest source to turn to for credit card services; many offer service packages for businesses that include merchant services. Most banks do not process credit card transactions themselves, though. Instead, they outsource the work to a third party credit card processor. It can be tough to get approved from this channel, however. Banks are likely to scrutinize your business more closely before deciding whether or not to accept your application.
Third party processor
This type of credit card processor requires no merchant account. Third party processors dedicate themselves to handling credit card processing. As such, they take care of different aspects of the transaction process such as authorization, billing, reporting, and settlement.
Independent sales organization
An independent sales organization (ISO) is essentially a registered credit card merchant broker who represents one or more third party processors. They set up and service credit card merchants, but do not do the actual processing. ISOs are less selective than banks, but that comes at a somewhat higher price.
They are also not strictly regulated the way banks are, so there's a wide range of ISOs out there, from reputable, established companies that provide good customer to support, to shady one‐man operations that use questionable "sign up sheets" in place of contracts. Some of these sign up sheets even hold you responsible for terms and conditions not listed in the document! Be particularly vigilant when evaluating potential suppliers and make sure you get the full contract.
Financial service provider
MasterCard and Visa require you to establish a merchant account through an intermediary. However American Express and Discover give you the option of applying directly to them.
Association
Small business and trade associations often offer credit card merchant processing at discount prices. They are a particularly good resource if companies in your industry historically have trouble attaining credit card merchant status.
Offshore merchant accounts
Offshore merchant accounts (or international merchant accounts) are an option for businesses that can't other types of accounts due to location, credit history, or other reasons. These services may have low processing fees, no taxes, and flexible guidelines and terms, but they're not subject to the same regulations as US credit card processors and may not offer the long‐term stability you're looking for.
