Cost is the top factor when deciding which merchant service provider is best for your business. Most companies offer one or more of three pricing models: interchange-plus pricing, tiered pricing and flat-rate pricing.
In our testing, we evaluated interchange-plus pricing, as it's the best pricing model for most merchants. The rates found in this article and throughout our site were directly quoted to us; they may vary from those on the company's website or rates that you are quoted. Various factors may influence what rates you're charged and your ability to negotiate a lower rate, such as your transaction volume, average ticket size, industry and creditworthiness.
Here's a breakdown of the three pricing models and what we uncovered in our research about each plan:
This pricing model, sometimes called interchange-pass-through pricing or cost-plus pricing, is composed of three parts: the interchange rate, the card-brand fee and the processor's mark up. The interchange rate and card-brand fee are fixed rates established by the card networks (MasterCard and Visa). Everyone must pay these and everyone pays the same amount.
Each merchant service provider then adds a percentage markup as well as a per-transaction fee to these standard fees. This markup is the only piece of these transaction costs that is negotiable. This is the pricing model industry experts recommend because it allows you to see the markup you pay above interchange rates.
The lowest markup percentage we found was Helcim's 0.18% and the highest on our lineup is 0.30%, though some services we tested charged 0.50% or more. The average per-transaction fee on our lineup is $0.10 per transaction, with the lowest fee at $0.07 and the highest at $0.25 per transaction.
Though this is the most commonly used pricing model, it's criticized by industry experts for its lack of transparency. Other names for this model are bundled or bucket pricing, because it attempts to bundle interchange rates, card-brand fees and markups and then segment transactions into tiers, or buckets. Frequently these tiers are sorted as qualified, mid-qualified and non-qualified, with separate tiers for debit and credit card transactions.
The low teaser rates that many companies advertise are usually qualified debit transactions that apply only to regular debit cards that you accept in person using a card reader. Mid-qualified transactions are usually rewards cards and non-qualified transactions are most often business or foreign cards, though some also include premium rewards cards. Most merchant services offer three tiers, though some may have as few as two or as many as six.
If you're quoted tiered rates, it's important to ask how many tiers there are and which types of cards and acceptance methods apply to each. It's also important to know which types of cards your customers use most so you can judge whether this pricing model may be cost-effective for your business. If the majority of your customers use regular debit cards and you accept cards in-person, this processing model may be worth considering.
Most of the merchant services companies that use this simple pricing model charge a single, fixed percentage rate per transaction, though some charge a per-transaction fee. This pricing model is popular with mobile merchant service providers, and it may be the most cost-effective option for small businesses processing less than $3,000 per month or that have small tickets.
What is a Merchant Processor?
A merchant processor sets you up with an account that allows you to accept credit and debit card payments in exchange for goods or services. Although accepting cards as payment sounds simple, multiple parties are involved in moving each transaction through a secure connection between the merchant processor, the credit card network, the card-issuing bank and your business's bank account. The customer's information travels through this secure network, and after the card is debited for the transaction, funds are deposited into your bank account.
Because merchant services are an elaborate process involving multiple parties, pricing is complicated and can be wrought with fees. Many of the best merchant processors post their pricing on their websites, while others tailor their pricing to fit your specific business. Factors that can impact your pricing include your company's creditworthiness, average monthly processing volume, average ticket size and whether you process transactions in person or online.
Even though credit card processing is complex, having a merchant service account is a business necessity because your customers expect to pay for goods and services using a card just as they would use cash. Choosing the wrong merchant service provider can be expensive, which is why it's essential to choose a company with transparent, reasonable pricing that provides your small business with upstanding service.
It's important to weigh your options when choosing a merchant service provider. If you need a simple solution or process less than $3,000 per month, our Mobile Credit Card Processing reviews can help you find a suitable solution. Or, if you need a comprehensive point-of-sale system that works with a merchant service system, check out our POS Systems reviews.
Advances in the Merchant Account Services Industry
In recent years, the merchant account services industry has undergone substantial changes. Many companies have moved toward more transparent pricing that allows you to view complete processing costs and fees on company websites. Additionally, many now offer interchange-plus pricing to businesses of all sizes. Other advances include the adoption of the following technologies:
- EMV Chip Cards: The industry has taken strides to enhance security and reduce the risk of counterfeit fraud by adopting EMV technology. Effective October 2015, the card brands shifted the liability of security breaches to the least EMV-compliant party. This means that if you haven't upgraded your system to accept EMV cards and counterfeit fraud occurs at your point of sale, you're liable for the breach and all associated costs.
