Important Factors to Consider When Choosing a Payment Processor-Expert Opinions
Online transactions is a booming industry and it’s rapidly growing every year. As a merchant, it is important to stay up-to-date by providing several payment options to drive your business and increase your customers’ experience. How do you begin to accept online payments?
Credit card processing or payment processing is an electronic process that allows customers and merchants to automate online payment transactions. These transactions are usually processed, verified, and accepted by a payment processor.
There are several fees associated with each online payment transaction. The fee for each transaction can greatly vary by payment processor. There are some crucial factors to consider when selecting your payment processor…
In this post, we’ll share opinions from 9 experts about important factors to consider before selecting a Payment Processor:
- Libby James, Card Payment Expert at Merchant Advice Service, Ltd, says, “When accepting transactions online, there are associated fees companies should expect, these fall into two categories — the gateway costs and merchant account costs, which include:
Gateway costs — this is normally a fixed monthly amount. Merchant account fees include: Rates per transaction — charged at a percentage fee depending on the risk profile of the business. Authorization Fees — normally a fixed cost. Other costs to consider, and ones that businesses sometimes forget are PCI compliance costs and minimum monthly service charges among other hidden fees. As always, these fees vary on a case-by-case basis.
Processing payments online has become increasingly popular in recent years with shopping habits dramatically changing following the outbreak of COVID-19.
As a result, businesses must consider varying payment types and methods. As well as more traditional transaction processing, companies are regularly accepting Apple Pay/Google Pay, Buy Now Pay Later options, and Cryptocurrency.
When searching for online payment processing solutions businesses should consider security as the main priority — researching the security level of potential gateway providers before application. Other factors to consider are the methods in which the company wishes to accept transactions, for example, some providers work with Apple Pay others don’t.
Finally, depending on the risk associated with the business — not all merchant account providers will accept high-risk businesses, so it’s essential to ensure the company meets criteria requirements before application.”
2. Credit Card Processing expert, Lisa Spurgis, says, “For every purchase made with a credit or debit card, there are fees that accrue to the merchant. The two non-negotiable fees in every transaction are the interchange rate and assessment fees. Interchange fees go to the issuing bank while, assessment fees go to the card brands (i.e. Visa, MC).
As for other processing fees, the amount depends on the pricing model and the level of risk of the transaction.
Processing fees include the merchant discount rate, a per-transaction fee, authorization fee, and other fees such as PCI, IRS reporting, and monthly support fees. These fees are paid to the acquirer and/or the card processor. These can range between 1.5% — 3.5%.
Behind every business, whether it is in-store or online, is a payment processing service provider. They make sure that transactions are carried out seamlessly to enhance customer experience and improve business reputation. Point of sale systems can process all payment types, including cash, credit cards, debit cards, gift cards, and cryptocurrency. Gateways provide the same payment processing options as a point of sale for E-commerce merchants.
When you’re using a merchant services account, a PSP, or a payment gateway, if you plan on accepting debit and credit cards, you should make sure the company and your business practices comply with the latest laws and credit card companies’ regulations.
The Payment Card Industry Data Security Standards (PCI DSS) is an important standard related to accepting, sending, and storing customers’ data. Many merchant services, PSPs, and payment gateways stay up to date with this standard and may charge you a monthly or annual PCI compliance fee.
Your business is also responsible for meeting the PCI DSS. If it doesn’t, you could be responsible for the costs associated with a data breach or theft of your customers’ information. You might also have to pay a
PCI non-compliance fee to the company you’re working with to accept card payments.
When it comes time to choose a credit card processing company, the options seem endless. With companies ranging from traditional merchant service account providers to more self-service credit card processing, it seems nearly unthinkable to know where to start.
One critical step to take is to invest some time in researching your options. Make sure to consider these factors before selecting the credit card processing company that suits you.
Fraud Prevention: Whenever you handle a transaction, fraud prevention should be the top priority of your mind. Regardless of the size of your business, you must offer your customers the security they deserve. Be sure to find a payment processing company that uses the most technologically advanced security tools on the market.
