Wouldn’t it be nice if there were a one-size-fits-all credit card processing solution? That isn’t the case. In fact, you have to start at a high-level view of in-house credit card processors vs. third-party.
That’s before you can even consider which software or payment processing provider to use.
This article aims to give you all the info you need to choose between in-house payment options and partnering with a third-party provider.
We think you will find the factors that help you make this decision are pretty familiar to business owners. Why? You are used to balancing similar factors when deciding which products and services to sell.
The key thing to keep in mind is that there is no wrong decision because every business is different…
However, it would be a poor decision to not look at all the information you need to make a great decision that fits your business, right?
We will start with the basics, then wade into deeper waters with a nice list of pros and cons of in-house vs. third-party processing.
Understanding In-House VS. Third-Party Processing
Understanding these two processing options is crucial for making the right choice for your company’s future.
In-house processing puts you in control of the entire transaction process, from start to finish.
This means you’re handling everything from customer data to fund transfers, giving you helpful flexibility and customization options. Still, with that extra power comes extra responsibilities — you’ll need to invest in serious security measures and stay on top of compliance requirements.
Most smaller companies are not able to commit to that extra responsibility.
On the flip side, third-party processing gives you a reliable guide for accepting payments (and handling hiccups that pop up). These providers offer ready-to-use, proven solutions that get you up and running fast. They take care of the heavy lifting required for spartan-like security and complicated compliance guidelines.
Handing off these responsibilities is usually a huge relief for many business owners (as long as your payment process is dependable).
The key differences boil down to control, cost, and complexity. In-house payment processing offers more control but requires a bigger upfront investment and ongoing management. Third-party merchant solutions are often more affordable and easier to implement, but you’ll have less control over the process.
Remember, there’s no one-size-fits-all answer here. The best choice depends on your business size, transaction volume, and long-term goals. So, take a good look at your needs and go from there.
Alright, let’s dive into the pros and cons of in-house processing. This is a big decision for any business owner, so we’ll break it down in a way that’s easy to digest and packed with valuable insights.
In-House Credit Card Processors VS. Third-Party: Pros And Cons
We’ll focus on three positive aspects of in-house payment processing.
- Control
- Customization
- Potentially lower fees
Having full control with in-house processing is a pro for many businesses. This makes it easier to tailor any aspect of your payment system exactly how you want it. You could increase transaction limits if you wanted. You could integrate the newest fraud-detection software immediately (no waiting on a provider).
Customization is a great way to blend your payments seamlessly into your other business practices. You will be able to create reports precisely how you want them. This helps you utilize the information more effectively to improve various areas of your business. You can adjust the user interface on the fly too, with limitless ability to customize.
Lastly, it makes sense that you could save money when you cut out the middleman in payment processing. Think of the savings if you never had to pay a per-transaction fee.
The Flip Side
Moving on to the three downsides:
- Compliance
- Technology investment
- Resources
Staying compliant with payment processing is not getting any easier these days as rules change constantly. When weighing in-house credit card processors vs. third-party, go in knowing that you will have to handle audits, updates, and vigilance without a processing company’s guidance.
As for technology, you are likely to pay more for hardware, software, and security tools that integrate with your other business systems. Then you will be responsible for staying up-to-date on hardware and software. Missing crucial updates can slow your payment processing down or leave you open to fraud threats.
Then you have to consider whether you have the resources to manage your own payment processing system. Even if you have the technical know-how without hiring an IT pro, do you have time to devote to managing the ins and outs of payment processing as a busy entrepreneur?
In-House Credit Card Processors VS. Third-Party Costs
The cost comparison is what makes the decision for many business owners deciding between third-party and in-house credit card processors.
Below are good hypothetical comparisons.
In-House Processing:
- Hardware costs: You’re looking at upfront investment for servers, security systems, and payment terminals. It could range from $10,000 to $100,000+, depending on your business size and needs.
- Software development: Custom payment software can set you back $50,000 to $250,000 (or more).
- Compliance costs: Achieving PCI DSS compliance isn’t cheap. Initial audits and system upgrades can cost $50,000 to $100,000 (or more).
Third-Party Processing:
- Minimal hardware costs: Often, you just need a card reader or mobile device, which can be as low as $0-$100.
- Software fees: Many providers offer free basic software, with premium features available for a monthly fee.
No compliance costs: The third-party processor handles PCI compliance, saving you a bundle.
