How to determine the best payment provider for my business
What to consider when selecting a payment provider for your business
With so many payment providers to choose from, it can be tough to know which is the best for your specific situation.
In this article, we take a look at some of the most important things to evaluate when choosing a payment services provider, and why it might make sense to have more than one.
And because this can be very confusing, we've also written a brief story that will help you keep track of it all and demystify some of the industry jargon as we discuss all of the players. When we refer to one of the characters or companies in this story, we will notate it like this.
Spoiler Alert: if you are hoping for a "top ten" list or an outright recommendation on which payment provider is best, you will be disappointed. If you want to know how to make that decision for yourself, then you're in the right place.
Who gets paid when you get paid
Unless you are accepting cash or check in person, there are several other parties involved in the transaction, and they all want to get their cut.
Let's take a look at the primary players and the associated fees they charge.
Parties involved in a credit card transaction
While you could spend days going down this rabbit hole, here are the basics:
- The Merchant - That's you...the company accepting the payment from the customer. (Joe from our story.)
- The Acquiring Bank - This is who you hire/pay/contract to be able to accept payments. (Your "payment provider." Also, Acme Payment Processing Services and Bravo Payments)
- The Issuing Bank - The institution that issues the credit/debit card that the customer uses to pay you. (AlphaBank, in the case of Joe's Visa card.)
- The Network - The companies that enable the transaction. Think Visa, MasterCard, AmEx, etc.
And for those of you more savvy in the complex world of payments, yes, we are intentionally excluding gateways and many other essential players in the transaction chain to keep things simple(r).
Transaction fees
The fees you pay per transaction are likely to represent the majority of your expense when accepting payments.
Payment providers (acquiring banks, like Acme and Bravo from our story) typically charge a fee for each transaction.
This fee can vary depending on the type of payment method, the volume of transactions, and the provider's pricing structure.
They don't get to keep it all, however. They are simply the one who must pay all of the other parties involved.
The three primary categories of transaction fees include:
Interchange Fees
These fees are determined by the actual card networks (AmEx, Visa, Mastercard) and are consistent for all similar types of transactions.
Some of the factors that can influence the amount include:
- The card you used - credit vs. debit, personal vs. corporate, etc.
- The way you paid - paying online vs. swiping vs. keying in the numbers
- Who you paid - a gas station vs. a casino vs. a utility company
These fees are typically somewhere between just over 1% + $.05 per transaction to over 3.3%, with some "high risk" industries being even higher.
Keep in mind that these are general ranges, are set by the card network, and do not represent the entire transaction fee...just the interchange portion.
Although the card networks determine the fee, the recipient of the money is the Issuing Bank - the financial institution that issued the credit or debit card. (AlphaBank in the case of Joe from our story.)
No wonder you get so many credit card offers!
Network Fees
Sometimes called "Assessment fees", these are also determined by the card network.
They are a portion of the overall transaction fees that companies like Visa get to keep. They are the revenue earned by the card networks.
Generally, the network fees are a very small piece of the overall processing fee, but the card networks do so much volume that they don't need to charge much.
Processor Fees
This is the portion that the acquiring bank (your merchant services provider or Acme and Bravo in our story) adds to the overall transaction fees.
This is usually (but not always) a markup on both the percentage and the flat fee per transaction.
For example, if the interchange and assessment fees defined by Visa are 2% + $.10 of each transaction, then Green Farms Foods might be charged 2.9% + $.30 per transaction by Bravo Payments.
When Joe uses his AlphaBank Visa to make a $1,000 payment to Green Farms Food in the above example:
- Green Farms Foods would keep $ 970.70
- Bravo Payments would keep $9.20 (0.9% + $.20)
- Of the remaining $20.10 in fees (2% + $.10), most would go to AlphaBank with the remainder going to Visa.
On average, the total amount of the transaction fees set by the card network (the network/assessment + interchange fees) typically range somewhere between just over 1% + $.05 per transaction to over 3.3%, with some "high risk" industries being much higher.