Variety of payment methods: Payment methods are evolving daily so keeping your customers happy extends beyond the product or service you deliver, but also into the payment methods they can use. Traditional credit and debit cards are still the most commonly used payment methods, but the introduction of “digital wallet” technology such as Apple pay and Samsung Pay is quickly increasing in use.
Customers want to have options and using a contactless payment system will allow you to accept payment forms beyond the traditional plastic card.
Associated Costs to Accept Credit Cards: Money: the backbone of every business operation and decision. When it comes to costs, business owners need to be wary of where they invest their hard-earned cash.
Certain credit card processing companies can seem cost-prohibitive but weighing the benefits associated will make the selection easier.
It’s important to carefully review the business model in which your own company operates. For example, if you have a business that processes tons of small transactions, having a percentage taken out of each transaction can add up quickly and can be harmful to your bottom line.
Many merchant service providers offer fixed-fee processing such as interchange-plus pricing, while others provide flat rate, bundled, or tiered pricing. Fees may vary depending on the interchange rate and credit card types being used such as American Express versus Visa.
Fixed fee agreements typically charge less per transaction, as compared to flat-rate service providers. Don’t forget, regardless of the fee structure, most processors charge increased fees for CNP transactions due to their increased risk for fraudulent activity.
Upfront costs do not differ in an alarming way between credit card processing competitors. Typically, hidden costs can occur with the fees associated with credit card processing.
While researching your options, keep the equipment costs in mind and steer clear of leasing processing equipment. Monthly leasing fees can end up costing far more than purchasing the credit card processing equipment you need from the beginning.
Customer Support and Integration: During your business ownership or management, there will certainly come a time when you need help with your payment processing systems.
Look for credit card processing companies that offer 24/7 customer support. When a problem arises you want the guarantee of being able to reach a representative that can help you quickly and efficiently so you can get back to doing business.
Integration is a critical role in managing a successful business so look for software tools that help you streamline your finances and your transactions. Many POS systems have all-in-one features to solve the age-old headache of having multiple programs operating at once.
Keeping these factors in mind while researching your credit card processing company options should help you sort through the hustle and bustle with the provider that’s right for you and your business.”
3. According to Award Winning Cyberfraud Expert, Karisse Hendrick, “Credit card processing fees can be broken down into two buckets. What is paid to your payment processor, and what is paid to the card brands (Visa, MasterCard, Amex, Discover), along with the issuing bank (credit card company/bank).
Fees paid to your processor include “Discount” fees — despite what it sounds like, these are the fees paid to your processor for processing your transactions. They can be in a percentage/basis points (ex. 1.23%), a per-transaction fee (ex. $.20), or a combination of both (1.1% + $.10).
Fees for specific services/functions such as Terminal rental fees, paper statement fees, Chargeback fees, etc. These fees can be negotiated based on total dollar volume, increased number of transactions, good standing/low risk & chargebacks, etc.
Fees paid to the card brands/issuing banks:
“Interchange” fees — These are pre-set per the attributes of each transaction and split between the card brand of each specific credit card & the bank/credit card company that issued it will vary based on:
Merchant Category Code (MCC); example: a bookstore will have cheaper fees than a travel agency because there is less risk of fraud/chargebacks card type (rewards cards have some of the highest rates) geography of the card how the merchant processes the card (card present/in-person or card-not-present/online, via phone, etc) what data is transmitted with the card (for instance, if the merchant sends address information to the bank, it’s slightly cheaper, but there are other examples here too)
While these fees can not be negotiated, they can be OPTIMIZED, depending on the merchant’s pricing structure with their processor. If they are on “interchange passthrough” (meaning, the processor only charges the merchant what the interchange rate is per transaction, and not bucketed or combined), merchants can improve how they transfer data, etc.
They CANNOT be selective on which cards they will and won’t accept based on the card type (for instance, a small business can’t say they won’t accept air mile cards, even though it is cheaper for them to accept than a standard card).
