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Best Credit Card Processing for Small Business (Ecommerce, Retail, Mobile, and More)

By Nick Zarzycki on September 18, 2019

You’re opening a store, an ecommerce business, or a subscription service, and you want to start accepting credit card payments. What do you do? You have to pick a credit card processor (sometimes called a “payment processor”).

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 a payment processor?

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 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 card-reading 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.

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Choosing the right payment processor for your business

Different businesses need different kinds of payments. 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 accepting credit card payments 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 a processor that supports both systems.

Merchant processors also tend to charge slightly higher fees for ecommerce transactions 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 fits best with your store:

Square

Cost: 2.75% per web transaction.

Pros: Quick setup, no fixed or monthly 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.

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 chip reader, 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 options, each of them with different features and payment plans. So it pays to do your research, and to pick a processor that won’t saddle you with unexpected fees.

If you want to process cards in person, 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 credit card reader, and will charge you a series of monthly and transactional fees for support and security.

All-in-one 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.

Cons: Inconsistent customer service, high cancellation fees, long contracts, opaque pricing structures.

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 equipment 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 or monthly 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: Three different monthly subscription 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 costs, 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 payment processors are created equal.

Dozens of companies have entered the mobile payment space in recent years, and most are still working out all the kinks.

Many of the following processors offer customers a free chip reader with their account—be sure to order one and test it out before making a final decision about which processor to use.

Square PayPal Shopify SwipeSimple
Cost: 2.75% per web transaction, $49 for Bluetooth payment terminal Cost: 2.7% for swiped-in mobile transactions Cost: 2.9% + $0.30 per transaction, $9/month (entry-level plan) Cost: Depends on which merchant processor you pair with.
Pros: Free card reader, no startup or monthly fees, highly customizable. Pros: Strong brand name, payments deposited immediately into PayPal account. Pros: Integrates well with Shopify, free mobile reader, easy to use. Pros: Allows you to pair the company’s card reader and payments app with a compatible merchant provider.
Cons: Limited support and customer service, card reader not compatible with some payment types. Cons: Limited customer support. Cons: Limited functionality, limited customer support. Cons: Poor customer reviews for the technology experience.
Best for: A small startup business looking for a low-risk, low-commitment mobile payments solution, also interested in retail and ecommerce sales. Best for: A vendor that already uses PayPal for ecommerce or retail and is expanding into mobile payments, or new to credit card processing in general. Best for: Businesses already using Shopify for ecommerce, businesses looking to eventually open an ecommerce store. Best for: A business that wants to accept mobile payments and that already uses a merchant processor that is compatible with SwipeSimple.

Best payment 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 terminal lets you charge your customers even if they aren’t present by keying their payment information into a secure online application, and usually support both one-time and recurring payments.

Most of the following processors offer free trials—make sure to take advantage of them to see which one fits your needs best.

First Data FreshBooks PayPal
Cost: Varies, depending on business type, size and sales volume Cost: $19.95/month for intermediate pricing plan (bill up to 20 clients) Cost: 2.9% + $0.30 for every transaction you invoice
Pros: Discounts for higher volume users Pros: Good customer service, professional-quality invoicing system, easy to use. Pros: Trusted brand, money deposited immediately into PayPal account, predictable pricing.
Cons: Long contracts, inconsistent customer service Cons: Limited to invoicing and basic accounting, more expensive than some competitors. Cons: Limited customer support, unpredictable payment reversals and account holds.
Best for: Larger businesses that plan on processing more than $10,000 a month. Best for: Small businesses looking for a simple, easy to use system focused on invoicing. Best for: Existing PayPal customers, small businesses looking a low-cost, straightforward invoicing system, that don’t want to store customer credit card information in their own system.

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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 sign up, because it’s more complicated than the average business service.

Interchange plus

If you use a traditional merchant processor, they’ll probably charge you interchange plus, 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

All-in-one processors like Square and PayPal simplify their fee structure by offering one flat 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.


This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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