Sounds easy. Until you Google “credit card processor” and see hundreds of options, all with crazy mixed reviews.
We’ll walk you through what to look for in a payment processor, and which ones are a good fit for your industry.
What exactly is payment processing?
A payment processor is a company that small businesses pay to take care of all the work involved in processing credit and debit card payments.
You use a payment processor whenever you enter your credit card information online to buy something, or whenever you swipe your card at a store.
How do they work?
Payment processing is messy, hence all the mixed reviews.
At one end we have you, the small business owner or “merchant,” and your merchant account (the bank account where your customers’ card payments will end up). On the other end, we have the customer and their card. In the middle are various technologies—handled by a merchant processor—that link the two.
If you’re processing cards in-person in a retail setting, some kind of debit and credit card processing equipment (like a point of sale (POS) terminal) might be involved.
If you’re selling online, you also need a payment gateway, which is the software that lets ecommerce stores accept cards.
Choosing the right payment processor for your business
Different businesses need different kinds of merchant services. Food trucks sell differently than ecommerce stores, for example. So the technology and services offered by processors vary.
We’ll break them into four major categories: merchant processors for retail, mobile, ecommerce, and ‘other’.
Best payment processors for ecommerce
You have three options when it comes to debit and credit card processing online:
1. Ecommerce platforms like Shopify and BigCommerce are the easiest and cheapest option when it comes to selling online—perfect for someone who doesn’t have the time or money to build their own store.
2. Payment gateways like Stripe or Paypal are great if you’re building your own store with the help of a software developer. They can connect your online shopping cart to your payment processor.
3. All-in-one services like Square are ideal if you’re selling in-person and online, and need merchant services that support both systems.
Merchant processors also tend to charge slightly higher fees for online credit card processing than retail transactions, mainly because the risk of fraud is higher online. Many of the following providers also offer free trials—take advantage of them to see which providers meets your business needs:
Square
Cost: 2.75% per web transaction.
Pros: Quick setup, no fixed, monthly, or chargeback fees, free online store, works equally well for online, retail, and mobile sales.
Cons: Slow support response times, unpredictable account freezes, higher per-transaction fees than many traditional merchant processors.
Most suited for: Small ecommerce businesses that are just starting out and looking for a lost-cost, low-risk, simple solution with no hidden fees.
PayPal
Cost: 2.9% + $0.30 per web transaction.
Pros: No monthly or setup fees, familiar and trusted by customers, easily integrates into most online stores, payments deposited into your PayPal account immediately.
Cons: Inconsistent customer support, higher fees than some competitors. Have to use a PayPal account.
Most suited for: New ecommerce businesses that are looking for a trusted, straightforward, all-in-one payment processing solution that integrates easily into an existing online store.
Stripe
Cost: 2.9% + $0.30 per web transaction.
Pros: Highly customizable, developer-friendly, option to accept ACH payments.
Cons: No phone support, many customers report sudden, unpredictable payment reversals and account holds.
Most suited for: Small to medium-sized ecommerce businesses that are building their own stores and need a solution that is versatile and developer-friendly.
Shopify
Cost: 2.9% + $0.30 per web transaction plus $29/month (Basic Plan).
Pros: Full-service ecommerce platform with dozens of beautiful templates, offers support for retail and mobile.
Cons: Uses Stripe as its merchant processor (see Stripe “cons” above).
Most suited for: New ecommerce businesses that don’t have the time or money to build their own stores, or existing mobile or retail businesses that want to expand into ecommerce.
Amazon Payments
Cost: 2.9% + $0.30 per web transaction.
Pros: Allows Amazon users to use their Amazon accounts to buy from your online store, familiar brand name, quick setup, easy integration into existing online stores.
Cons: No integration with retail or mobile, no contactless payments, no invoicing.
Most suited for: Perfect for new ecommerce businesses that are already selling on the Amazon platform.
Best payment processors for retail
Merchant processing for retail is where customers report the most stress and frustration.
There are hundreds of payment solutions, each of them with different merchant services, features, and prices. So it pays to do your research, and to pick a processor that won’t saddle you with unexpected fees.
If you want to handle checkout in person through a point of sale (POS), you have two choices: you can use a traditional retail merchant processor through big banks like Chase and newcomers like Fattmerchant, or an all-in-one service like PayPal or Square.
Traditional retail processors will ask you to buy or lease your own POS system, and will charge you a series of monthly and transactional fees for support and security.
All-in-one debit and credit card processing services like PayPal and Square will provide you with equipment, bundle it with software that supports mobile and ecommerce sales too, and charge you more per transaction to offset the cost.
If you’ve set up all the equipment properly, traditional and all-in-one services both take 1-2 days to process payments and deposit them into your bank account. (Any payments processed through Square before 5pm that day, for example, show up in the vendor’s account the next morning.)
Traditional retail payment processors
Cost: Highly variable
Pros: Low error rates, support for many payment types, backed by large institutions and major credit cards.
Cons: Inconsistent customer service, high cancellation fees, long contracts, opaque pricing structures, monthly minimum fees.
The most popular traditional retail processors are the big guys: Vantiv, FirstData and Chase Paymentech. But that doesn’t necessarily mean they’re the best choice for your small business.
