How to Pick the Best Payment Processor for Your Small Business

If you’re a small business owner, you likely already know the importance of allowing customers to pay by credit card or debit card, rather than cash.

According to the ACCC, just 14% of respondents to a survey said they used cash for everyday purchases. For customers, using a card is more convenient, and can help them rack up reward points. Plus, cash isn’t an option when paying online.

In order to accept credit card payments as a merchant, however, you’ll need a payment processor.

A payment processor is an intermediary between your business and the financial institutions involved in a transaction. When your customer swipes their card, the payment processor takes care of encrypting their information, sending that information on to their bank for confirmation, and finally to your bank.

Very often, a payment processor is included in a bundle of services that a third party provides a small business. It can come as part of a point of sale system (POS), or alongside an online merchant account. You may also choose to plug a standalone payment processor into your existing ecommerce business systems.

In order to pick the best payment processor for your small business, consider the following factors before making a decision:

Do you need a payment processor for in-store or online transactions?

Do you run an ecommerce business or a brick-and-mortar store—or both? The answer to this question will dictate which payment processor makes the most sense for you.

Online payment processors will also come bundled with (or will require you to add-on) a payment gateway, a software application that plugs into your ecommerce platform to allow for online payments. These gateways are a security measure that protects all parties involved.

In-store processors don’t require a payment gateway, and they may come with a POS if you require one or want to upgrade from a traditional system to something more tech-savvy.

Most payment processing companies can offer you both types of solutions, but their services vary—so deciding on whether you need one or both options will dictate your solution.  

Are you a high-risk merchant?  

When you sign up for a payment processor, your provider will issue you a merchant account. A merchant account is where funds from your customers’ transactions go before they are sent to your business bank account. This way, you’ll get your funds quickly, while your processor waits to receive the actual funds from the issuing bank.

To obtain a merchant account, you’ll provide business and tax information and submit to a credit check so the payment processor can assess your potential risk. Businesses that are more liable to experience fraudulent charges and chargebacks are considered high-risk merchants, and will receive an account that charges higher fees, with a longer contract, and other factors that could cost you.

If you have poor credit, a history of chargebacks, a limited time in business, and/or operate in a risky industry, processors are more likely to assess you as high risk.

Are you a B2B or B2C business?

Do you sell primarily to other businesses, or to customers?

Some payment processors are better suited for B2B companies—which send invoices to clients—by offering them free online money wiring.

Most others are best suited for B2C companies, where you will likely be charged monthly fees plus fees per transaction. The more transactions you have, the more favorable your transaction fee.

What payment fees are you willing to accept?

Speaking of fees, the prices that your payment processor will charge you are of course an important consideration.

Most payment processors charge a monthly fee and a transaction fee, as well as an initial set-up fee. The truth is, most payment processors will charge similar fees—transaction fees are typically between 2%-3%, with online processors charging a bit more.

There are a few different pricing models to consider, however:

  • Interchange plus pricing: That’s a small fixed fee (between $0.10 and $0.50), plus a percentage of each purchase (between 1% and 3%).
  • Subscription: This model uses a monthly membership fee and adds a flat fixed fee per transaction on top of that.
  • Tiered: A tiered model puts credit card transactions into several categories—qualified, mid-qualified, and non-qualified. Qualified rates come from when a customer meets a processor’s criteria for the easiest, most secure transaction (swiping/inserting a card in-person), while the other tiers—which cost more—come from having to key-in the card’s details, or when a customer pays online.
  • Flat-rate: Similar to a tiered model, except that each card type and payment method has the same rate.

Keep in mind that whatever rates your processor charges will be in addition to (or they will mark up to include) the wholesale costs that go to the card-issuing banks and credit card associations. These fees are non-negotiable.

Are there any hidden fees?

At first glance, the fees that a payment processor offers you might seem incredibly low. Before you agree to anything, take the time to look over the details.

For example, you may see a “qualified” rate listed by a payment processor, but that typically refers to certain types of cards physically swiped in-person at a terminal. Keying in that card’s information, or accepting it online, will be processed at a “non-qualified,” higher rate.

Should you go with aggregators or dedicated merchants?

Another variable to keep in mind that may affect your overall pricing is whether you use an aggregator or a dedicated merchant as your processor.

Aggregators combine all of their clients into a single merchant account. The upside of this is that your underwriting process will be minimal, and you’ll avoid a monthly fee. The downside is that you may experience more account holds and terminations as the aggregator works to protect the pool of clients using the singular merchant account. Dedicated merchants will have a more intensive underwriting process and a monthly fee, but from then on usually offer a lower per transaction rate.

Decide what’s more important to you: A payment processor that overlooks your potential high-risk, but charges more per transaction, or one that charges you monthly but less per purchase.

What payment features do you need?

Most of the time, businesses are simply concerned with being able to process transactions. But depending on your business model, your target market, and your business goals, you may need a processor with additional features.

For example, if you run a business that operates primarily on a subscription model (or you’re encouraging customers to use that model by offering discounts on repeat business), you’ll need a processor that handles recurring payments. Some processors offer this option at an additional cost.

Some newer payments companies, like Fivestars, combine a loyalty and marketing program with payments to enhance traditional credit card processing.

You may also find that many of your customers use credit cards rather than debit cards, or American Express cards rather than Visa or Mastercard; or, you may want to offer the option of paying with digital wallets or ACH transfers. Not every processor offers all of these options as standard, and usually it costs more to run some cards (AmEx, for example). Take the time to examine the spending habits of your customers and whether offering additional payment options would be to your benefit.

Will your processor offer robust customer support?

Perhaps one of the most important features that a payment processor can offer you is 24/7 support. If your processor malfunctions or otherwise goes down in the middle of your workday, will their team be available to assist you and get things back on track? Will you have access to a live support agent or will you only get automated assistance?

Every minute that your processor is down is a minute where you are potentially forfeiting purchases from willing new customers. Don’t skimp on this aspect of your decision.

What are the contract terms?

Maybe you’re thinking that you could always choose a payment processor, and if don’t like what you see, you can move on. But most payment processors will lock you into a contact—at least a year, maybe more—and impose termination fees or cancellation fees if you try to back out.

Examine your contract closely before you agree to the terms, and make sure that this solution makes sense for you for the long haul. Expect business to boom in the coming year? Make sure your contract doesn’t limit how much you can process in a given month or year. In fact, review all of the above factors and make sure that what you’ve settled on won’t accidentally limit your ability to grow, or to stay solvent during times of inconsistent demand.


As you can see, there are many factors that you need to consider when you pick your small business’s payment processor. It’s not as simple as opening up shop and asking customers to hand over their credit cards.

Fortunately, most payment processors—whether they come as part of a package deal with a POS, or part of your subscription to an ecommerce platform—will handle everything you need to stay secure and compliant on the backend. Your job is to pick the processor that makes the most sense for you from a business standpoint. As always, you’ll want to balance safety and ease-of-use with affordability. Then you can get back to doing what you do best: running your small business.


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