Ian Landsman is Starting From Scratch, July 5, 2007:
Why Do You Use Third Party Payment Processors?
If you're in the market for a powerful and user friendly Help Desk solution, please take a look at my company's flagship product HelpSpot.
Patrick has a long and thoughtful post on the scam currently being run by the payment processor SWREG, which was uncovered by Andy Brice. Obviously what they’re doing is horrible, no doubt about that.
My question is though, why do all you guys use these processors? I see lots of downside and very little upside. My main concerns would be total lack of control over the checkout process experience (as shown by this event) and the insane fees. It’s significantly more expensive to use these guys than to just run the transactions yourself via a payment gateway. I suppose the convenience of not having to get a payment gateway is the main draw, but doing that little extra work gives you complete control and will save you hundreds if not thousands of dollars a month. Am I missing something?
Discussion
Just to clarify: I have 'covered' it - but I didn't 'uncover' it. I first became aware of the situtation through a post on the Business of Software forum (http://discuss.joelonsoftware.com/default.asp?biz.5.515181.23) and a post on the ASP forums (members only).
Created by Andy Brice on 07.05.2007 12:33 pm
People would, in general, use payment processors for the same reason you would use outsourced CD production, outsourced icon design, or anything else: it involves skills that you do not have and, hopefully, the company you go with will do a better job. (And, the unstated assumption, not stab your customers in the back.)
If you have a gateway account, aside from the high startup and monthly fees which drive many hobbyists into the arms of the legacy shareware providers, you also have to learn what a CVV code is, how to risk analyze an order from someone whose shipping info matched the zipcode but not the street address of the cardholder information on file with the bank, the 437 ways a credit card can be denied, etc, etc. Oh, and you get to implement web programming to handle key generation and delivery, email (great fun, that one -- hope your server doesn't get tagged as spammy), search, reports, and integration with your accounting software.
Personally, I'm *glad* to pay Paypal their fee. Now, if it were an 8-15% from one of the legacy providers, I would be substantially less glad.
Created by Patrick McKenzie on 07.05.2007 12:39 pm
Thanks for the clarification Andy.
I suppose my view is skewed by my B2B perspective where I pretty much don't worry about any of the stuff you mentioned 
Still though, I think most shopping cart software is capable of using Authorize.net and the others directly and the gateways have all that street address verification stuff.
Paypal is cheap, the others seem pretty expensive though being at least 8% if not higher.
Created by Ian on 07.05.2007 12:46 pm
Why I use a payment processor (Plimus):
The world extends past the boundaries of the USA. People forget that. I'm in the UK. A merchant and credit card processing arrangement is not quite so easy to get, or as cheap, here as it is in the USA. And in some countries it's probably practically impossible. I've been in business long enough to get a reasonable deal, but it would be GBP based. Most of my customers are outside of the UK so I want to be able to take credit card payments in USD, not GBP. That can be done, but will add further cost and complications. Then there's Euros. I don't want to run three merchant accounts. Yes, I know the customer could pay in GBP and have their card company handle the exchange rate and bill them their rate in their currency, but that's not what I want. I want to set a currency price and have the customer pay that fixed amount and not have to confuse people with exchange rates.
But I don't just want to accept credit card payments. I want my customers to be able to use purchase orders, cheques, money transfers and I want them to be able to phone in their orders, or fax them or use the mail. AND I don't want to handle that myself. I don't want to have to employ someone just to handle orders. And since I'm in the UK but most of my customers are in the USA I want someone in the USA to take the call.
Plimus already do all that for me. And they don't cost me very much more than what I'd pay to maintain my own merchant accounts (for EUR, GBP and USD), and they certainly cost me less than it would cost to employ someone to do everything they did.
And that's not to mention the fraud protection, reporting and all the other functionality that is built in which I would have to build from scratch if I did it all myself.
Finally, if I processed my own orders I would have to account for every single order individually. For VAT and tax reasons this would add a big accounting burden. By using Plimus who are actually a reseller, I only have to account for one transaction once per month. This simplifies our accounting no end. So this translates to another cost/time saving.
I still have control over the order process. Plimus is flexible and I can change the look and feel of the checkout pages. And so far they haven't started scamming my customers.
What's more, at our price point Plimus offers us one of the most competitive deals out there.
There are reasons to use a payment processor. It might not be for everyone but there are advantages for some. Personally it suits me. The question is not "why do you use third party payment processors", the question should be "why do you use a third party payment processor owned by a company with a reputation for ripping off their customers and partners?".
As soon as Steve Lee announced that he had sold SWREG to Digital River I moved to Plimus because, from past experience, I knew Digital River was bad for business. I was so right. And I haven't looked back.
Created by Marcus Tettmar on 07.05.2007 12:54 pm
Marcus hit on a key point - European VAT laws. By using a reseller like Plimus / SWREG etc, they handle charging and remitting VAT to the EU for you. This doesn't just apply to developers based in the EU either - even if you're based outside the EU, you need to collect VAT on behalf of your customers in the EU and send it to the EU.
