Are the Largest Credit Card Processor Suitable for Small Businesses?
Credit card transactions play a substantial role in the larger United States economy. The country’s credit card-issuing industry has a $156.7 billion market size (based on revenue), which is expected to grow 10.3% this year.
A handful of large credit card processing companies cater to major players in the retail, service, and hospitality industries. They often provide these market leaders with attractive rates and terms.
In this article, however, we’ll explore if the largest credit card processors may be suitable for the needs of smaller businesses. Let’s get started.
How Credit Card Processing Works
Credit card processing refers to the completion of a payment using a credit card. A customer often makes a credit card payment in person. Phone and online orders are also common.
Major credit card brands include Visa, Mastercard, American Express, and Discover. These credit cards frequently use EMV (or chip card) technology enabling extra card data security. Further, Google Pay and Apple Pay are mobile-based credit card payment apps that utilize contactless payment technology.
Let’s take a look at the steps involved in a credit card transaction in-store.
- The customer swipes, taps, or dips their credit card at the card terminal.
- The card data is passed to the credit card processor, which forwards it to the card network.
- The card network sends the card data to the customer’s bank (or issuing bank). These issuers verify that the cardholder’s account has sufficient credit. Fraud detection takes place here.
- The issuing bank approves or declines the purchase and tells the payment processor. If approved, the funds are transferred from the issuing bank to the merchant account. If declined, the customer must submit another form of payment.
- The funds (minus the transaction fees) are transferred from the merchant account to the merchant bank account. This step may take several days.
Typical Credit Card Processing Costs
Several variables comprise a merchant’s credit card processing costs. The card issuing bank, the credit card network, and the payment processing company each charge their respective fees. The bank and card network dictate their fees to the market. The payment processor sets its own processing fees based on one of the following pricing models.
Tiered pricing. Rates are based on three primary tiers. This pricing model does not favor small businesses.
Flat-rate pricing (or blended pricing). The processor charges a standard “flat” rate for every credit card transaction. This model offers more predictable charges.
Interchange-plus pricing. The transaction fee consists of the card network’s interchange fee and the processor’s markup. This is a transparent pricing model. Payment Depot uses this cost-saving structure.
Membership-based pricing. Merchants pay only an annual or monthly membership fee and the card network’s interchange fee. Stax Payments uses this cost-saving structure.
Payment processors (or merchant services providers) may assess additional fees to merchants. These fees help to fund the processor’s operations.
- Account fee
- Terminal lease fee
- Payment gateway fee
- PCI compliance fee
- Chargeback fee
- Monthly fee
- Monthly minimum fee
- Statement fee
- Termination fee
Factors to Consider When Choosing a Payment Processor
To select the right payment processor, determine the factors important to the current and anticipated growth of your business. Evaluate several payment processing companies based on these criteria.
1. Industry and Business Type
Look for credit card processors that cater to specific industries such as restaurants or retail sectors. These companies may offer favorable rates and/or terms to small businesses within that industry. Note that some credit card processing services decline to work with businesses in high-risk industries.
Next, consider how your business operates. If you run a convenience store, your customers want to quickly purchase their coffee, sodas, and snacks at checkout. Choose a POS system that can swiftly process credit card transactions and debit cards.
On the other hand, if you’re starting an e-commerce business, look for payment processors catering to e-commerce retailers that can help your customers make fast online payments.
2. Credit Card Processing Fees for Small Business
Besides transaction fees, small businesses may be assessed other objectionable fees. Membership-based pricing eliminates many of these extra fees.
3. Customers Pricing Transparency
Payment providers do not always offer pricing transparency to customers and prospects. Many companies do not publish pricing details on their website. This forces small businesses to contact a salesperson for information.
Some sales associates may not fully disclose all payment services contract details. To avoid unwelcome surprises, business owners should read the agreement’s fine print before finalizing a service contract.
4. Simple Software Integrations
Most payment solutions providers bundle software integrations into their service packages. For example, the QuickBooks software integration enables businesses to sync their transaction data with their QuickBooks accounting program. With an application programming interface (or API), two software programs can seamlessly function together.
5. Focus on Data Security
Each payment processor should meet the PCI DSS (or Payment Card Industry Data Security Standards) requirements. Select the PCI compliance tier that corresponds to your business’ data security needs.
6. Top-notch Customer Support
Select a payment processor that offers customer support during your business’ operating hours. Ideally, that means 24/7 telephone customer service and tech support services, plus email and chat functions.
The Largest Credit Card Processors in the United States
A handful of large credit card processing companies handle much of the United States’ credit card processing volume. Major corporations often partner with these large-scale payment processors.
1. Bank of America
Bank of America Merchant Services is affiliated with the United States’ second-largest bank. This mega-processor accepts all electronic payments. The company also offers mobile support and next-business-day funds access.
2. Chase Bank
Officially called Chase Paymentech, Chase Bank is the payment processing branch of the United States’ biggest bank. This mega-processor handles payments in over 130 currencies. Chase offers fraud detection, security solutions, and data analytics services.
3. Citigroup
This large-scale payment processing company offers end-to-end processing capabilities. Citigroup provides business owners with billing, reporting, and customer service functions.
4. Elavon
Elavon is the United States’ seventh-largest payment processor, and it is a subsidiary of U.S. Bancorp. The company processes credit card payments for over one million merchants in 30+ countries.
5. Fiserv
Operating in more than 100 countries, Fiserv accepts multiple payment methods. The company also focuses on risk identification and mitigation. In 2019, Fiserv acquired First Data, another large payment processor.
