For small business owners, using the right payment processor isn’t just about accepting payments—it’s about the technology that underpins your entire financial operation.
No matter if you have a physical storefront or an online store, your customers expect payment processing to happen without a hitch. Choose the wrong provider, and you’re looking at unnecessary expenses, operational headaches, and even affected cash flow.
However, selecting the best payment processor for small businesses can be a daunting task. This guide will walk you through everything you need to know to make an informed decision that benefits your business, your customers—and your bottom line.
Understanding Payment Processing Basics
Before we dive into the finer details, let’s cover some of the basics you need to know.
What is a payment processor?
A payment processor refers to a service provider that acts as an intermediary between a business, a customer’s bank, and your business’s bank account.
Whenever a customer makes a purchase—either in-person or online—the payment processor is responsible for transferring those funds from the customer’s account to the merchant account, and finally to your business’s account.
Without a payment processor, it’s not possible to securely accept payments, especially online transactions that carry a higher risk of fraud. Payment processors make it possible to accept a wide variety of payment types, from credit card payments to digital wallets. By choosing the best payment processor for small business needs, you can keep payment processing cost-effective and reliable.
How payment processing works
When a customer initiates a payment, either via an in-store point of sale (POS) or an online store‘s checkout, the merchant’s terminal or payment gateway encrypts the card information and sends it to the payment processor or merchant services provider.
The payment processor forwards the transaction to the card issuing bank, which checks for sufficient funds and unusual spending patterns that could indicate fraud. This authorization occurs within seconds, sending either an approval or denial.
Once authenticated, the transaction is cleared by the card network e.g. Visa and Mastercard, who match the authorization and apply the appropriate fees, depending on the payment type e.g. a debit card versus a credit card transaction or card-not-present transaction.
The issuing bank will then release the funds, deducting interchange fees before transferring them to the merchant’s bank. This entire process typically takes 24-72 hours, though some processors offer same-day settlement options.
Factors to Consider When Choosing a Payment Processor
Now that you understand how payment processing works, let’s take a look at the factors you must consider when choosing the best payment processor for small business needs.
The types of payments you need to accept
There’s a growing number of digital payment options available for both online and in-person payments, so your business needs to make sure it’s catering to customer preferences. Payment types to look for in a payment processing service include:
- Debit and credit cards
- Contactless payments
- Digital wallets i.e. Apple Pay and Google Pay
- ACH
Processing fees and pricing structures
Different payment processing providers will use different pricing models for their services—and transparent pricing isn’t always a given. The most common fee structures include:
- Interchange-plus pricing: This is composed of two separate fees: The interchange fee, which is the base fee set by card networks, and a markup added by the payment processor. Interchange-plus pricing is a popular system because it’s easy to understand what a provider is charging for their services.
- Flat-rate pricing: A flat fee (usually charged monthly or annually) regardless of transaction volume. This tends to be better suited to larger businesses.
- Tiered pricing: A provider may offer several plans at different price points, depending on transaction volume, access to a payment gateway, or other add-on features.
It’s important to note payment processors can use a combination of pricing tactics. For example, you might pay a per-transaction fee in addition to a monthly fee.
Contract terms and length
Some payment platforms will set inflexible conditions for contracts, making it difficult to switch providers or change plans without paying a hefty fee. Be sure to look for the content duration, early cancellation conditions, and conditions for fee increases.
Hardware and software compatibility
If your business already owns hardware such as card readers or POS systems for in-person transactions, check that the software platform is compatible. Alternatively, a payment provider may offer you a bundled deal for the software and hardware combined.
Security features and PCI compliance
PCI DSS compliance is essential in any payment system that’s up to date on the best fraud detection practices, such as payment tokenization and chargeback prevention. Before committing to a provider, make sure you understand their level of PCI compliance and how this is being implemented.
Customer support and technical assistance
If in-person or online payment issues arise, this can result in thousands of dollars in revenue being lost. Make sure that your payment processor is equipped for 24/7, user-friendly customer service support across email, phone, and live chat. Extensive documentation that allows your team to troubleshoot issues independently is also helpful.
Integration with existing systems (e.g., POS, accounting software)
Make sure a payment provider offers seamless integrations via APIs for the accounting (e.g. QuickBooks) and eCommerce platforms (e.g. Shopify) your business is using. This ensures seamless data sharing and accurate record-keeping, which is essential come tax season!
Popular Payment Processors for Small Businesses
Now that we’ve discussed the factors you should look for in your payment processor, let’s take a look at some of the best payment processors for small business needs.
Stax
Stax is a payment processing company focused primarily on eCommerce and recurring billing solutions. It offers a membership-based pricing model, which is particularly beneficial for larger businesses with higher processing volumes.
Pros:
- Direct-cost interchange pricing
- Powerful analytics feature
- No markup on transactions
- Excellent integration capabilities
- Virtual terminal included
Cons:
- Available only for US-based businesses
- Limited international currencies accepted
Best suited for: Established businesses with consistent monthly processing volumes
Payment Depot
Payment Depot offers an all-in-one solution for online, in-store, and mobile processing, in addition to payment gateway services. It’s a popular choice with small business owners, thanks to its interchange-plus pricing model and strong customer service offering.
