It seems straightforward. All a payment processor does is take money from the customer and stick it in your bank account, right?
However, that apparent simplicity is what makes the choice so difficult. With numerous providers offering what seems to be the same service, what advantages are there in choosing one over another? Like e-commerce in general, it’s not as simple as it seems. But that’s what we’re here for.
A payment gateway is not the same as a payment processor. Put simply: the former approves or declines payment methods (e.g. rejecting stolen credit cards), while the latter transfers data between the customer’s bank and yours. Payment processors typically come with a merchant account, which is essentially a holding pen for your money before it gets transferred into your bank account.
From roughly the beginning of time until now, vendors would get their gateways and merchant accounts from different vendors, then connect them. However, the last few years have seen a boom in 3-in-1 ‘full stack’ payment platforms.
For new business owners who want a simple, user-friendly way to accept credit cards, a full-stack platform like Stripe, Braintree, or PayPal is the way to go. However, as your business grows, you might want to move to a merchant account with a separate gateway. The setup costs and paperwork involved can be intimidating, but once you get it going, the transaction fees are much lower. So if you’re doing a ton of business, you’ll save money in the long run.
Due to the sheer number of options available, we can’t give you a breakdown of each service individually, but here’s a rough guide on what to consider while making your choice.
The Signup Fee
These will vary wildly depending on whether you go for a full-stack or two entities, and which ones you choose. If you’re on a budget, it might benefit you to look for a service without an initial cost. However, as mentioned above, a service with one may end up benefiting you more in the long run.
These take 2 common forms: transaction fees and monthly bills. There are several types of the former, such as authorization, address verification (AVS) and gateway fees – and more than one can apply to any given card transaction. A common mistake, especially for new business owners, is to look only at the flat ‘transaction fee’ offered on the service’s website without checking the others. Monthly charges are usually for payment gateways.
Some companies will slip in charges for bounced payments or hit you with obscene cancellation fees if you decide to leave. Be wary of platforms that don’t openly publish their prices – they’re usually trying to hide them for a reason. And as always, be on the lookout for asterisks, especially when their connected footnotes are hidden on another page.
However, even companies without hidden costs aren’t always honest about their transaction fees. Many companies only advertise their rates for ‘qualified transactions’, which usually refer to transactions from domestic non-business cards that offer no rewards, with correct CVV codes and no flaws in the billing address. So make sure to check the rates for non-qualified transactions too, as you’ll be seeing a lot of those.
It’s generally agreed that the most cost-effective way to process cards is via what’s known as ‘interchange plus’, ‘pass through’, or ‘cost plus’ pricing. Under that method, you receive direct interchange rates from the card brands, with the processor applying a flat markup that applies to all types of cards. As a side note, this type of transaction is simpler to process, so it usually results in next-day deposits into your account.
Finally, better-known processors and gateways often cost more, but that’s often just the price you pay to reassure your customers that their personal information is safe.
Let’s assume everyone wants the maximum level of safety their budget will afford them.
Data encryption is the absolute minimum, but you can do better. Look for services with PCI-compliant processing – that means they conform to a set of safety regulations set by the Payment Card Industry’s Data Security Standard.
Additional key features include support for VeriSign SSL certificates, a transaction billing address and CVV2 verification. We don’t have time to explain all of those in depth, but trust us, they’re important. Check for them on the features page.
As a rule of thumb, always go above and beyond when it comes to security. Any minor annoyance it adds to the process will be worth it when you and your customers aren’t robbed blind.
This is the one with the most variables, but there are a few basics to consider:
- Support for at least 3 of the big 4 card brands, as well as debit cards, is a no-brainer. It’s also wise to pick one that works with PayPal (a full list of those can be found here). Many customers and clients only conduct online business through PayPal, and running a business without being able to accommodate them can feel like trying to conduct a social media campaign without a Facebook page.
- Next on your list of concerns should be international support. If you’re located outside the US, or plan to do business globally, you may find yourself faced with a more limited selection. Finding a good processor outside a handful of western countries can still be difficult as providers struggle to adapt to the globalizing market.
- Look for companies that tout ‘multi-currency processing’ as a feature, then check the fees. Many providers will charge hidden fees – usually called ‘cross-border’ or ‘currency conversion fees’ – for handling foreign transactions (although some are getting rid of them – check the individual service’s website). Merchant accounts can also be far more expensive for people outside the bank’s home country. In general, if you’ll be doing business internationally, check the services available and their costs very carefully.
- Then, there’s integration. Some integrated payment systems offer analytics and data about your customers. If you’re really interested in growing your business, make sure you choose a payment processor that will provide you with them.
- Once you’ve covered the basics, check up on customer service. Do they offer 24/7 customer support? If so, by phone or by email? How well do they train their representatives? It’s more important than it may seem, and companies that do it badly can hurt more than just your feelings. If your processor’s down when a customer wants to place an order, there’s a good chance they’ll take their business elsewhere instead of waiting around for it to come back. When you find a provider you’re interested in, add ‘reviews’ and ‘customer service’ the next time you Google them, and make sure to favor companies that are known for getting problems ironed out fast.
- Next, check whether the company offers onsite processing. Onsite processors stick the payment form into a little window on your site, but offsite processors force the customer to follow a link to their own site and complete the payment there. If you run a service business, an onsite processor might be unnecessary. However, if your business relies on impulse buys, the delays caused by an offsite processor can snap your customer back to reality long enough to change their mind.
- Finally, the speed of payment delivery should be given some consideration. However, unless money’s so tight that you need every cent ASAP, it shouldn’t be a big deal. If a service offers everything else you want at the expense of being a bit slow, then by no means should you let that stop you from using them.
Merchant services is a $70 billion industry, so there are a naturally lot of people competing for some of that sweet moolah. That makes for a lot of different services offering different variations of the same thing.
However, as complex as the choices can get, these guidelines will help you understand how to weigh up your options more effectively. Are there any other factors you like to consider while looking for a credit card processor? Let us know in the comments below!