How to Choose a Payment Processor for Your Business

Transaction cost is important, but there are other key factors to consider when selecting a payment processor.
Lisa Anthony
By Lisa Anthony 
Edited by Sally Lauckner

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A payment processor enables a business to accept credit card, debit card and ACH payments from their customers. Payment processing companies offer a system that manages these transactions from the initial verification of card details to approval and transfer of funds.

Whether card transactions are smoothly handled in seconds or become pain points for both you and your customer can depend on the payment processor you use. There is no perfect payment processor. The right one for your business depends on your unique needs, priorities and budget. Reviewing the following key factors can help you evaluate and select a payment processor.

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Transaction types

The first factor to consider is transaction type. Transaction type refers to the way the payment information enters the payment system and can include in-person, online, keyed, invoiced and mobile-entry transactions. Look at the different ways you take payment information and then confirm that the payment processor can accommodate your needs.

For example, if your business takes phone orders that require credit card details to be manually entered or keyed, then only consider payment processors that offer that feature. If you want to be able to take payments away from your storefront, then a mobile payments option is needed.

Pricing transparency

Pricing transparency is important because it makes it easier to compare products and services. When price details are available on a company’s website, you can identify products that fall within your budget and have the features you value. That’s a timesaver.

Pricing transparency can also be a sign that a company is confident its fees are competitive. However, bear in mind that there are certain situations when pricing may be complex and difficult to provide on a website, such as the processing costs for high-risk merchants.

Overall cost

Look at the overall cost of a processing service. This includes transaction fees, monthly fees, chargeback fees and less-obvious costs such as membership fees, setup costs, PCI compliance fees and cancellation fees. The total monthly cost, not a single fee, needs to be considered when comparing services.

At first glance, the cost per transaction offered by a company using an interchange-plus pricing model is typically less than the cost per transaction of a company using a flat-rate pricing model. However, monthly fees and volume minimums may be associated with an interchange-plus pricing model, which adds to the overall cost for the service.

Card readers and apps

If you plan to take in-person payments, a card reader and associated app are required. Ideally, the card reader should be able to accept magnetic stripe cards, EMV chip cards and contactless payments. Some payment processors, such as Square, provide a free magnetic stripe card reader and have a product that uses just your iPhone for tap-to-pay transactions. Other providers may charge you for an EMV chip and contactless reader. Any fees associated with the card reader and app add to the overall cost of the service.

In most cases, you want a reader that is compatible with both iOS and Android mobile devices. In addition, an app with the option to manually enter card information can give you the ability to accept payments on the go and without a reader.

Point-of-sale hardware

While many payment processors offer both payment processing and POS systems, they are not the same thing. POS systems can facilitate card transactions, but they can also record cash payments, manage inventory, generate sales reports, integrate with accounting software and much more.

If you want both payment processing and POS options, confirm that the payment processor offers both. Factor in any fees associated with POS hardware to the overall cost of the service. If you want to keep an existing POS system, confirm that it is compatible with the processor’s system. Some processors may help you integrate systems, while others may want you to purchase new hardware from them.

Integrations with accounting software

The ability to export transaction data to accounting software is important, regardless of whether you use a card reader and app or a complete POS system. Having the ability to import or even sync sales data to QuickBooks, Xero or other accounting software will improve accuracy and save you from having to manually enter the data.

Deposit timing

The time it takes to receive the funds from a card transaction should be short. The next day is optimal. And an option for same-day deposits can be important for some businesses. If there’s a fee for same-day deposits and you plan to use this option, remember to estimate the added cost per month. Also, some payment processors may want you to use a specific account for payment deposits. Ask if you can use a bank account of your choice, if that’s your preference.

Contract periods

Ideally, it’s best not to get tied into a long-term contract in case you don’t like the service or something else changes. Some payment providers don’t require a contract and allow you to operate month-to-month. While a company may say you can cancel at any time, you’ll also want to confirm that there are no cancellation or termination fees associated with closing your account.

Customer support

Live 24/7 support is the best option, but may not be a priority for every business. However, if you have extended business hours, key-in payments from across the country, or take mobile payments at weekend events, an issue with the processing of a payment can result in the loss of a sale and the revenue that goes with it.

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