Choosing a company that helps you accept credit cards can be challenging, because there are hundreds of payment processing companies to choose from and several factors to consider before selecting a service. To find the most convenient and least expensive route from your customer's credit card to your bank account, you want to look for credit card processing companies with low rates, few fees and month-to-month service contracts.
One of the best ways to ensure you get a good deal is to educate yourself about the different fees and rates processors charge so you know what to expect and whether you're getting a good deal or paying more than you should. You should also plan on calling 3-5 credit card processing companies before making a decision so you can compare quotes and terms specific to your business.
Before you begin calling for pricing quotes, you'll want to have a good idea of what kind of processor will be the best fit for your business, how you plan to accept payments and what type of processing equipment you need.
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Each payment processor is one of the following business types:
- ISO/MSP: Most credit card processing companies are independent sales organizations (ISO) and merchant service providers (MSP) that resell merchant accounts from direct processors. These include Flagship Merchant Services, Helcim and Payline. These companies can set you up with a merchant account and are usually the best choice for small businesses that process more than $3,000 per month and have average or high sales tickets.
- Direct processor: Direct processors provide merchant accounts and have relationships with the banks and credit card brands. Examples are Chase Merchant Services, First Data and Worldpay. Though these companies tend to be better suited to large businesses, they work with small businesses as well.
- Payment facilitator: Also known as merchant aggregators, these companies sponsor merchants under their master merchant accounts and are often classified as mobile credit card processors. Examples include PayPal, Square and Stripe. Generally, this type of processor works best for very small businesses that process less than $3,000 per month because, even though their rates are higher, they charge fewer fees. Businesses with small sales tickets can also save money using this type of processor if they choose a company that doesn't charge a per-transaction fee.
If you already know what you need and just want to see our recommendations for the best credit card processing services, visit our best picks page here.
Next, identify how you do business with your customers and how you're going to accept payments.
- Card present: You accept credit and debit cards in person, using a POS system, credit card terminal or mobile card reader.
- Card not present: You accept credit and debit cards remotely, either online or over the phone.
- Both card present and card not present: You accept credit cards multiple ways. An example of this would be a retailer with both a brick-and-mortar location and an online store.
Finally, you need to decide what type of processing equipment you need. All card readers can accept magnetic stripe cards, but you want a model that can accept EMV chip cards as well. Ideally, it will also have NFC technology that allows you to accept mobile wallets like Google Pay and Apple Pay so you won't have to upgrade your equipment again as this payment method becomes more popular. Here are four basic ways to accept credit cards:
Mobile Credit Card Reader
This is a portable device that lets you accept credit cards anywhere using a smartphone or tablet with a credit card payment app installed on it. Some models plug into the headphone jack of your phone or tablet, but many newer models connect via Bluetooth.
- Many processors give their customers free magstripe card readers, but you should upgrade to a model that accepts chip cards and mobile wallets. These can cost up to $100.
- It can be used as a stand-alone device or connect to a POS system.
- This type is best for businesses that accept payment in a variety of places, want to process transactions from anywhere in the store or only run a few transactions each day at a physical location.
Credit Card Terminal
This type of processing hardware is used exclusively to accept credit and debit cards. Most have built-in keypads (for PIN debit transactions) and receipt printers. Countertop models connect via dial-up or Ethernet. Wireless models connect via Bluetooth, WiFi, 3G or GPRS.
- Terminals are available for purchase from merchant account providers for $150 to $600.
- It should read both EMV chip and magstripe cards and include NFC technology so you can accept mobile wallet payments.
- This type is best for businesses that need a card reader to connect to or work alongside a POS system, or that don't need the credit card processing system to do anything but accept payments. [Credit Card Machines: Answers to Frequently Asked Questions]
Point-of-Sale (POS) System
This is a complete checkout station that typically includes software, a tablet or touchscreen, a card reader, a cash drawer, and a receipt printer. Barcode scanners and other peripherals may also be added.
- POS systems are available for purchase from merchant account providers or POS companies. Pricing varies, depending on the type of system you choose. Tablet-based systems that work with third-party hardware are usually the least expensive.
- It connects to or is used alongside a terminal or mobile credit card reader. Some systems have built-in card readers.
