The Pros and Cons of Cheap Merchant Services

pros and cons of cheap merchant services

If you’re looking for the cheapest merchant services, you might want to reconsider. The old adage “you get what you pay for” contains more than a glimmer of truth, and, quite often, it pays to spend a bit more on services with more security, flexibility, and available payment methods. Don’t think of it as just another expense. Think of it as an investment in the success of your business.

Benefits of Going With the Cheapest Merchant Services

While the term “cheap” can often be a red flag, there are some obvious benefits to going with the bargain services. It’s up to you to decide if those benefits outweigh the disadvantages and if the cheaper services offer a realistic long-term solution.

Cheap Merchant Services Cost Less

When it comes to cheap merchant services, the first benefit is the most obvious: You pay less money out of pocket for payment processing. This enables you to allocate more of your budget to other essential services like marketing or personnel.

However, you have to be careful and read the fine print. Providers that advertise the cheapest merchant services will often use hidden fees or bait-and-switch tactics to charge you significantly more than is initially advertised.

For example, a company might advertise a 1% transaction fee, which is an excellent rate. But upon signing up, you learn that there’s also a monthly £150 setup fee, a £50 monthly membership fee, a £25 virtual terminal fee, and a £25 gateway fee. Assuming you generate £10,000 per month in sales, you would pay about £200 per month in fees—not counting the initial setup. What seemed like a bargain at first is actually pretty close to the industry standard.

Before signing up for merchant services, make sure to determine all applicable fees and calculate how much you’ll actually be paying.

Cheap Merchant Services Can Help You Get Off the Ground

If you’re just starting your business, and you don’t yet have the funds or the infrastructure for a fully dedicated merchant solution with enhanced features, you might benefit from a cheap, entry-level provider.

Some hobbyists and new business owners will opt for a merchant aggregator like Stripe or PayPal, which tends to be cheaper for low-revenue businesses and also has less demanding requirements.

With a merchant aggregator, you can start accepting payments instantly without a credit check and without having to establish your own merchant ID. The aggregator assumes the risk and processes the credit and debit card transactions on your behalf using their own merchant ID. PayPal charges 2.9% + a small fixed fee for each transaction with no monthly fees or minimums, so it’s a tempting proposition for beginners.

If you’re able to find a cheap provider that offers dedicated merchant services and a custom merchant ID, make sure that the service is scalable. In other words, the service should grow with your business. Make sure that the company is able to accommodate higher transaction volumes while still maintaining low rates and premium service. Some companies will even offer reduced rates as your transaction and sales volume grows.

Cheap Merchant Services Are Excellent for Backup

We often recommend having a backup merchant services provider to supplement your main payment processor. But paying for multiple merchant accounts can be expensive. If your backup or secondary provider offers fewer frills but costs significantly less, you won’t have to break the bank.

There are several reasons why a backup merchant provider is a good idea.

  • If your primary merchant provider’s gateway goes down at any point, you’ll still be able to process payments.
  • A secondary merchant provider can often be used to accept alternative currencies and payment methods that your primary merchant provider doesn’t accommodate.
  • If your primary merchant account is suspended or shut down due to excessive chargebacks or other issues, you’ll still be able to accept payments.

In short, a backup merchant services provider eliminates the risk of disruption to your payment services.

Disadvantages of Going With the Cheapest Merchant Services

While there are certain advantages to choosing cheap merchant services, it’s very important to be aware of the disadvantages before you sign up. That’s not to say that you should automatically dismiss any provider that advertises cheap services—it simply necessitates an added level of caution and inspection.

Cheap Merchant Providers Often Aren’t Cheap

Advertising cheap services is one of the oldest means of marketing seduction. But an advertised bargain doesn’t always translate to a real-world bargain. Often, a company will advertise cheap merchant services but ultimately charge much more than you’re expecting. They may do this by:

  • Including fees that aren’t initially advertised, like batch fees, subscription fees, and maintenance fees.
  • Reserving their cheapest merchant services for the highest-volume businesses. In other words, you might not qualify for the cheap rate because you don’t have nearly enough transaction volume.
  • Limiting your transaction volume or withholding key features. Some providers will offer a cheap, entry-level service that comes with a low monthly fee but significantly restricts the amount of resources available to you. For example, your cheap membership might include 350 monthly transactions and impose an extra 30p overage fee for every subsequent transaction. If you generate high-volume sales, this added fee could amount to hundreds of pounds per month.

Always be cautious when cheap merchant services are advertised. Things aren’t always what they seem.

Cheap Merchant Services Are Often Limited in Their Offerings

If you do find a legitimate merchant provider that offers an amazing deal, there’s a good chance that the services are limited to the basics. You might gain access to a merchant ID and the ability to accept a limited number of debit and credit card transactions, but not much else.

While the price may seem like a bargain up front, you may ultimately end up paying much more in the form of foreign and non-compliant transaction fees, third-party fraud prevention, chargeback penalties (which can average about £10 per transaction), and lost revenue.

Ultimately, you want a merchant provider that looks out for your interests and offers the tools and the infrastructure to help you thrive. The higher up-front investment can pay for itself many times over.

Qualities to Look for in Merchant Services

It’s almost always worth the added investment to pay a bit more for a premium merchant provider. At a minimum, they’ll typically offer you:

  • A dedicated merchant account
  • The ability to accept as many credit and debit card transactions as your business receives
  • The ability to accept multiple currencies without incurring exorbitant fees
  • The ability to accept alternative payment methods
  • The ability to grow with your business
  • Free setup assistance
  • Fraud prevention and chargeback mitigation tools
  • Detailed user analytics updated in real time
  • Round-the-clock, convenient customer service
  • Easy integration with accounting software and ecommerce platforms
  • Easy integration with point-of-sale systems (if applicable)

Don’t be seduced just because a company claims to offer the cheapest merchant services. In order to ensure the best customer experience and the greatest level of protection for your business, you should always look at the price in terms of the features that are included. It might cost you a bit more up front, but it will make all the difference.

A.J. Almeda E-Commerce Expert

A.J. is an e-commerce expert with an emphasis on digital marketing and payment processing with 15 years of industry experience. He combines this experience with an in-depth understanding of online retail and public relations to help other businesses grow and succeed.