Breaking down the pluses, minuses of alternative payment systems

Breaking down the pluses, minuses of alternative payment systems

When deciding how your business will accept credit card payments online, you might want to consider an alternative payment system. It seems like every time you turn around, a new gadget or gizmo or service has entered the market. We should feel lucky to have all these options, but how do you know what is best for your business? Alternative payment systems, for example, provide business owners with different ways to accept credit cards online.

There are several alternative payment systems available, including PayPal, Authorize.net and iKobo. These services allow business owners and individual proprietors to send and receive payments without setting up a retail merchant account.

Why is this beneficial? For one thing, an alternative payment system usually doesn't cost anything, in terms of annual or monthly fees. You only pay for the service when you actually use it, and this can mean saving big bucks for small and fledgling businesses.

Furthermore, the requirements for setting up an alternative payment system are usually less rigorous than with a merchant account. You don't have to provide proof of revenue or business credit reports to get accepted.

Of course, there are problems associated with alternative payment systems that business owners need to know about.

For example, according to an article by Anne Kandra of PCWorld.com, PayPal suffered a serious software malfunction in October 2004, resulting in loss of revenue for businesses and denied access to funds.

With a merchant account, credit card transactions are negotiated between the business, the card issuer and the merchant's bank. The money garnered for sale isn't held in an online account where glitches might render those funds unavailable.

Furthermore, a business that conducts a significant number of credit card transactions per month will probably wind up paying more in transaction fees with an alternative payment system. PayPal, for instance, charges 1.9 percent to 2.9 percent plus 30 cents per transaction. There are other options with this service, such as a virtual terminal, so it is important to consider all fees associated with this type of account.

Often, with an alternative payment service, the buyer has the option of using his or her own existing account or funding the purchase with a credit card or debit card. There may be different fees associated with these two types of transactions.

Once payment is made, the funds are deposited into the business' account at the alternative payment service, and there may be several different options for withdrawal. At PayPal, for example, an account holder can request a check, use a PayPal debit card or transfer the funds electronically to his or her bank account.

An alternative payment system facilitates an almost fluid way to transfer money from one place to another. However, it might be difficult for business owners to track these payments, so it's important to set up a spreadsheet or a software program to record each credit card transaction and where the funds are going.

If you own a business that operates online, you might want to consider an alternative payment service. This is especially true if you offer services rather than products, because you won't have to integrate things like inventory into your merchant account.

Published: May 14,2023