Factors to Review When Choosing a Credit Card Payment Service

What factors should I look at?

There are many factors to consider when choosing a credit card payment service; a service that’s perfect for another business may not be suitable for you. 

When researching credit card payment services, narrow your list to reputable companies with good customer service and few merchant complaints. Then, consider the following factors:

Approval rate

Generally speaking, credit card payment services are risk-averse. They prefer not to do business with these types of clients:

• Startups
• Companies with no history of processing credit card payments
• Business owners with poor credit or little business experience
• Businesses in industries they consider to be high-risk

These are some industries often classified as high-risk businesses:

• Cannabidiol and cannabis
• Online gambling
• Credit repair and debt consolidation
• Affiliate marketing
• Auto warranties
• Beauty, skincare and hair care 

If your business falls into one of these categories, your list of possible credit card payment services narrows considerably. Even if your application is approved, some credit card processing companies will charge you a higher processing rate and fee, at least until you have established a good history with them.

Processing rates and fees

Credit card payment services make money in several ways, including charging processing rates and monthly or yearly fees. 

In general, processors that charge high monthly fees have low processing rates and vice versa. These two pricing models benefit different businesses:

• Low or no fees and high processing rates: Small businesses with low transaction volumes end up paying less with the low-to-no fee/high-rate model. When they have low sales, they pay very little because fees are based on sales volume. Seasonal businesses also benefit from this structure. For example, a snow ski rental business only makes money during the winter. It would be a waste to pay fees for the spring, summer and fall months when it has no revenue.
• High fees and low processing rates: Established companies with high transaction volumes benefit from subscription-based, interchange-plus pricing. Because they are processing so much each month, they want their processing fees to be as low as possible. They can easily absorb the monthly fee if there is one. 

In other words, businesses that sell fewer but more expensive items, such as furniture stores, prefer a low processing rate and higher per-transaction flat rate. Companies with many smaller transactions monthly, such as a dollar store, would prefer to pay a higher percentage on the processing rate and a lower (or zero) flat per-transaction amount.

Software 

Some businesses use their payment processor’s software to run their business, while others don’t need this much functionality. Services like Helcim, Stax and Clover provide robust features, including customer management, employee tracking and management, inventory management, digital invoicing, gift cards and loyalty programs and membership billing. 

Usually, all-encompassing services charge higher monthly fees based on the functionality you need (except Helcim, which charges no monthly fees). If you need specific software functionality, it may make sense to pay for it through your provider instead of buying individual software packages. However, if you have a very straightforward business, you probably won’t need so many robust features and it won’t make sense to pay for them.

Credit card processing equipment

If you conduct in-person business, you probably need a credit card processing machine, also called a credit card reader. However, if you’re strictly e-commerce or phone sales, you only need a virtual terminal (a secure payment interface in a web browser). 

The credit card processing equipment you choose will vary according to your needs and preferences. Your setup may be as simple as a single Bluetooth-connected mobile reader or as complex as a multilocation POS system with multiple stations. You may prioritize attractive and easy-to-use customer-facing equipment with touchscreens or cost may be your most important deciding factor.

Regardless of the equipment you choose, you’ll pay less if you buy it instead of leasing it.

Flexibility and freedom

When choosing a credit card payment service, you’ll ideally be happy with the company for the long term. However, things don’t always work out that way. If you’re dissatisfied with the company for any reason, such as its pricing, policies or customer service, you’ll want the flexibility to ditch it and choose a new processor. 

To ensure your flexibility and freedom, choose a payment service with a month-to-month contract and no early termination fee. It also helps if the hardware isn’t proprietary to the processing company, so you won’t have the expense of buying all new equipment.

How to choose a credit card payment service

After evaluating the above considerations, take the following steps to identify the best credit card processor for your small business.

1. Create a shortlist of payment processors likely to approve you.

Payment processors have various approval criteria. Some require minimum monthly transaction volumes, while others only approve merchants that have been in business for a specific number of years. Consider the following criteria some processors mandate:

• Minimum monthly transaction volume in dollars
• Minimum credit score
• Minimum years in business
• Not in a “high-risk” industry

Don’t waste your time applying for payment processing services with these requirements if your business doesn’t meet them. For example, if you have a startup, you won’t have a high transaction volume or the required number of years in business. In this case, look for payment processors with a high approval rate that are likely to approve your application.

2. Determine the best payment structure for your business.

Payment processors have various pricing models that benefit some businesses more than others. Consider the following summary: 

Narrow your shortlist to include processors with a pricing model that works for your business.

3. Determine your hardware and software needs.

Carefully evaluate your business’s hardware and software needs — the processor you choose must provide this functionality:

• Hardware: Typically, merchants purchase credit card processing hardware through their payment processor to ensure it’s compatible with their system. The hardware may be proprietary or third-party equipment it resells. If you need or want specialized payment processing hardware, such as a POS system terminal, choose a payment processor that sells or is compatible with a system you like. 
• Software: Software concerns are a little more complex. All payment processors will provide software that allows you to enter payment information, generate reports and store customer data. However, some software is more robust and feature-full, some options are exceptionally easy to use and some have crucial industry-specific features. For example, Clover has advanced features for restaurants, including menu management, seating functionality and kitchen orders. You may need the ability to set up recurring charges, such as monthly membership fees or generate time-based invoices.

Evaluate your shortlist to match vendors’ offerings with the hardware and software features you need. Note that you may need to pay more for some features while some processors will have all the features you need in a set pricing package. 

4. Decide how flexible you need to be.

Some payment processors have month-to-month contracts, so you can switch to another service if you’re unhappy or your needs change. Others have set contract lengths — if you decide to switch, you’ll have to pay a cancellation fee. 

If you’re new to accepting credit cards, you may be nervous about making a multiyear commitment and prefer to keep your options open. Companies planning for rapid growth may prefer a month-to-month payment processor or one that will allow them to scale easily. 

Note that your hardware is a factor here — if it’s proprietary or incompatible with other systems, you’ll pay more to switch because you’ll have to invest in new equipment. 

Examine your shortlist to pinpoint companies with service agreements you’re comfortable with.

5. Choose your credit card payment service.

At this point, your shortlist has probably shrunk to a few viable options with the following characteristics:  

• They’re likely to approve you.
• They’re affordable and have a payment model that benefits your business.
• They offer the hardware and software features you want.
• They have contract terms you’re OK with.

What credit card processing fees should I keep in mind?

The credit card payment service charges the merchant in several ways:

• It collects (and passes on) the interchange rate — a percentage of the transaction amount that goes to the card brand.
• It may charge a flat per-transaction fee. 
• It may mark up the interchange rate with another smaller transaction percentage and per-transaction fee. 
• It may charge monthly subscription fees for additional software features or to offset low (or nonexistent) interchange markup rates.
• It may charge incidental fees.

Check out online reviews of your top candidates and see what customers say about their customer support, online resources, funding speed and more. Speak to representatives to get a reasonable idea of what your monthly payment processing costs will be so you’re not hit with any surprises. When you’re comfortable with your final choice, complete your application with your top credit card payment service and start accepting credit cards for your small business.