Ongoing Fees And Expenses
As you know, expenses don’t end after you get any part of a business started up. That would be awesome! But unless you focus on long-term costs, you can’t make a good choice between in-house credit card processors and third parties.
In-House Processing:
- Expect to spend 15-20% of your initial investment annually on updates and maintenance.
- If you need dedicated IT personnel, that can cost from $40 to $70 an hour for freelancers (more for full-time IT help).
- While you might negotiate lower rates directly with banks, you’re still looking at 1.5-3.5% per transaction.
Third-Party Processing:
- Transaction fees are usually higher than in-house, ranging from 2.6-3.5%, plus a flat fee per transaction.
- Some providers charge a monthly fee, usually around $20.
- Chargeback fees can run from $15-$100 for each chargeback (the avg. person disputes 5.7 charges annually).
Remember, the best choice depends on your specific business needs, transaction volume, and growth goals.
For small to medium-sized businesses, third-party processing often provides the best ROI. Why?
Lower upfront costs and less complexity. As your business scales, though, in-house processing might become more cost-effective.
At National Processing, we want you to make the smart choice for your business. Our transparent pricing and scalable solutions are designed to grow with you.
That means you get the best ROI. Why not crunch the numbers with us and see how much you could save?
In-House Credit Card Processors VS. Third-Party Nuances
As a business owner, you already know that small details make all the difference in which of your products and services get purchased most, right? Well, small details matter when it comes to in-house credit card processors vs. third-party comparisons too.
Sure, you can always switch if you figure out in-house processing is not what you imagined. Still, the transition can be a hassle. So, to avoid regretting a decision, look at the finer details below first.
Business Size: It’s not just about how many employees you have or how many locations. When it comes to credit card processing, transaction volume and average ticket amount are the main things. A small boutique doing $5,500 in credit card sales monthly doesn’t need the robust processing features that a large company doing $79,000 monthly needs.
Transaction Volume: High-volume merchant accounts can offer perks like lower transaction fees, which can save you a bundle in the long run. But they also come with challenges — stricter approval processes and reserves.
Industry Type: Some industries are considered higher risk than others. If you’re in e-commerce, travel, or subscription services, you might face tighter guidelines from processors. High-risk industries often need specialized processing solutions that can handle higher chargeback rates and provide extra-strength fraud protection.
Security And Compliance Factors
Just as important as the three nuances above, you have to consider the following details that impact compliance and payment security.
- Firewalls
- Password Protection
- Data Encryption
- Antivirus Software
If those technical details make you nervous, then you likely need to lean on a third-party credit card processor. That way, you can avoid the hassle of set-up and not have to worry about constant upkeep of those systems to keep sly criminals away from your business data.
Don’t forget that those systems have to be integrated with your other digital business tools without any glitches that would hold up sales.
Wrapping Up In-House Credit Card Processors VS. Third-Party
Taking time to read all the way to this point is wise. We believe it will help you choose the best processing system for your business.
You got a clear look at the pros and cons of in-house vs. third-party payment processing. As you read, much of the choice comes down to whether you value full control of processing or a hands-off approach.
Convenience comes with costs. Just remember, most companies make up those costs with increased revenue when their third-party processor gives them modern tools made to scale a business.
If you do decide to go with a third-party credit card processor instead of in-house, always watch for hidden fees buried in your contract. Hidden fees are a terrible problem in the processing industry.
National Processing believes in transparent pricing. We also have award-winning U.S.-based 24/7 customer support and our $500 Lowest-Rate Guarantee.
Partner with National Processing today. No hidden fees. No hassles.
Part of our growth mission is helping our customers grow as well.
FAQ Merchant Account Services
How does scalability differ between in-house and third-party processing?
In-house offers more flexibility for customization and scaling as your business grows but requires constant investment in newer technology and resources. Third-party processors can usually help you with growth without big changes to your set-up (but may have limitations on tools and features).
Can I switch from a third-party processor to in-house processing (or vice versa)?
Yes. The transition can be complex and likely a bit disruptive, though. It involves changing your payment infrastructure, updating integrations, and retraining staff. Be sure to plan the transition wisely, considering factors like data transfers, contract terms with your current provider, and costly downtime during the switchover.
How does the choice between in-house and third-party processing affect accepting international payments?
Third-party processors often have established networks for handling international transactions. In-house processing may require more effort, including dealing with currency conversions and non-U.S. regulations.
