The Small Business Owner’s Guide to Choosing a Merchant Processing Services

Credit card processing fees can take a big chunk out of your profits as a business owner. Payment processing companies take between 1.43-3.5% of your credit card transactions plus markups, interchange, chargebacks, and a myriad of additional fees. 

Naturally, the merchant processor you choose can make or break your business. As a small business owner, you need to be able to process credit card payments affordably.

This article will review everything that you need to know about merchant processors. We will cover what merchant processors are, how they work, and what services they provide. We’ll also discuss what you should consider when choosing a merchant processor and share our top recommendations for processing companies for small businesses.

Let’s dive in.

What is a Merchant Processor?

A merchant processor is also called a credit card processor. It’s a company that provides merchant services –– specifically credit card and debit card processing. 

However, your processing company doesn’t determine your credit card processing rates –– that’s set by the card company. Your customer, aka the cardholder, is the one who determines the card company you’ll work with. Fortunately, the right merchant processor will do all of the interfacings for you. 

It’s interesting to note that popular credit card processing companies including Visa and Mastercard had planned a price increase on certain transactions in 2021. This would have been another hit for pandemic-plagued merchants. Fortunately, the planned price hikes were delayed due to the impact of COVID-19.

Now, there are a few variants that factor into what you’ll pay –– whether it is an e-commerce or card-present transaction and if the purchase is keyed-in or swiped. 

Your credit card processor does take an additional markup for processing payments. However, what that markup actually is and how membership is structured varies by company.

How do Merchant Processors Work?

Debit and credit cards are the favorite forms of consumer currency in 2021, accounting for 28% and 27% of payments, respectively. Merchant processors serve as the middleman. 

These companies interface between your bank, your customers’ bank (or issuing bank), and your customers’ credit card company. You pay the credit card processing company to take care of confirming funds and interfacing between financial institutions.

So, how important is your credit card processing company? Extremely. Almost 38% of customers haven’t been able to purchase from a small business store because it didn’t accept their form of payment. 

Your payment processor determines how much you pay per transaction beyond the set credit card company fee. Because of this, you’ll want to weigh your options to figure out which fee structure works best for you.

Many credit card processing companies offer credit card readers and payment gateways on rent, or as part of their services. Each retailer has different needs when it comes to payment gateways. However, the more options you offer customers, the fewer transactions you’ll miss out on (for not accepting certain payment methods).

EMV chip payments are catching on in 2021, for instance. Some customers still prefer to pay via the ACH network. Although it’s more expensive for retailers to process, many customers travel with an American Express card for added security. 

You’ll want to offer multiple options if you own a store that brings in a lot of tech-savvy or traveling customers. It’s better to offer a payment method that customers rarely use than to have to turn someone away.

How do Merchant Service Providers Help with Payment Processing?

Locking down the right payment processor can be challenging. Every merchant account provider claims to be the best, and many services are the same from company to company. 

They all provide processing services, as well as rental card terminals or free point-of-sale or POS systems. They all interface between financial institutions on behalf of SMBs and invoice merchants for their services.

So how do you know which payment services provider is right for your business needs? First, you need to assess what specific services your business requires.

What to Consider When Choosing a Merchant Service Provider

Any merchant service provider you choose will process credit card payments, but their additional offerings can vary quite a bit. You’ll need to know what attributes differentiate one company from another. There are a few key areas where certain payment processors stand out from the herd:

• Payment structure: There are a few different pricing models that merchant processors can use for payment processing. These include flat-rate, tiered, interchange plus, and subscription models. Some are designed to help larger businesses save on costs, while others are better for SMBs.

• PCI compliance: PCI refers to “payment industry security standards.” These standards impact any retailer that accepts, transmits, or stores customer data. You can face a hefty fine if you neglect to follow these standards. Certain merchant processors, such as Payment Depot, include PCI compliance as an invisible part of your monthly fees. Others charge for it as an add-on charge to your monthly bill.

• Customer support: Take into account what hours a payment processing company offers customer support to ensure you’re able to receive the help you need when you need it. You’ll also want to check out a company’s BBB ratings, to get a feel for the quality of support that you will receive.

• Security: Does the merchant processor you’re considering offer end-to-end encryption to protect customer data? Do they adhere to EMV compliance regulations? These are questions you’ll need to take into account to ensure all of your data is protected and prevent hefty fines down the line.

You’ll also want to consider whether the point-of-sale systems that a company offers meet your payment needs. For instance, many merchants during the pandemic added contactless checkout options to meet consumer demand. However, not all merchant processors provide terminals with this option.

The Best Merchant Processors for Small Businesses

In closing, let’s review six of the best merchant processors for SMBs to process payments. The following payment solutions are some of the most well-known and trusted in the business. But their processing fees, like their fee structure, vary based on the payment model. You’ll also want to look into add-on fees, such as early termination fees, before choosing a provider. 

1. Square

Square is one of the most popular APIs in the payments biz. APIs, or Application Programming Interfaces, are third-party payment processors. They help protect merchants from fraud and information breaches. 

Square’s flat-rate pricing, mobile app, low transaction fees, and mobile card readers make it good for low-volume merchants. However, Square is known for freezing (or completely terminating) accounts at the slightest hint of fraud. So if you can’t afford an account freeze you’ll want to proceed with caution.

2. Stripe

Stripe is another popular API for small businesses. Like Square, Stripe offers flat-rate pricing without any surprises on your monthly bill. It offers advanced reporting for free to subscribers and is best for businesses with a strong e-commerce presence. However, Stripe also isn’t made for high-risk merchants and it’s a complicated technology for new users to learn.

3. PayPal

PayPal may be the easiest app for merchants to set up and start processing payments. It’s secure and highly trusted. PayPal doesn’t even require a monthly contract to get up and running. It’s another great option for SMBs with low transaction volumes. 

However, PayPal is also an API. This means that, like Stripe and Square, PayPal can shut down your account without warning if it catches a whiff of fraud of any kind.

4. Intuit Merchant Services (QuickBooks)

Intuit Merchant Services by QuickBooks is essentially a merchant processor that’s chosen by merchants based on convenience alone. It easily integrates with the QuickBooks ecosystem. 

Like Payment Depot, Intuit Merchant Services uses an interchange-plus pricing model. However, it’s more costly than Payment Depot and doesn’t offer Payment Depot’s award-winning, round-the-clock customer support.

5. Payment Depot

Payment Depot is the highest-rated merchant processor in the business. Payment Depot also offers 24/7 customer service and a wide array of payment gateways to choose from, including Clover mobile card readers.

The real standout is Payment Depot’s pricing model. Its interchange-plus pricing uses a monthly membership fee and tiny 7-cent markup over interchange fees to help you save those hard-earned profits. 

Not many payment processors in the market can say that they save merchants an average of $400 a month on credit card processing. Get in touch with Payment Depot’s award-winning support team to learn how wholesale-style payment processing can take your small business to newer heights.