That is the part your merchant services provider (like Acme in the case of Joe's Diner or Bravo in the case of Green Farms Foods) does not get to keep, so you can expect to pay more than this, even if you go with a "cost +" merchant services provider.
Other fees
There are too many other potential fees to create an exhaustive list here, but make sure you check them out.
Some of the more common include:
- Subscription fees for management of your account and the payment platform.
- A monthly gateway fee to process online payments.
- A transaction dispute fee if a customer challenges a charge made to their card by your business.
- Setup fees charged to create your account or activate services.
- Equipment rental fees for things like payment acceptance or POS terminals.
- PCI compliance fees to ensure that you and your merchant services provider stay compliant with regulations.
While not every provider charges all of these fees, most providers charge most of them. Often they represent hard costs to the provider themselves, so if they don't charge these specific fees, they are making it up somewhere else.
Security
Security is a top priority for any payment provider. Be sure to choose a provider that has a strong security track record and offers features like fraud protection and PCI compliance.
PCI compliance refers to adhering to a set of security standards that all payment providers must meet in order to process credit card payments. If a payment provider is not PCI compliant, it could put your business at risk of fraud, and you on the wrong side of regulatory requirements.
Some providers offer support in this area as part of their offering. Others require you to contract with (and pay for) a third party service that certifies your compliance.
One way the other, PCI compliance is necessary...and just good business.
Features, integrations, and connections
Most payment providers will have tools that quickly allow you to access payment functionality.
A great question to ask yourself when you begin your search for a payment provider is how you want to use them.
- Do you want the ability to send estimates, invoices, and create checkout pages from within your payment provider's platform? or...
- Do you want the payment provider to be "invisible" and power the other platforms and solutions you use in your business?
There are pros and cons to each approach. If you're just getting started or you haven't already invested in a bunch of other software platforms yet, you may get a lot of value out of relying on your payment provider to be the interface between you and your customer. Thus, features that enhance operational capabilities may be important.
If you have already have all of your operations tied to other software, then it's probably best to look for a provider that will seamlessly integrate in the background with the choices you've already made and your existing tech stack.
Integrations and connections
When looking at payment provider integrations, consider the following:
- How easy is it to accept payments at the point of sale?
- How simple is it to integrate with your online shopping cart and ecommerce checkout process?
- If you have quotes, estimates, or contracts, how simple is it to accept payment at the time of signature?
- Can you use your provider to pay a bill from within your accounting software?
Spend some time thinking about the most common use cases and where a seamless experience is most important. Prioritize the integrations that impact the experiences that create the greatest efficiency for your team and the greatest satisfaction for your customers.
Also think about your future, especially if you are signing a multi-year contract with the provider. Can they support you today? Will they be able to support you where you are headed tomorrow?
When things don't go as planned
One of the most overlooked criteria in selecting a payment provider is that of support.
Whether you are a solopreneur or you have a robust IT and finance team to research and sort out the problems, there comes a time where you may need to go beyond the knowledge base articles and speak to a real person with enough knowledge and authority to resolve an issue.
Not surprisingly, this is where the largest providers often fail. The more scale the provider has, the less support you are likely to receive and the longer it will take to get to a decision-maker.
It shouldn't be the only driver in your decision, but it should be a consideration, especially if:
- You are in a "high risk" industry
- You are a solopreneur or small business without staff to support research and/or significant cash reserves to weather a prolonged dispute
- You are looking for custom integrations with your platform or business model
The case for multiple providers
You've heard the saying "don't put all your eggs in one basket." That is especially true when it comes to payment providers.
Our leadership team has owned businesses where one of the largest processors in North America gave less than 1 week notice that they would no longer be servicing payments in our industry.
We've also known owners that have had payouts suspended for ALL transactions while an anomoly for one or two payments was investigated, resulting in them waiting on their funds for weeks or months.
You should always have multiple processors, and a plan on how to switch quickly if one falls out due to a procedural issue or even a technical error on their platform.
As your business grows, it also gives you negotiating leverage to achieve better rates and fees by bringing more of your business to one of the two, and giving you the ability to walk away from a provider that is making changes or implementing requirements that are not aligned with your business model or objectives.
