Merchant Payment Processing: Everything You Need to Know

Merchant Payment Processing: Everything You Need to Know

You already know that merchant payment processing comprises a large portion of your business expenses. 

Whether your customer uses a credit card or debit card to process payments, your payment processing company is the middleman. Payment processors interface between your customer’s issuing bank and your merchant bank, the acquirer, to transfer funds for your purchase.

Merchant services companies step up when cardholders swipe or enter their card information at your POS or payment gateway. Merchant services for credit card processing generally cost 1.5% to 3.5% of each transaction. This is a pretty substantial range, so you’ll want to do your research to ensure you’re getting the best rate possible.

Merchant Payment Processing_Average Card Processing Costs_Infographic

In this article, we’ll talk about what merchant payment processing means for small businesses. We’ll also look at the top players in the market, and how to choose between them. 

Let’s delve in.

What Is Merchant Payment Processing?

Merchant payment processing is how your payment processor handles payments for your small business. The key players involved are:

  • Your issuing bank
  • Your payment processor
  • Your point of sale or POS system
  • Your customer’s financial institution
  • Your customer’s credit card company
Merchant Payment Processing_Players Involved_Infographic

The same merchant payment processing steps take place with multiple payment options, whether it’s online payments for eCommerce transactions, credit or debit cards, in-app payments, or contactless NFC payments. (59% of SMBs already use mobile or contactless payments, so you don’t want to be a late adopter of this trend.)

How Does Credit Card Processing Work?

This is a lot less intuitive than it seems at first glance. First, your customer swipes or enters their credit card information at your card reader. Your payment processor then verifies the funds in your customer’s issuing bank––aka the issuer. The funds are withdrawn from your customer’s bank account and sent to your merchant account. This process usually takes 2-3 business days.

Whichever payment solution is used, you’ll work with your small business’s payment service provider to negotiate your rate. There’s usually some wiggle room in credit card payment processing rates, so don’t be scared to advocate for your SMB.

What Are the Common Pricing Structures Used by Payment Processors?

Processing fees vary quite a bit, depending on a few different factors. These include your customer’s credit card company. Discover, Mastercard, American Express, and Visa all charge different interchange rates.

Pricing also varies depending on which integrations your SMB needs. Do you need a virtual terminal to process debit card transactions at your point of sale system? What about contactless payment options, which have exploded since the pandemic?

Some payment processors charge a monthly fee in addition to your transaction fee. However, this is most common when using a tiered pricing structure, which rarely pans out well for the merchant. While tiered pricing looks like a great deal at first glance, transactions can easily be labeled as “non-qualified.” When this happens arbitrarily, merchants have to go up to bat for a single transaction or simply accept exorbitant fees.

Merchant Payment Processing_Pricing Models_Infographic

What to Look for in a Payment Processor

There are a few things to look at before you lock down a payment processor. First off? Some solution providers will try to tack on additional fees. These include transaction fees, early termination fees, and exorbitant chargeback fees.

Check your merchant payment processing agreement for disclosures. It’s here you’ll find whether your potential processor is PCI compliant, as well as how payments are processed. You want an automatic payment processor for credit cards, not one that uses ACH payments. That’s because ACH payments take 3-5 business days to process, and don’t offer the same security options.

The Best Payment Processors for Small Businesses

There are hundreds of merchant service providers for small business owners to choose from. Which one is right for you will depend on a few different factors. These include your customer’s preferred payment method, your business type, location, and processing volume.

Let’s take a look at what five of the most popular payment processors have to offer.

Payment Depot

With no markups, no contracts, and no hidden fees, certainly the most cost-effective is Payment Depot. Payment Depot uses a subscription-based pricing structure, saving merchants an average of $400 a month on credit card processing. 

Merchants only pay a monthly fee (and a small per transaction fee) in exchange for the direct costs of interchange—regardless of how much they process. This puts it ahead of merchants with aggregate, tiered, or flat rate pricing.

However, Payment Depot only works for merchants and card networks within the US. Customers need to find a different payment processor for international credit card transactions.


Stax offers a transparent pricing structure that customers can trust. Its easy 2-way QuickBooks integration makes it a hit for small business owners. 

Stax is subscription-based, meaning business owners pay a monthly fee instead of per transaction pricing. Obviously, SMBs don’t want to pay for features they don’t really use. So it’s ideal for businesses processing $10,000 a month or more.

With that said, Stax offers dedicated account managers to its clients. This means a single person is assigned to guide you through the process. So issues are resolved quickly and easily in most cases.


Stripe is a third-party payment processor like PayPal. Although Stripe’s flat rate payment structure seems intuitive, accounts are less stable than with a traditional payment processor. Like PayPal, this can result in your merchant account being suddenly shut down at the slightest whiff of fraud, which results in lost business and tons of unhappy customers.

Aggregate payment processors like Stripe can get your business up and running quickly. Stripe is even optimized for international business. But if you need account stability or easy setup, Stripe is not the right solution for you.


Clover’s flat rate pricing structure makes it a great option for brand-new businesses. The company’s month-to-month contracts make it a popular option for businesses that don’t have the funds to go the traditional route.

However, terminals, POS stations, and payment gateways need to be rented or leased from Clover. They aren’t part of the contract, like with many other payment service providers. In addition, with Clover, First Data is your merchant acquirer. First Data is not BBB accredited and has 2.2/5 stars from BBB customer reviews.


Square is popular because of its easy integrations with complimentary software. However, merchants have to pay an additional fee to use its advanced features. Customer service at Square isn’t very competitive either, which can cause issues for merchants when something needs to be resolved right away.

Square’s flat rate pricing structure means it can be more costly than necessary for businesses with a large processing volume. But Square’s online store builder is fun and intuitive to use. So, it’s a good option for smaller businesses that are just getting online.

The Bottom Line

Payment Depot Highest Rated Processor_Banner

It’s hard to find all of the features you need for merchant payment processing in one place. But, for US-based businesses, Payment Depot’s award-winning customer service and A+ BBB rating put us ahead of the competition. Especially when we’re able to save merchants an average of $400 a month on credit card processing. 

It all starts with transparent, hands-on, membership pricing. Contact our award-winning customer support team today to learn more.


Let’s now quickly cover some of the most frequently asked questions about various processing solutions.

What is a point-of-sale System?

A point-of-sale system is simply the checkout where you accept physical and contactless payments. Most POS stations have a cash register, card reader, and an NFC scanner for contactless payments.

What is a Payment Gateway?

A payment gateway is software that enables your SMB to accept online payments. Most payment processors offer a payment gateway as a free addition to their services. But some don’t, so be sure to ask about the cost of a payment gateway before you sign a contract.

What is a Merchant Account?

Merchant accounts allow you to accept credit card, debit card, and NFC payments. Some business owners still operate without an actual merchant account. They do this through a third-party payment processor like PayPal or Venmo. However, aggregate payment processors still don’t offer the same security as those that use traditional merchant accounts.

What is eCommerce Payment Processing?

eCommerce payment processing is simply how you process online payments. These take place at the payment gateway for your online store, rather than at your physical POS station. Customers may also use a contactless payment option, like Google Pay or Apple Pay, to pay for eCommerce purchases.

Want to save 40% on payment processing? Let's Talk!