Practical Ecommerce

Credit Card Processing: Better to Work with Resellers or Processors?

My recent series on working with credit card salespeople prompted good feedback and questions from readers. I addressed some of the questions in my August article.

For this article, I will respond to readers who asked if payment processors are more reputable than resellers and if there is an advantage to buying services directly from a processor.

The vast majority of merchants obtain their processing services from companies that resell the services of one or more payment processors. These resellers are known in the industry as an ISOs (Independent Sales Organizations) or, alternatively, MSPs (Merchant Service Providers).

There are over 1,000 resellers in the U.S. These resellers may be shopping cart companies, gateway companies, point-of-sale system distributors, banks, warehouse membership clubs, buying groups, and industry associations. In most cases, however, they are independent companies that focus on selling processing service only.

There are a handful of major payment processors. Some are publicly traded and do not allow ISOs-MSPs to resell their services. Among the best-known payment processors are, alphabetically: Chase Paymentech, Elavon, First Data, Global Payments, TSYS (Total System Services), and Vantiv. There are other processors, but these six companies are involved with either the front-end processing (authorizations) or back-end processing (funding) for, perhaps, 90 percent of U.S. merchants.

I use the term “provider” to describe both payment processors and resellers.

Payment Processors More Reputable?

Are payment processors more reputable than the resellers?

It depends. The credit card industry is similar to the auto industry. Ford and General Motors build and market their products. But if you want to buy a car or truck you have to go to a dealer, say “Honest Bill’s New and Used Car Dealership.”

Visa and MasterCard build and market their products. However, you have to go to “Honest Bill’s Credit Card Provider” for your processing services. Like the auto industry some providers are more reputable than others.

…you have to go to “Honest Bill’s Credit Card Provider” for your processing services.

Some of most concerning issues I have seen recently are from two payment processors. However, I’ve also seen concerning issues from resellers.

Also, remember that merchants must interact with salespeople — inside or outside. Among the most misleading tactics I have ever encountered in this industry are from inside salespeople in customer service and retention departments.

Remember the auto industry analogy and use my articles to weed out dubious providers and salespeople.

Use a Processor or a Reseller?

Is there an advantage to obtaining processing services directly from a payment processor versus a reseller?

That is difficult to answer. There are advantages to both. I invite processors and resellers to respond to proposals, depending on the merchant’s industry and specific needs.

The direct, per-transaction cost for payment processors is roughly 1 to 2 cents. They might sell their processing services to a reseller for, say, 3 to 4 cents. That reseller may, in turn, sell its services to another reseller for 4 to 5 cents, or it may sell to an agent for 4 to 6 cents.

The 4- or 5-cent difference between the payment processor’s cost and the sales agent’s cost is insignificant if a merchant is selling tires with an average transaction of $400. However, a 5-cent difference can be huge for a coffee-shop merchant with an average sale of $4.50.

Thus, payment processors can have an advantage if the per-transaction cost is more important to a merchant. (Processors and resellers have other costs besides direct processing. I focused on the direct cost in this example for simplicity.)

In my experience, employees at payment processors are generally more institutional and governed by policy and profit constraints. There are exceptions — I have found good, flexible people at payment processors.

However, in general I prefer working with reputable resellers when the solution requires creativity. For example, I prefer working with knowledgeable resellers when dealing with B2B merchants, or merchants with gateway and shopping-cart issues that produce high interchange rates.

In my experience, warehouse member clubs, industry associations, and banks that resell processing services (most banks are resellers) often lack knowledge of credit card processing. Therefore, I generally only invite them to participate in proposals for basic brick-and-mortar merchants that have terminals. However, I have ecommerce clients that use these organizations as well.

In my view, some of the organizations are too focused on their financial gain versus the needs of their merchant clients. In fact, some resellers have selected processing partners that I prefer my clients avoid all together.

Phil Hinke

Phil Hinke

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Comments ( 3 )

  1. Sebastian Alongi September 29, 2016 Reply

    One way to ensure that you are dealing with a savvy reseller that follow best practices is to deal with agents that have gone through the Certified Payment Professional (CPP) certification, which is a program established by the Electronic Transaction Association (ETA).
    If the reseller is not asking questions to understand your business and what your needs are, then it is more than likely that such reseller is not a properly trained professional with your interest in mind.

  2. Gregory Forte September 29, 2016 Reply

    This is a well written article and when I am asked who has the best “rates”, I say however nice your sales rep is. With that being said, a company shouldnt always look just at cost but should also look at Setup, Customer Service, Support, Up time, Technology, Security, etc. I am a CPP and agree when choosing a processor/reseller, etc. that experience, knowledge and explanation is key.

  3. Fred Nelson October 11, 2016 Reply

    Phil – good article here. In my opinion, there are Pro’s and Con’s to both but in reality, it will depend on the organization you are working with regardless of whether they are a Reseller or a Processor. If the Reseller is not knowledgeable and does not have a strong relationship with a Processor or another ISO (and/or) the POS provider you are working with then there is no advantage over a Processor. The relationships are key here. The other major variables are the processing technology being used, the service, reliability, and pricing. If using a Point of Sale system it is very important to make sure the Reseller/ISO has a strong relationship with the POS Company otherwise this can be counterproductive to what a merchant is looking to accomplish. At the Processor level, there can sometimes be no relationship to the ISO/Agent/VAR so there can be some holes in this model too. The short answer is you have to weigh a number of variables and it is definitely not as simple as saying just a Reseller or a Processor. You have to consider technology, pricing, service, relationship between the Point of Sale, the Reseller, and the Processor. This is a big variable to consider. It can be challenging for a merchant to figure this out but hopefully by doing your due diligence and considering all of these variables, it will help you make a smarter decision. Working with a CPP is helpful as well but that doesn’t guarantee the technology will be there, the service, pricing, or even a relationship with the POS provider. It just means they have some reasonable understanding of merchant processing capability.