So, why don’t we just go to our bank and set up a merchant account. Well, if it were only that simple.

Here are the issues I have been weighing today:

1) I want to accept payments over the phone initially and subsequently over the web. I’d like to keep things simple, but I don’t really want to pay for equipment that I will not need.

2) I would love to have a smooth and unified check-out experience for customers.

3) I don’t want to pay an arm and a leg for this.

So, today turned into Payment Processing / Marchant accounts 101. The landscape is pretty interesting, with a lot of middlemen everywhere. In a nutshell, here are my findings:

1) There are about three levels of players in the industry:

a) the actual processors, the companies carrying out the transactions and moving money from the credit card account holder’s bank to the merchant’s bank account.

b) the sales agencies for the processors, which can be owned by the processors or independently owned and affiliated to a specific processor.

c) the payment gateways (like Linkpoint, PayFlow and Authorize.net, which allow merchants (like us) to enter (manually or via an API – see below) card numbers and charges.

2) Processors and their sales agents will vary the fees dramatically, anywhere from 1.3% to more than 4%, plus per transaction fees, depending on many factors, including whether the card was physically swiped, whether the transaction was done online, the amount of the transaction, your expected monthly revenue, what type of card was used (amex or visa? rewards or plain? Debit? with pin or not?). Wow, who would have thought this was so complicated?

So – here’s where it gets interesting: different processors and different sales agencies charge you different fees and offer different spiffs and incentives to sign up. It appears that the processor you choose is independent of the payment gateway. That is, you can mix and match processors and gateways.

That makes things simpler, in at least one way: Choose the gateway wisely, so you only have to integrate once. Get the one with the cleanest API and the functionality you need, and that offers a decent price. Then choose your processor. The cost for changing processors is much lower than the cost for changing payment gateways.

So, with that I focused on finding the best payment gateway. It appears that the biggest market share belongs to Authorize.net. They also charge a premium.

I found this resource, which was very helpful. Based on that, I am leaning towards signing up with Linkpoint. Does anyone have any experience with Linkpoint’s API? Any preferences between Linkpoint and Authorize.net?

Why would the world need new applications for managing customers? Perhaps because the current ones stink. Or are overpriced. Or are overpriced and stink.

I started a new company recently, and we believe there is a better way to do things in business software. Fundamentally. We have some innovative ideas and a better mousetrap, and a burning desire to change the status quo. We believe we can make a big difference. I look forward to telling you more about it soon!