- These systems are best for businesses with a physical location, particularly those that want to connect to other business software, such as accounting or inventory programs.
This is an e-commerce solution that you use with shopping cart software or an e-commerce platform to accept payments through your website, blog or online store.
- Most processors charge a monthly fee for this service. Some also charge a gateway setup fee and an additional per-transaction fee.
- These systems are available from most credit card processing companies. If you already accept cards at a physical location, check with your processor before signing up with another service for your online processing, as some contracts have exclusivity clauses.
- This is best for businesses that sell goods or services online.
Editor's note: Are you trying to choose a credit card processor? If you're looking for information to help you choose the one that's right for you, use the questionnaire below to have our sister site BuyerZone provide you with information from a variety of vendors for free:
Now that you've got the basics, you might be ready to start calling credit card processing companies for price quotes. If so, check out our recommendations for the best credit card processors or the best POS systems. Still not sure? No problem. Here's everything you need to know about different types of credit card processing solutions and how it all fits together.
Credit Card Processing With a Merchant Account
What it is: Both ISO/MSPs and direct processors can set you up with a merchant account. They then act as middlemen between your business and your customer's credit card company or bank. They process payments and make sure the money is appropriately withdrawn from a credit card account and placed into your business's merchant account. Once the money clears all of the processing protocols, it can be transferred from your merchant account to your business's regular bank account. [See our pick for best credit card processor for small business here.]
Who should use it: Businesses processing more than $3,000 per month, including brick-and-mortar, mobile and online businesses.
Equipment: Merchant services providers offer businesses a variety of equipment for accepting debit and credit cards, including POS systems, terminals and mobile card readers. Most processors give you the option to buy, rent or lease processing equipment. Whenever possible, you should purchase your equipment to avoid expensive, noncancelable leasing contracts. You can often purchase processing equipment from third-party vendors or use POS hardware you already own if it's compatible, though the processor may need to reprogram terminals and may charge a fee for this service.
Cost: Merchant accounts are more costly than aggregated credit card processing accounts, and they typically charge several monthly fees in addition to per-transaction rates. Because the rates can vary widely among providers, it's important to shop around for the best deal. For each transaction, you'll pay a percentage of the sale (usually between 2 and 4 percent) plus a per-transaction fee (usually between 10 and 30 cents). Most processors use the tiered pricing model to calculate your processing costs, but industry experts recommend the interchange-plus pricing model, as it's more transparent. You want to ask which pricing model the company uses when you call for a pricing quote.
- Tiered pricing is a good option if your customers typically pay in person using regular debit and credit cards, though it can be expensive if they prefer to use premium rewards or corporate credit cards. You'll want to ask how many tiers there are, the rate for each tier, and which type of card and acceptance method are grouped into each tier. There are usually three tiers: qualified, mid-qualified and non-qualified. There may be separate tiers for debit and credit cards.
- Interchange-plus is a good option if your customers typically pay using rewards or business credit cards. With this model, the processor passes on to you the published interchange rates the credit card networks charge and adds a markup percentage and per-transaction fee. Keep in mind that when you receive a quote for this pricing model, it's only the markup percentage and per-transaction fee that you'll receive, and for each transaction, you'll pay this amount on top of the published interchange rate.
In addition to transaction rates, you'll pay regular fees for your account. These typically include the following:
- Monthly statement fee ($10 on average)
- Monthly minimum fee ($25 on average)
- Monthly gateway fee (usually $5 to $15)
- Annual PCI compliance fee (usually $99)
Contract: The best credit card processing companies provide their services on a month-to-month basis and don't charge any early termination fees. Most contracts are for three-year terms that automatically renew for one or two more years if you don't cancel in writing within a 30- to 90-day window. If the processor you want to work with has a lengthy contract, ask your sales rep if month-to-month terms are available and if they can waive the early termination fee. Most companies want your business and are willing to give you more favorable terms.
Security: The credit card processing company you choose should adhere to the Payment Card Industry (PCI) Data Security Standards, the debit and credit card industry's rules and regulations for how credit card information should be handled, used and stored. It should also help you achieve and maintain PCI compliance. These standards set the framework for prevention, detection and reaction to security incidents. Businesses that comply with the PCI security standards are less likely to suffer data breaches. A 2011 Verizon investigation into data breaches revealed that 96 percent of breached merchants weren't PCI compliant. Noncompliant merchants also face significant fines from the networks they accept cards from, such as Visa and MasterCard.