Some processors charge interchange fees in “bucketed” rates and not on exact interchange rates per transaction. Others will charge flat rates per transaction, combining their fees with the card brand fees for all transactions, no matter what type of card is charged or how the payment is processed. Stripe and Square are two big examples of this.
The upside of this is that a merchant always knows what their fees will be, the downside is that they’re not eligible for fee optimization, which can add up very fast the bigger a merchant company gets
Most standard payment processors process Visa/MC. As of a few years ago, Discover can be added to a merchant account through their processor, as opposed to getting a separate agreement with Discover Card Merchant Services.
To accept Amex, a merchant must go to Amex for a Merchant ID # & contract, though they will provide this information to their main payment processor to connect the transactions. For VI, MC & Disco, fees & deposits will all be from your merchant processor.
Pricing should only be one factor of consideration for selecting a merchant processor. However, it’s one of the most important. When considering pricing, make sure you understand how every fee is assessed and will add up.
Payment processing pricing is unregulated & will vary greatly based on each processor, as well as a merchant’s dollar volume, number of monthly transactions, and AOV (Average Order Value). Make sure you’re evaluating ALL fees in combination with each other, and not only one or two lines.
For instance, one processor may offer a discount rate of 1.12% + $.10 per transaction and another may offer 1.4%; Two merchants may have the same amount of total dollars processed in a month.
But, if one merchant has a relatively low volume in sales but a high AOV (ex. $2,000), the 1st option will be cheaper for them. Whereas, if the other merchant has $50 AOV with a high volume of orders, the 2nd option would be cheaper for them in the long term.
Find a sales rep you can trust. There are thousands of different ISOs and resellers with great incentives for their salespeople to sell to you (Most earn residuals for as long as you process with their company). They also know that payment processing fees are unregulated & subjective, so know that the “discount” fees CAN be negotiated and they’ll often inflate them.
Working with someone who knows what is a good rate for your type of company and what isn’t can help you a lot in this phase; that said, if the sales rep is focused only on cost or is extra pushy, and isn’t explaining some of the details to you, I’d suggest getting at least one other price quote to compare it to.
Know what kind of support they offer. Some ISOs won’t have a support phone # you can call, or they really won’t be able to troubleshoot technical issues or fully explain your statement fees to you. Depending on the size of your company, ask if you can be assigned an account executive who can be your main point of contact.
How they provide reporting is a big deal, and can change depending on each processor. Include your CFO or someone on their team to ensure the reporting offered will suffice.
How well do they understand the chargeback process? If you receive a chargeback, especially if you’re an online business, will they be able to help you know what to send to try to get your money back? Or will they tell you you’re on your own?
I know this was detailed, but payment processing is all about the details. Pennies add up, and the process as a whole is complicated. But not impossible to understand.”
4. “When a credit card is used to process a payment, there are a couple of fees behind the scenes. The merchant will be charged a small percentage or fee by their payment processing company.
The payment processing company will then pay a small fee of that profit to the lender, usually a group of banks.
Payment processors are essentially able to process any payment that is authorized within company terms of the agreement, for example, many payment processors do not authorize high-risk items like CBD, or large first-time payments due to the risk of possible fraud.
Be sure to consider the companies terms of service, this will essentially inform you of all the rules, and fees that are involved by using their service. Be sure to compare rates and look for a company that has positive reviews and active customer support, these can be used to indicate if the company is any good.
Consider the fees, if your business is considered high risk, you may need to seek a high-risk payment processing service that will ultimately charge you higher fees, require a deposit, and even hold the money from all sales when you first begin to use their service, in protection against fraud or other factors of liability.”, says Daniel Pratt
5. According to Abdul Aziz Ali, a payments processing expert, here are some factors to consider when choosing a credit card processing system:
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6. As a business, you’re likely to pay processing fees if you decide to accept cards from American Express, Discover, Mastercard, and Visa. On average, the processing fees from these popular credit card networks usually lie between 1.4% and 3.5% per transaction. Some of the various specific fees that make up these “processing fees” include:
Interchange fees — Interchange fees go to the issuing bank to help it cover its risk and operation costs. They make up the bulk of the transaction fees you’ll pay.