Paypal and Google Checkout don't handle this for you, so you have to sign up with an EU member country and handle it yourself. If you have a merchant account, you also have to program the VAT laws into your shopping cart and ensure it's kept up to date.
Some people choose to ignore VAT altogether, and for a while that seemed valid. But now that the US has started prosecuting non-US-based E-Commerce providers for not complying with US law - that leaves the way open for the EU to prosecute US vendors for not complying with EU tax law.
Created by Mr Anon on 07.05.2007 1:33 pm
Interesting guys, thanks for the follow up. What's funny is that I've heard lots of horrible things about Plimus. I guess that's how these things go though.
I guess anytime you put someone between yourself and your customer it makes me uneasy. I'm not sure a Plimus rep is who I want to represent my company (though you've obviously had a good experience with them).
Good stuff.
Created by Ian on 07.05.2007 1:47 pm
Plimus has a pretty good reputation, I've been using them since Christmas and have nothing but praise for them.
Created by Tony Edgecombe on 07.05.2007 2:39 pm
Whoever you use, whether a company like Plimus or your own merchant account there is still someone standing between you and your customer. It could be a faceless bank and a service provider, or it could be Plimus. I'd rather deal with Plimus than my bank! My bank is huge, and my contact there is just a staffer. In contrast I have the email address of the CEO at Plimus.
Created by Marcus Tettmar on 07.05.2007 3:12 pm
Well, sort of. But there's a big difference in my mind between a company that just says yes/no to me and I take it from there and one where my customers might end up calling them for support before they even contact me. I like that my customers don't know my bank and have no way of contacting them. Nobody cares about your customers as much as you do, that's all there is to it.
Everything has it's tradeoff's of course. A HelpSpot installation can cost thousands of dollars, I might think differently about wanting to get these calls if it cost $30 (then again I may not).
Created by Ian on 07.05.2007 3:31 pm
Don't quite get why you think customers would contact Plimus for support. I'm not aware that has ever happened. Customers still deal direct with us for support. We might direct payment queries to Plimus, but that's never been a problem. And we also sell licenses worth thousands of dollars 
Created by Marcus Tettmar on 07.05.2007 3:46 pm
Nice
Well, I'm basing this on what you posted above
" I want them to be able to phone in their orders, or fax them or use the mail. AND I don't want to handle that myself. I don't want to have to employ someone just to handle orders. And since I'm in the UK but most of my customers are in the USA I want someone in the USA to take the call."
Since I've never used it I have no idea what they do, but you indicated that they take your order calls. To me that's them being in the middle of you and your customer. What if they answer rudely? What about the fact that they can't answer any questions about the product only take orders? What about the fact that you probably can't get back to the same person you previously talked to about an order?
Sounds like you're doing fine so it's not a big deal, but I'd rather handle those things in house.
Created by Ian on 07.05.2007 3:50 pm
Why do I use payment processors?
Before starting my shareware business, I used lots of shareware - and every program used a "shareware registration service" such as Digital Candle, SWREG or Element 5 for payment. So I knew about this.
When I released my first program, I signed up with Element 5. I filled in a online form which took maybe 10 minutes, waited one day to get approved and then guess what - I was in business, I could put a working "BUY NOW" link in my program. The effort was minimal - I didn't have to spend hours or days learning about how to process payments. I spent 10 minutes filling a form and I was in business.
Also, these payment processors offer a lot of services, such as sending e-mail newsletters, sending CDs to users, automatically generating registration codes, a way for the users to retrieve lost registration codes, a way of offering discount coupons, etc, etc.
Another reason for which I prefer to use a shareware registration service is the fact that I'm located in a country in East Europe which is well-known for credit card frauds. The fact that the payment processor I use is in Germany helps a lot - customers know that they are paying to reputable German company, and not to a small company in a country with a high credit card fraud rate.
By the way.. SWREG used to be a highly reputable company before it was sold by the original founder.
If possible, please write a tutorial about how to use the payment gateways you mention.
Thank you.
Created by Dan Dare on 07.06.2007 12:20 pm
Thanks Dan.
I use this script which does most of the heavy lifting:
http://www.brkstudio.com/products/phpaim/
BTW, this process would be a good MicroISV app. For the most part everyone seems to be saying that they just want an easy way to manage registrations, ecommerce, maybe newsletters, etc. Basically a shopping cart/customer app specific to small software startups. Actually BRK Studio (link above) was working on something like this, but I think he gave up on it. I still think it could be a good seller especially since you'd be able to make a strong case on how quickly you'd recoup your investment if you purchased the software.
Created by Ian on 07.06.2007 12:30 pm
Hey Ian,
Shortly I am going to finish a blog post which essentially says, why not finish my isvManage product. I will need its functionality to sell any of my other stuff and I think it would be useful right now to a lot of other people.
So this is actually a response to two blog posts. I am still around... and just like in the good old days, I still don't know what I am doing!
Created by Ben Kubs on 07.13.2007 9:23 am
Heh. Now that really does feel like the old days!
I think that's a good product. I hated having to write my own and that app would essentially nullify most of the arguments for using these bogus payment processors.
Created by Ian on 07.13.2007 9:27 am