You also want to make sure that your system is set up to accept EMV chip cards. Visa reports that EMV-compliant businesses have experienced a 70 percent drop in counterfeit fraud occurring at the point of sale since 2015.
Pros and cons: There are three benefits of using an ISO/MSP or direct processor that provides you with a merchant account instead of a payment facilitator that sets you up as a submerchant under its master merchant account:
- The application process is more thorough, so processors are usually less risk-averse than payment facilitators. They're less likely to freeze your account if you have an abnormally high transaction or monthly processing volume. They often work with a broader range of businesses, though there are usually some industry or business types that each decline to work with, and rates and fees for high-risk businesses tend to be higher.
- They typically provide more comprehensive customer service than payment facilitators. Direct processors provide 24/7 phone support, and ISO/MSPs pair you with a dedicated account rep so you have with a regular contact at the company.
- They have better pricing for high-volume and high-ticket merchants. Even though these processors charge monthly and annual fees, rates are lower, which can save you money if your processing volume is high enough. Many processing companies are willing to negotiate your rates as your business grows and your volume increases, and some offer volume-based discounts.
The chief disadvantage is that if your businesses has a low monthly processing volume, you may struggle to justify the expense of processing due to the monthly and annual fees. Also, you may pay extra each month if you're not meeting the monthly minimum in processing costs. Such businesses should choose a payment facilitator that doesn't charge any monthly or annual fees. Even though transaction rates are higher, you only pay for what you use, which will save you money if your monthly processing volume is low.
What to look for: When we spoke to small business owners about credit card processing and merchant accounts, the best advice they gave is to look for a vendor with simple, upfront pricing and to always read the fine print. This means that swipe fee percentages and per-transaction rates, monthly fees and minimums, the annual PCI compliance fee, and other numbers should be crystal clear so you're not faced with any unpleasant surprises.
Knowing your contract terms is also critical. Make sure the sales rep explains the terms to you clearly and then take the time to actually read the contract so you don't end up locked in a multiyear agreement with a steep early termination fee.
Other factors to consider include how long it takes to set up your account and start processing, how long it takes to clear the account and deposit funds into your business bank account, and whether the value-added components that you want, such as gift cards and loyalty programs, are available. If you plan to accept payments on the go, you should ask about the availability and cost of mobile processing. If you sell products or services online, it's important to make sure the merchant services provider can set you up with a payment gateway that has all the internet-based features you need, such as a virtual terminal, recurring payments and online invoicing.
Mobile Credit Card Processing
Who should use it: Mobile credit card processing is ideal for merchants who want to be able to accept credit cards anytime, anyplace. Some examples are repair people, food trucks and street vendors, as well as brick-and-mortar stores that want the option of accepting credit and debit cards away from the cash register. [See our pick for best mobile credit card processor here.]
Merchant account: Both merchant aggregators and merchant account service providers (ISO/MSPs and direct processors) can set you up with mobile credit card processing. If you process less than $3,000 per month, merchant aggregators are less expensive, since they usually don't charge monthly and annual account fees. Businesses with small sales tickets that accept payments in person also save money if they choose a merchant aggregator that doesn't charge a per-transaction fee.
If you process more than $3,000 per month, a merchant services provider may be more cost-effective, despite monthly and annual account fees, as processing rates are lower. You may also prefer to work with a merchant account services provider for your mobile credit card processing if you have irregular sales ticket sizes.
Equipment: To accept credit cards, you'll need a compatible smartphone or tablet, a card reader that plugs directly into the device or connects via Bluetooth, and the accompanying credit card payment app from the provider. The smartphone or tablet then functions as a credit card payment terminal. Some systems allow you to connect to cash drawers, receipt printers and barcode scanners so you can build a checkout station, if desired.
Cost: Merchant aggregators usually charge a higher swipe rate, and although some don't charge a per-transaction fee, those that do may charge a higher amount as well. Most companies don't charge monthly fees, monthly minimums or PCI compliance fees.