- Mobile Wallets: Other advances in merchant services include the ability to accept payments made using mobile wallets such as Android Pay, Apple Pay and Samsung Pay. Card readers and terminals equipped with near-field communication (NFC) technology can communicate with your customers' smartphones to securely transmit payment data.
The merchant account service you choose should be up to date with these advancements and allow you to accept all major cards, including Discover and American Express. The service needs to offer 24/7 customer service so you can resolve issues no matter when you call.
Merchant Services: What We Tested, What We Found
We started with an initial list of 38 credit card processing companies that included large banks and industry leaders as well as smaller companies and those new to the industry. After examining each company's website, we conducted additional online searches that led us to weed out companies that had excessive complaints.
Our team of testers then called each credit card merchant service company as a prospective customer requesting pricing quotes and contracts to review. Using information from these calls, we eliminated those companies that refused to disclose their rates to our testers, companies that charge non-standard fees, such as quarterly technology fees and semi-annual postage and handling fees, as well as those that charge more than a nominal fee for the 1099-K IRS fee. This narrowed our list to 20 companies.
We then removed companies that charge setup fees, require three-year contracts and charge cancellation fees. To bring our list to the final 10, we eliminated companies that require you to have a processing history before you qualify for interchange-plus pricing. We also eliminated companies that were more expensive than their competitors.
We evaluated each merchant services provider using the following criteria:
- Transparency of pricing
- Consistency of pricing quotes provided to multiple testers
- Processing costs
- Fees, including those charged annually, monthly and per incidence
- How easy it is to apply for and cancel an account
- How long it takes to set up and cancel an account
- How long it takes to receive money after a sale
- Quality and availability of customer support
Pricing Transparency & Consistency
The companies that posted information about terms, pricing and fees on their websites were the most successful. Though more companies are starting to share this pricing information up front, it's still a rarity in this industry. Even rarer than transparent pricing is clear information about fees. Roughly one-third of the services in our reviews don't list any pricing or term information on their websites, and about half don't list a fee schedule.
We evaluated merchant payment services on how open its representatives were with important information. We considered how complete and consistent the information was. Services that dependably provided comprehensive and unchanging information, both online and through multiple phone and email contacts, were awarded the highest scores.
Industry experts recommend the interchange-plus pricing model as the most beneficial pricing structure available. In our research, we found that about half of the services we reviewed recommend this model. The majority of the merchant service account representatives we spoke with in our testing provided tiered pricing information and only provided interchange-plus pricing upon request, and some reps were hesitant to fulfill this request.
Some agents noted that the interchange-plus pricing provided would only be an option for established merchants; therefore, you must operate for a certain number of months with a tiered-pricing model before you would be a candidate for an interchange-plus plan.
Other agents we spoke with advised our testers against the interchange-plus pricing model, cautioning that it's beneficial solely for vendors making large transactions or processing a very high volume of transactions each month. This advice directly contradicts the expert recommendations we encountered in our research.
Processing costs are only one portion of the fees you can expect to pay for merchant services, as most processors charge a variety of fees, including monthly fees, monthly minimums and PCI-compliance fees. Some of these fees are one-time payments while others are recurring.
If you process online, your merchant services provider may also charge you for use of a payment gateway. You should carefully read your service provider's contract (application, terms of service and program guide) to obtain specifics about fees that apply to you and to ask your processor about which fees they can waive.
The Best Merchant Services for Small Businesses: Our Verdict & Recommendations
Whether you have an established small business and are seeking better rates on credit card processing or you're opening a new business and need to accept credit cards, it's important to contact multiple companies for quotes so you can compare information specific to your business.
Our merchant services reviews can help you find companies to consider that have competitive rates and favorable terms. The top three merchant account services we reviewed are among the most transparent with their pricing, fees and service terms. They offer expert-recommended interchange-plus pricing to all merchants and have competitive rates. Additionally, they provide month-to-month service and make it easy for merchants to set up and cancel an account.
Below, we've listed noteworthy features for our top three picks.