Their pricing is complex, highly variable and depends a lot on how much money you make and how risky your business is. The credit card readers they sell or lease to customers can be expensive, termination fees can be high, and their minimum-length contracts (some as long as 4 years) are too long for many small businesses.
If you’re considering one of these processors, we highly recommend doing some in-depth research on your own before taking the plunge.
Square
Cost: 2.75% per swiped transaction.
Pros: Quick setup, no fixed, monthly, or chargeback fees, works equally well for online, retail, and mobile sales.
Cons: Slow support response times, unpredictable account freezes, higher per-transaction fees than many traditional merchant processors.
Most suited for: Small retail businesses who have just started accepting cards, don’t want to commit to a monthly plan.
Fattmerchant
Cost: Tiered pricing with three monthly plans ($69, $79 and $99 a month, respectively), Interchange + $0.25 per transaction for basic plan ($0.15 and $0.08 per transaction for more expensive plans, respectively).
Pros: Low per-transaction processing fees, no long-term contract.
Cons: More expensive than some competitors.
Most suited for: An established retail business with more than $10,000 per month in revenue, looking for a transparent fee structure with few hidden fees.
Dharma
Cost: Interchange + 0.25% + $0.10 per transaction, $10 monthly fee, $7.95 monthly PCI compliance fee.
Pros: Transparent, no hidden fees, deep discounts for nonprofits.
Cons: Don’t accept high-risk merchants.
Most suited for: A small retail business looking for a merchant processor with an excellent reputation and great customer service. Particularly suitable for nonprofits, who are eligible for deep discounts.
CDGcommerce
Cost: Interchange + 0.25% + $0.10 per transaction, $10 monthly fee for basic plan.
Pros: No setup or annual fee, provide you with a card reader (lease), no long-term contract, inexpensive compared to many traditional merchant processors.
Cons: Mobile reader not compatible with some major payment types.
Most suited for: Small retail businesses that want an inexpensive, traditional merchant processor that grows with them as they grow.
Best payment processors for mobile
Merchant processors talk a lot of talk about how their systems work for everyone—“we’re retail, online and mobile compatible now!”—but not all mobile credit card and debit processors are created equal.
Dozens of companies have gotten into mobile credit card processing in recent years, and most are still working out all the kinks.
Many of the following debit and credit card processing companies offer customers a free smartphone EMV or chip reader with their account—be sure to order one and test it out before making a final decision about which processor to use.
Also, all of the following mobile processing services are compatible with both iOS and Android phones.
Best credit card and debit processors for invoicing, over-the-phone, and other payments
If you’re processing credit card payments over the phone or want to accept credit cards for invoice payments, you need a merchant processor that provides you with a virtual terminal, like PayPal or First Data.
A virtual credit card terminal lets you charge your customers even if they aren’t present by keying their payment information into a secure online application, and usually supports both one-time and recurring payments.
Most of the following small business credit card processing services offer free trials—make sure to take advantage of them to discover which one fits your needs best.
Flat rate vs. interchange plus: which one is cheaper?
There are two main ways a merchant processor can charge you: interchange plus and flat rate.
It’s worth understanding how the fees work before you choose a processing option, because it’s more complicated than the average business service.
Interchange plus pricing
If you use a traditional merchant processor, they’ll probably charge you interchange plus pricing, which has four different kinds of fees: a merchant account fee, a setup fee, monthly fees, and the interchange rate.
The merchant account fee will cover the cost of maintaining your merchant account, and will depend on a few factors, including sales volume and which industry you’re in. It isn’t unusual for two companies to be charged hugely different merchant account fees by the same merchant account provider simply because they’re in different industries.
A one-time setup fee will usually cover setup labor costs, while monthly fees cover things like technical support and security.
The interchange rate is what credit card issuers like Visa and Mastercard decide to charge your merchant processor, and is passed on to you by the merchant processor (this is why it’s called “interchange plus”). This rate will depend on what type of card is involved in the transaction (rewards card, business credit card, debit card, etc.) and the type of sale (retail, online, etc.).
Flat rate pricing
All-in-one processors like Square and PayPal simplify their fee structure by offering one flat processing fee for all kinds of transactions—usually somewhere between 2.7 and 3.0 percent of the total transaction value.
While the per-transaction fees might be higher than interchange plus, a flat rate cost structure might appeal to someone who wants a simple, straightforward solution with no surprise costs.
Choosing a fee structure based on monthly revenue
If your business earns less than a few thousand dollars a month, a flat rate, all-in-one service will likely be cheaper. Once your monthly revenue exceeds $20,000 a month, however, it could be worth switching to interchange plus.
While flat rate services tend to be simpler and don’t have any monthly fees, interchange plus usually has lower transaction fees. At a certain sales volume, these savings start to add up, and will cost you less than sticking with a flat rate service.
Choosing a fee structure based on average transaction size
Interchange plus processors will often charge both a percentage rate (say, 2.3% per transaction) and a per-transaction fee (say, 30 cents per transaction). If your average sale price is low—say less than $10 per transaction—these fees can add up, and it might be cheaper to go with a flat rate plan.
If your average sale price is high, however, a fixed fee of 30 cents per transaction might do a lot less damage to your bottom line than a percentage fee. In this case, the higher percentage rates associated with flat rate plans might end up costing you more, and it might be worth switching to interchange plus.