Merchant account services providers usually charge the same rates and fees for mobile credit card processing as they do for card-present processing at brick-and-mortar locations. If you already accept credit cards at your business, you can talk with your processor about purchasing mobile card readers to add to your system.
Many processors offer a free card reader with your account, but you'll want to upgrade to a model that accepts chip cards and mobile wallets, which can cost up to $100.
Security: In addition to complying with PCI Data Security Standards, mobile credit card apps use tokenization to encrypt card data as soon as it's received. The apps are password-protected and include additional safety measures in case the mobile device is lost or stolen. You want your card reader to be EMV compliant so you can accept chip cards, which helps you avoid accepting counterfeit credit cards.
Pros and cons: The ability to accept credit cards anywhere benefits both businesses and consumers. It enables your businesses to provide better and faster customer service. By having mobility options, you're free to collect payments from anywhere in the store, not just at the cash register. Apple and Nordstrom do this, for example.
The major drawback is that there are still costs to consider. Although mobile processing is less expensive for very small merchants who plan to use the phone or tablet they already own, it can be expensive for merchants with employees, since you'll need to provide a smartphone or tablet to use with each mobile card reader. You'll have to weigh the need and convenience of accepting credit and debit cards wirelessly versus the cost to do so.
What to look for: Both merchant aggregators and merchant service providers offer mobile credit card processing, so it's important to compare your options before choosing a processor. According to the small business owners we spoke with, important considerations include transaction rates, monthly fees and the type of equipment the processor offers.
If you already have iOS or Android tablets and phones you intend to use, you need to make sure the app and the card readers are compatible. The credit card payment app features you should look for include the abilities to capture signatures directly on a mobile device, calculate sales tax, accept tips, manage customer contact and sales information, and send email or text receipts.
What it is: POS systems use a combination of payment processing, software and equipment to accept credit card and cash payments, manage inventory and customer contact data, generate sales reports, and more. POS systems can be stationary or mobile, and many are now tablet-based. [See our recommendations for the best POS systems here.]
Who should use it: POS systems are ideal for businesses with physical locations that have medium- or high-volume sales, such as retailers, restaurants, spas and salons.
Payment processing: Most POS system vendors allow you to choose which payment processor you use; however, while some work with nearly every U.S.-based processor, others give you limited options. Some POS companies, such as Square and Harbortouch, also provide credit card processing services and require you to use them in order to use their POS systems. Others that provide processing, like Shopify, may allow you to work with another processor but charge either a per-transaction surcharge or a monthly fee for the privilege. If you're under contract with a processor or there's a specific processor you want to use, you should ask them which POS systems they're compatible with. Alternatively, you can use the processor alongside the POS system of your choice, though this isn't as convenient as using one that integrates with the system.
POS software: Cloud-based software as a service is the most popular option for POS systems. Although you pay a monthly fee, you receive regular updates and can access the back office from any browser, allowing you to check on your sales and run reports when you're away from the office. Some companies still offer software licenses, which have a one-time or annual fee, and this can be a good option if you don't have reliable internet service.
POS equipment: There are two types of POS systems – traditional and mobile. Traditional POS systems typically come with some combination of a credit card reader, touchscreen monitor, receipt printer and cash register. Mobile POS systems allow you to use your own iPad or tablet and come with a tablet stand and a card reader that plugs into a headphone jack or connects via Bluetooth. You can also add receipt printers and cash registers to these systems.
Cost: The cost of POS systems varies depending on the type of POS software you choose, whether you purchase or lease your hardware, and which processor you work with. Here are the different costs to keep in mind:
- Equipment costs (varies, may be purchased or leased): Industry experts recommend purchasing hardware outright, as leasing can be extremely expensive and most leasing contracts are noncancelable, which means you're on the hook for lease payments until the contract expires, even if your business closes and you return the equipment.
- Setup and installation fees (if applicable): Most POS companies don't charge for remote setup assistance, but it can be expensive if you need the company to provide onsite installation and training.
- Monthly software subscription fee or software license purchase
- Early termination fees: If your credit card processing service or POS software has a lengthy contract, this can cost several hundred dollars. The best companies offer month-to-month service, allowing you to cancel at any time without incurring this fee.