Assessment fees — Assessment fees go to the credit card network. They represent a small portion of the total transaction amount.
Payment Processor Markup fees — Payment processor markup fees go to — you guessed it — the payment processor.
Less common fees & Recurring fees — These fees can occur monthly or annually to maintain a subscription-based account. You may also see these if a brick-and-mortar store needs funds to cover the cost of a Point-of-Sale device.
One-time fees & Incidental fees”, says Jacob Lunduski, former Credit Industry Analyst.
7. Co-founder of Allied Payments, Cristopher Carillo says, “There are several fees associated with a credit card transaction. Every merchant pays them, but many times these fees are not transparent and unbeknownst to the business. Fees include:
Interchange fees vary from 0.05% and $0.21/transaction for debit to upwards of 3.5% and $0.10/transaction for credit cards. These are the fees charged by the customer bank to the merchant bank for use of the card — better rewards equate to higher fees to the merchant. Credit card rewards programs are in essence funded by the merchants accepting the cards.
Payment processor markup is the fees assessed by the merchant acquiring bank (bank managing the merchant’s account) and the payment processor that set up the services. These fees are confusing at best, commonly charged as a flat fee above the interchange fees but can also be determined as the difference between fees billed to the merchant and the interchange fees paid by the merchant bank.
Network Access fees charged by the card brands (Visa/MasterCard/Discover/American Express) for use of their networks and technology vary from $0.0195 to $0.0395/transaction. AMEX charges 0.15% of the sale price.
Merchants also pay for the Address Verification Service (AVS), upwards of $0.10/transaction for a card, not present transactions to verify cardholder information on file at their bank against the information the customer provided at the time of checkout. This helps prevent potential fraud.
Other fees include a nightly Batch Header Fee, where all the authorized transactions from the day are finalized and sent off to the customer banks for payment. This is usually charged at the per-transaction price.
Many merchants pay monthly fees to maintain their accounts, along with regularly charged PCI fees to verify that customer cardholder information is accessed and stored properly to prevent fraud. The PCI fee can vary from no additional cost to $100/year while the merchant account fee can be wrapped into other costs or itemized out upwards of $20/month.
Online merchants will have the same fees, but many times need to pay for a payment gateway service to securely handle online transactions. These can also be wrapped into the cost of a merchant account or paid for separately, upwards of $20/month.
Payment card systems can accept a variety of payments. Debit and Credit cards are usually their default programming, but gift cards can be added by most payment processors to existing systems and run alongside credit and debit cards.
Other add-ons include a remote deposit terminal that can integrate into most payment systems so merchants can scan checks for deposits.
There are also many programs available for the acceptance of crypto payments today. Whether it’s online or in a storefront, there are more and more solutions coming available to go after this market.
The 2 most important factors I feel are:
Price. There are many free equipment options today, but their payment processing fees are high to recoup equipment costs. Not only the initial cost of the equipment but the monthly maintenance costs charged by the POS company.
Correct Functionality. Choosing a system that provides the functions you need, whether it’s the ability to track retail inventory or to manage multiple restaurant tables. Investing in something that doesn’t work properly can cause more headaches than it’s worth.”
8. According to Carla Rodriguez, diversifying your payment options is very important in our constantly changing world. Consumers are moving away from using cash and prefer to use electronic payment methods. But, since there is no such thing as a free lunch, these payment methods have a cost associated with them, such as transaction fees.
9. Ann Martin, Director of Operations at Donkey Business Checking, says, “Credit card purchases come with certain processing fees. The discount rate refers to fees that go to payment card issuers. Sometimes there is also a surcharge for purchasers set by the merchant. A credit card processing system should be able to process payments from all major cards.”
Closing remarks:
The ability to accept online payments is extremely important to most businesses. It does not matter if you are a new business accepting online payments for the first time or an established merchant looking for a lower rate, you can grow your business by considering the above experts opinions before selecting your credit card processor.