- Lowest interchange-plus markup
- Monthly fee includes PCI compliance
- No monthly minimum
- Payment Depot
- Wholesale-based pricing
- Membership fee includes PCI compliance
- Works with new businesses
- Simple rate plans
- Discount for nonprofits
- Works with high-risk businesses
The best companies in our review provide transparent pricing options without hidden fees and openly disclose information about costs, fees and terms of service on their websites and over the phone.
Additionally, the best merchant account services support the latest payment technologies and offer competitively priced payment terminals so you can accept EMV chip cards and mobile wallets, as well as all major cards brands, including American Express and Discover. They don't lock you into lengthy contracts, but instead provide service on a month-to-month basis.
Based on our in-depth research, Helcim, Payment Depot and Payline rose above the competition for their transparent pricing structures and low rates. Below are recommendations for specific types of businesses.
- If your business is new or you haven't accepted credit card payments before, consider Payment Depot, Helcim, National Bankcard or CreditCardProcessing.com.
- If your tickets are small, as is common with restaurants, look for a company with low per-transaction fees such as Helcim and National Bankcard. If you process a high volume of small tickets, consider Dharma Merchant Services and Fattmerchant.
- If your business is a nonprofit, several processors we reviewed offer discounted rates, including Helcim, Payline, Dharma Merchant Services, National Bankcard and CreditCardProcessing.com.
- If your business has bad credit, National Bankcard, Flagship Merchant Services, CreditCardProcessing.com and Cayan accept a high percentage of applicants and can work with businesses like yours.
- If you need a high-risk merchant account, for example, if your business in a high-risk industry such as gambling or adult entertainment, good options include Payline, National Bankcard and CreditCardProcessing.com.
- If you process a high-volume of regular debit cards, consider National Bankcard, Flagship Merchant Services, CreditCardProcessing.com and Cayan.
- If you'd rather do business with a larger merchant account provider that offers service to small businesses, options include TransFirst, Chase Paymentech, Elavon, and TSYS.
Disclaimer: The pricing listed in this article, in the matrix and in our reviews is reflective of the date this review was last updated. Pricing reflects our testing scenario; the pricing you receive may differ due to processing volume and average ticket size, among other factors.
Common Merchant Services Questions & Answers
Hi Aspire, I am assuming you are looking to accept debit payments on your own website using a self-hosted application without a third party gateway - right? If that's the case, then you will need to have a secure server. Check with your hosting company first. You may also need to purchase (web hosting company should be able to provide this) encryption software to integrate into an e-commerce application. And depending on which e-commerce application or platform you choose, there are a...Read More ▼
Fees depend on a number of variables including size of average transactions, number of transactions, and annual/monthly volume. The industry is highly competitive. I am a member of Costco they offer On Site and In Store 1.38%¹ Plus 19¢ per transaction, Online 1.99%¹ Plus 25¢ per transaction and On-the-Go 2.49%¹ $0 per transaction. Service is sponsored through Elavon.Read More ▼
Business payment history is the lion's share of what goes into your business credit scores. Other factors are outstanding judgments, liens, etc. But the big one is payment behaviors. Pay on time or early, as in full as you possibly can (i. e. go beyond the minimum amount to as full as your budget can stand), and that will help build your business credit. Another piece of the business credit puzzle (it happens to be true for consumer credit as well) is to check your reports - not just...Read More ▼
Sharyl, it is definitely nice to be able to do business on a cash basis, however, in a B2B environment some of your potential customers may be getting paid in 30-60 days and therefore the velocity of their cash flow is mismatched with your credit policy. You are thus missing out on additional business. Although credit applications and follow-up of customer accounts are tedious and increase the risk of non-payment, it will remain an integral part of B2B activity. Instead of offering no terms, I...Read More ▼
Since you have an EIN, all you need to do is go to the bank with copies of your organizational documents (incorporation, LLC operating agreement or whatever type of legal entity you have) and the EIN and open the account. They may require some additional information from you, which varies from bank to bank.Read More ▼
Hi John It really depends on local tax laws, banking costs, and on what you do. In our own case, we have 3 businesses all operating under the same tax identity and registration number but have 2 bank accounts. In reality we could have done with just 1, as our invoice numbering scheme takes care of the revenue recognition and our accounting system takes care of the cost allocation. The reason we have 2 bank accounts is that in one business we handle client's money (we manage vacation...Read More ▼