Getting Your Startup Started With Payments

November 9, 2010

12:16 pm

Startups need to make money (unless you’re Twitter) and to make money you need to accept payments. Your head may already be hurting at the flurry of possibilities out there, but don’t worry. Use this quick guide to help you figure out what you need to get started accepting payments at your startup.

1. Is your startup e-commerce? If so then you have two options to consider:

1) A third party payment provider like PayPal or Google Checkout
2) Or a merchant account provider and gateway

The first option is a viable choice for startups that want to get up and running and don’t expect to ramp up in credit card volume quickly. To figure out which is the most cost effective option, check out this PayPal vs. Merchant Account Calculator. If you decide to get a merchant account, you’ll need to sign up with a credit card processor. Be wary though, credit card processing is one of the scammiest industries out there and processors are known to take advantage of small business owners. The best way to make sure you’re getting a good deal is to research, comparison shop, and let processors know you’re scoping out the best deals. You’ll also need to choose a gateway, which serves as a virtual terminal, connecting you to the payment processing network. The most widely used gateway is, the cheapest and simplest option.

2. Will you be doing recurring payments?
If your business uses a subscription based billing model, you’ll need to consider a recurring payments solution such as Chargify, CheddarGetter or Recurly. Gateways are not set up to handle recurring payments well, so say for example, you need to refund a customer one month’s subscription. A gateway won’t be able to handle that easily, whereas a recurring payments provider is designed for exactly this type of situation.

3. How quickly do you expect your credit card volume to ramp up?
Use the PayPal calculator to see which option makes sense for your business, but also keep in mind that PayPal’s pricing is not meant to be advantageous for high volume businesses. Therefore, if your startup is expecting heavy credit card volume quickly, it makes sense to skip a third party payment provider and go straight for a merchant account.

4. Are you doing micropayments?
Micropayments are not a profitable enterprise for credit card processors, and only big giants like Amazon and PayPal can actually make money from micropayments (for now). PayPal also just released a new platform for micropayments in digital goods which makes it more cost effective to sell content in digital platforms such as video games.

5. What are your feelings on PayPal?
This is an important question to consider because many business owners shudder at even the mention of the payments giant. When you use PayPal, you play by their rules which means they have the ability to freeze your account at any time, and their customer service is also not known to be stellar so it may be a hassle if something
goes wrong.

Above all, be informed. The credit card processing industry makes 90% of its billions in revenue not from giants like Best Buy or Wal-Mart, but from small business owners. Make sure to read all the fine print in your credit card processing contract, and understand what it means.

Guest writer Stella Fayman talks to business owners each day about their payment needs by working at startup—a website which lets business owners quickly and easily compare credit card processors. She is passionate about startups and entrepreneurship which she promotes through Ignite Chicago and the Future Founders program.

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