6. FIS
Fidelity Information Services (or FIS) is a major financial services technology company. The business caters to the retail banking, merchant, and capital markets industries.
7. Global Payments
This worldwide payment solutions provider accepts numerous payment methods. Besides digital payments, the company processes gift cards, ACH checks, and money transfers. Global Payments also markets point-of-sale (or POS) equipment.
8. TSYS
The United States’ third-largest payment processor/credit card issuer, TSYS services more than 3.5 million small business and medium-sized business merchant sites. TSYS also partners with over 1,300 financial institutions in over 100 countries. Global Payments acquired TSYS in 2019.
9. Wells Fargo
Considered a “Big Four” bank, Wells Fargo supports signature and PIN transactions. The company offers tokenization and encryption technology and next-business-day merchant funding.
Largest Credit Card Processors Cater Enterprise-level Businesses
Large payment processing companies primarily target enterprise-level businesses. A merchant services provider likely offers better transaction rates to these higher-volume customers. The rates are often unfavorable for small- and medium-sized businesses with a lower transaction volume.
Within the past few decades, however, financial technology sector disruptions have given rise to new merchant services providers. These companies cater to smaller businesses, including startups. The merchant services businesses offer competitive rates plus other desirable payment systems features such as:
Transparent interchange-plus pricing. Many small businesses choose a payment processor offering interchange-plus pricing. This transparent framework consists of the card network’s interchange fee plus the payment processor’s markup fee. Compared to blended pricing or tiered pricing, interchange-plus pricing often results in lower overall payment processing costs.
Flat-rate pricing. Lower-volume businesses should also consider a flat-rate pricing structure. Here, the merchant pays a flat rate for every card transaction, regardless of its type. The payment processor does not charge monthly or annual service fees.
The Best Credit Card Processing Companies for Small Businesses
Several small business-friendly payment processors have gained ground in this competitive industry. These best credit card processing companies offer a distinctive combination of features and benefits.
1. Payment Depot
This well-regarded payment processor offers transparent Interchange Plus pricing and no early termination fee. Payment Depot routinely gets high marks for its live, U.S.-based customer support. The company does not accept high-risk businesses.
2. PayPal
This widely-known payment processor accepts in-person and online payments, even from international businesses. The transaction process is simple, and merchants don’t pay monthly fees. High-risk businesses may not be approved.
3. Stripe
This third-party payment processor is ideal for e-commerce retailers and international businesses. Clients in varied industries use this customizable platform. Stripe’s setup process is complicated and will likely require developer assistance.
4. Square
Square’s mobile card reader has enabled easy in-store payments and online payments for many small businesses. For example, field-based service professionals, craft show vendors, and contractors utilize Square’s mobile payments solution. Square isn’t ideal for businesses with high processing volumes.
5. Clover
The Clover payment processing system features substantial POS capabilities. Clover also offers flat-rate pricing, no mandatory long-term contracts, and 24/7 customer support. You must purchase the Clover hardware to use the POS system and associated apps.
6. Stax by Fattmerchant
Stax is a subscription-based payment processor offering affordable membership-style pricing. Businesses also enjoy integrated e-commerce support. Stax’s subscription fees may not be feasible for small businesses doing a low volume.
Choosing the Best Credit Card Processor
Small businesses seeking affordable payment processing solutions should give Payment Depot serious consideration. This popular transparent, Interchange Plus payment processor offers very reasonable rates, no cancellation fee, and live, U.S.-based customer support.
These benefits make Payment Depot a good choice for businesses in many industries. Contact us today to learn how we can help your small business save hundreds of dollars in credit card processing every month.
Quick FAQs about Credit Card Processors
Q: What is the role of credit card processors in small businesses?
Credit card processors manage the completion of a payment using a credit card. They handle the transfer of card data from the customer to the card network and the issuing bank, and finally, to the merchant’s bank account. They play a key role in enabling small businesses to accept credit card payments from customers.
Q: What major credit card brands are commonly used?
Major credit card brands include Visa, Mastercard, American Express, and Discover. Google Pay and Apple Pay are also commonly used mobile-based credit card payment apps.
Q: What are the steps involved in a credit card transaction in-store?
The steps involved in a credit card transaction in-store include customer card swiping, data passing to the processor and card network, verification by the issuing bank, approval or decline of purchase, and transfer of funds to the merchant’s account.
Q: What are the different pricing models used by payment processors?
Payment processors use various pricing models including tiered pricing, flat-rate pricing, interchange-plus pricing, and membership-based pricing. Each pricing model has its own advantages and disadvantages, and the choice depends on the specific needs of the business.
Q: What are the factors to consider when selecting a payment processor for a small business?
Factors to consider when selecting a payment processor include the nature of the business, transaction fees, pricing transparency, software integrations, PCI compliance, and customer support availability.
Q: Are the largest credit card processors suitable for small businesses?
While large credit card processors primarily target enterprise-level businesses, they may not always offer the most favorable rates for small- and medium-sized businesses. However, many new merchant services providers have emerged to cater specifically to the needs of smaller businesses, offering competitive rates and other desirable features.
Q: What are some small business-friendly payment processors?
Some small business-friendly payment processors include Payment Depot, Stripe, Square, Clover, and Stax. These processors offer a range of features and benefits, including affordable pricing structures, robust customer support, and easy integration with other software.
Q: What is the benefit of membership-based pricing for small businesses?
Membership-based pricing can be beneficial for small businesses as it eliminates many extra fees. This model involves paying an annual or monthly membership fee and the card network’s interchange fee. Business owners should assess this option to see if it is a good fit for their business.