Pros:
- Transparent interchange-plus pricing
- Free gateway and virtual terminal
- No early termination fees
- Range of hardware options
Cons:
- Not well-suited for high-risk industries
- Limited international currencies
Best suited for: Small to medium-sized businesses looking for stable pricing and excellent customer support.
CardX
CardX is a credit card processing company that specializes in automated surcharging programs, making it unique among payment processors. With CardX, businesses can pass the cost of credit card processing fees onto customers and be confident they are fully compliant with applicable state and federal laws.
Pros:
- Zero-cost processing through compliant surcharging
- Automatic surcharge calculation
- Clear customer communication tools
- Custom reporting features
Cons:
- Not suitable for all business types
Best suited for: Businesses in industries where surcharging is commonplace, such as professional services.
Steps to Choose the Best Payment Processor for Small Business Needs
Choosing the right payment processor may seem daunting, but doesn’t have to be. All you need to do is follow these steps.
Assess your business needs and volume
It’s important to understand what payment features are most important for your business—and how your transaction volume is going to influence what pricing structure is most cost-efficient. For example, if you have a small business, a flat monthly fee will likely be more expensive than a per-transaction model.
Research and compare options
Before you get attached to any one provider, make sure you compare providers and understand the similarities/differences when it comes to pricing, integrations, add-ons, PCI compliance, and payment options. Note: Certain business types i.e. high-risk businesses may not be able to partner with all payment processors, so it pays to check from the outset whether your business type is supported.
Read user reviews and ask for recommendations
Sites such as G2 and Capterra are great options for getting unbiased options from current users on the quality of a payment processor. Key experiences to look out for with a payment processor include ease of use, customer support, and hidden processing fees.
Request quotes and negotiate terms
Pricing with a payment processing provider can be negotiable based on factors such as transaction volume, business type, and processing history i.e. chargebacks. It’s important to ask what discounts/terms are available with different providers to find who offers the best value.
Test the system before fully committing
A payment processor should offer a free trial or onboarding so your business can stress-test different features and whether it offers the functionality you require. Look for a payment processor who can offer you an onboarding specialist free of charge to ensure you’re getting everything you need out of the system.
Red Flags to Watch Out for
When choosing a payment processor, you must look out for the following red flags.
Hidden fees or confusing pricing structures
Chargeback fees, setup fees, payment gateway fees, monthly fees—payment processing fees are confusing and vary wildly from one provider to another. Sometimes, it’s not clear what you’re paying for upfront and what will arrive in the form of additional charges at the end of a billing period. If a provider doesn’t make this obvious in their pricing, it’s better to stay away.
Long-term contracts with hefty cancellation fees
Locking business into long, inflexible contracts offers payment processors a lot of stability—without the pressure to necessarily offer a quality service. If a provider is pushing for lengthy minimum terms, it’s not in your business’s best interest.
Lack of transparency in terms and conditions
A payment service provider should have in-depth T&Cs available on their website for prospective users to review. If these are not easily accessible or not comprehensive, this could cause problems for your business.
Poor customer support reputation
If you had a major technical issue that affected accepting payments, would a payment processor come to the rescue before cash flow is affected? If any online reviews flag unhelpful or slow responses, then your business cannot feel truly confident in partnering.
Outdated technology or limited features
If a payment provider is not regularly updating their tech stack or bringing in additional features or payment methods to stay competitive, you’re not getting full value out of your investment. And when a potential provider is already lagging behind, it’s only going to get worse over time!
Tips for Optimizing Your Payment Processing
Once you’ve found a suitable processing partner, make sure you’re continually optimizing your payment processing. Here’s how.
Regularly review and negotiate your rates
Never consider your payment processing rates as a “set and forget.” As credit card processing fees are updated and your transaction volumes change, it’s always a good idea to negotiate to lower your fees or get more flexible terms. The longer you partner with a payment processor, the more likely it is you will get favorable rates.
Stay informed about industry changes and new technologies
As consumer purchasing habits and preferred payment methods keep changing, it’s important your business stays at the forefront of what consumers want. If there are specific features or functionalities you would like to see, make sure you provide this feedback to your provider; you could play a big role in keeping them ahead of the curve!
Implement fraud prevention measures
eCommerce fraud tactics are getting increasingly sophisticated—and that means fraud protection practices must evolve as well. Nothing will lose the trust of consumers more quickly than a data breach or hack. Your payment processing solution should help you with implementing best practices to prevent fraud, such as tokenization and two-factor authentication. Your wallet (and your customers) will thank you.
Train staff on the proper use of the payment system
Switching payment systems can be trying for a business, but it’s critical to get everyone up to speed to maximize the capabilities of your new system. Make the most of any educational resources offered by your payment processor, such as training seminars, webinars, and onboarding specialists.
Final Words
The right payment processor will affect more than just the point-of-sale experience—it has a measurable impact on your business’s bottom line. You need to carefully assess payment methods, customer support, fraud prevention, pricing structure, and more to find the best payment processor for small business growth.
For small to medium-sized businesses seeking a reliable, transparent payment solution, Payment Depot is a standout option. With its transparent pricing model, month-to-month contracts, and strong customer support, Payment Depot provides the flexibility that growing businesses need. Check out Payment Depot today!
