Serious online businesses need to know they can take payments quickly, conveniently, and securely. They may assume that an “instant approval” payment processor is the best choice for their business because faster is always better, right? Not necessarily.
While instant approval payment processors are fast, they also come with some risks. Here’s why many smart online businesses are rethinking “instant approval” and choosing underwritten merchant accounts instead.
What Is an Instant Approval Payment Processor?
An instant approval payment processor typically uses a PayFac platform to prioritize immediate approval at signup. This may sound like a good thing at first, but this type of system prioritizes speed over safety and risk reviews. As a result, there may be unpleasant surprises after the initial approval is already granted. It’s not uncommon for accounts to be suddenly put on hold or even closed once the deeper risk review happens. For these reasons, instant approval setups may not be ideal for small business credit card processing.
Why ‘Instant Approval’ Isn’t Always a Good Thing
There’s nothing wrong with wanting your payment processor to deliver both quick and reliable results. Unfortunately, instant approval systems tend to put potential risks on the back burner while prioritizing rapid approvals (no matter what). Here are a few reasons speed may not always be the best thing for your business when it comes to online payment processing.
Strict Volume Limits
Many instant approval payment processors offer less flexibility than their less risky counterparts. They often impose strict volume limits and may not work for high-ticket or subscription transactions. For these reasons, this type of payment processing solution may not be ideal for scaling businesses.
Higher Transaction Fees
To cover the increased risks associated with offering such rapid approvals, many instant approval payment processors charge higher transaction fees. Some are also known for charging hidden fees that aren’t clear upon signup. It’s better to go with a provider that has a fair and clear pricing structure to help manage your costs.
Greater Risk of Account Freezes
With an instant approval setup, risk reviews happen after real transactions are processed. Therefore, there’s an increased risk of sudden account closures or fund holds later on. This can come as an unpleasant surprise to someone who was instantly “approved” but later had that approval unexpectedly revoked.
Security Risks
Instant approval providers offer little to no initial underwriting at the beginning of the approval process. This makes the approval process quicker and can boost customer satisfaction rates. However, it also creates opportunities for fraud and exploitation, which can be devastating in their impact.
Reduced Support and Reliability
Many instant approval providers have earned a reputation for offering subpar customer service. Many of them have very limited support and contact options, which can lead to confusion and frustration. Many businesses find that instant approvals don’t make up for the lack of customer support on the back end.
What to Look for in a Payment Processor
Now that you’re familiar with some of the drawbacks of instant approval payment processing systems, you may be wondering what type of system is better. Many online businesses are turning to underwritten merchant accounts. Here’s what to look for in an underwritten payment processor.
Up-Front Risk Assessment
Unlike instant approval providers, underwritten merchant accounts offer up-front risk assessments. This can add some time to the approval process, but results in fewer surprise reviews or account holds later on. Additionally, many underwritten payment processors still offer fast approvals (within 24-48 hours).
Excellent Customer Service
When selecting an underwritten payment processor, it’s wise to choose one that’s known for providing exceptional customer service. Ideally, your provider should be available 24/7 in case you have any questions or concerns while using their service.
Multiple Banking Partners
The best payment processors work with multiple banking partners. This makes it easier for you to get matched with the right bank so you can scale faster and optimize your approvals. Payment processors with many banking partners often have a greater ability to cater to customer preferences.
Ability to Accept Mobile Payments
According to Capital One Shopping, mobile e-commerce sales are projected to exceed $3.3 trillion by 2028. With so many people making online purchases with their mobile devices, it’s critical to make sure you work with a payment processor that accepts mobile payments.
Decline Recovery
When selecting a payment processing partner, make sure the one you choose offers decline recovery. This service is crucial if you want to minimize lost sales and enhance customer satisfaction. Decline recovery services include various techniques employed to encourage customers to use other payment methods if their initial payment gets declined.
Chargeback Mitigation
Chargeback mitigation is the process of reducing the impact and frequency of transaction disputes. Some payment processors offer this service, which can help recover lost revenue and protect the reputation of your business.
Set Your Business Up With the Right Payment Processor
Choosing the right payment processor for your needs can give you an edge in a competitive market. Instead of focusing primarily on instant approval providers that can be riskier and more expensive in the long run, consider an underwritten payment processor. You’ll experience greater security, lower processing costs, and peace of mind that your provider is doing the work up-front to protect against fraud and data breaches.