- Credit card processing rates and fees
Security: Like other credit card processing services, POS systems include security protocols that support PCI compliance. Mobile POS systems have even more stringent security. They encrypt card and transaction data, regularly back up data, and protect the apps with passwords. They also have remote wiping in the event that devices are stolen.
Pros and cons: The biggest benefit of using a POS system is that it offers an all-in-one solution for processing transactions, managing sales, and running the front and back end of your business. They often come with robust software that lets you sync data – such as inventory, financial reports and customer information – with other software your business already uses, saving you the time of manual data entry. Additionally, there are POS systems designed for specific types of businesses – whether you own a restaurant, shop, salon or spa, there's a POS system for you. Mobile options allow you to take your POS system with you wherever you go.
There are some drawbacks, however. As with some credit card processors, you may have to sign a long-term contract that comes with a hefty early termination fee. You'll also have to consider setup and training time for teaching employees how to use the software and equipment. And, because there are several types of POS systems and features, you'll need to do your homework to figure out which types of equipment and software are right for your business.
Online Credit Card Processing
Who should use it: Any type of business that sells goods and services online. [See our pick for the best online credit card processor here.]
Cost: Most processors, including both merchant aggregators and merchant account service providers, can provide credit card processing services to online businesses. No matter which type of processor you work with, transaction rates are higher for online processing (also called card-not-present processing) because you aren't physically accepting the credit card in person and the risks of fraud are greater.
Security: Credit card processors are proactive with their online security measures and have encryption protocols in place to keep your data secure. As with card-present processing, you're required to abide by the PCI Data Security Standards, and you'll need to establish your compliance if you work with a merchant account services provider.
Connecting to your online store: You can connect the payment processing service to your website in a few different ways. Some processors provide a hosted payment page that you can link to from your website. Others offer shopping carts or gateway APIs that your developer can use to integrate payment acceptance with your website. Alternatively, some processors offer online stores with integrated payment processing that you can customize and use as your website.
Pros and cons: The major benefit of accepting credit cards online is that it makes it easy for your customers to do business with you. If you already have a retail presence, it gives you another revenue stream. The drawback is that transaction fees are higher for online sales than for card-present transactions, no matter which type of processor you use. E-commerce businesses also have an increased chance of chargebacks, since typical reasons that a customer will dispute the charge include delivery failures, technical errors and dissatisfaction with the product.
What to look for: The small business owners we spoke with recommended looking for the following four qualities as you shop for an online credit card processor.
- Easy to integrate into an online store: There should be no tech skills required; you should be able to cut and paste a code to integrate the processing service with your online store, blog or website.
- Provides e-commerce solutions: The vendor should make it easy to run your online business by providing a shopping cart, buy buttons and, if you don't already have a website, even a website builder or customizable online store.
- Easy for customers to use: Because customers are inputting their own information and doing checkout themselves, the checkout process should be easy, seamless and done in as few steps as possible. Additionally, customers should be able to enter their credit card information immediately and not be required to set up an account before they can make a purchase.
- Offline capabilities: If you also sell in person, the best online credit card processors offer card-present processing as well, meaning you can use the same company for both the online and brick-and-mortar or mobile sides of your business.
As with any type of processing, price is an important consideration. Because both the monthly fees and transaction rates can vary greatly, you need to research your options so you can determine which one is the most cost-effective for your business, based on your monthly sales volume. You also want to select a processor that provides its services on a monthly basis so you can cancel your account without penalty if the service doesn't meet your expectations or you find a better deal elsewhere.
Additional reporting by Sara Angeles and Chad Brooks.
Ready to choose a credit card processing company? Here's a breakdown of our complete coverage:
- Best Credit Card Processors 2018
- How to Accept Credit Cards Online, In-Store or Anywhere
- Best Small Business Credit Card Processor
- Best High-Volume Credit Card Processor
- Best Low-Volume Credit Card Processor
- Best Credit Card Processor for Flexible Terms
- Best Mobile Credit Card Processor
- Best Online Credit Card Processor
Editor's note: Looking for information on credit card processors? Use the questionnaire below and our vendor partners will contact you to provide you with the information you need.