- Most small businesses accept credit cards as a standard payment option, but as technology advances, customers expect other convenient payment options like digital wallets, mobile payments, debit card payments, and more.
- Credit card processing companies, or merchant services providers, work as third-party intermediaries between a business and a credit or debit card network for payment processing, and can also handle other forms of digital payment.
- Picking from among the many credit card payment processors available means nailing down your business’s specific needs, like budget, hardware and software integrations, and customer service requirements.
- Learn more about the current payment industry landscape, how to accept credit card payments, how credit card processing works, and how to pick the right payment methods for your business.
The Changing Payments Landscape: Industry Trends
According to a report by management consulting company Deloitte, there are four major trends affecting the payment industry landscape and payment industry companies in 2023 and beyond:
1. More Customer Options for Real-Time Payments
The number of payment methods available to customers has been increasing over the past decade, but digital payments and contactless methods have accelerated even more since the COVID-19 pandemic. Real-time payments (RTPs) have become more popular, allowing customers to pay in an app on their mobile device, buy now and pay later, and even split the bill. The problem for sellers is in keeping up with the multiple methods available that your customers expect to use. But there may be an unexpected bright spot: these new digital payment methods could open up new data that loan originators, card issuers, and others can use instead of traditional credit scores to measure an individual’s creditworthiness.
2. The Use of Personal Digital Identification Methods for Payment Authorization
Authentication is one of the most important aspects of credit card payment processing. The system has to verify the credit card data, especially the credit card holder’s identity, the cardholder’s account, and the card issuing bank. This can typically be done through the card information, like the card number and security code, but those are both prone to security failings and hacks. So payment processors are finding new ways to authenticate a payer’s identity, including third party authentication and biometric data like fingerprints or facial scans. It’s increasingly likely that consumers will have a fully digital identity to use to authenticate payments sooner rather than later, which will drive new development across the payment landscape.
3. Digital Currencies and Next-Generation Ways To Move Money
You have probably heard of cryptocurrencies and may even have considered accepting crypto as a payment method for your business. Many crypto providers and fintech institutions see digital currencies as a great way to get rid of the lag and other complications that traditional payment methods like ACH and paper checks can cause. But with recent news of crypto’s failings, like the FTX collapse, some retailers may be hesitant to adopt the payment method right now.
4. Regulations Unable To Keep Up With the Pace of Innovation
While innovation in digital currencies and payment methods keeps growing, regulators have had a difficult time keeping up. There’s a good chance that federal regulators in the U.S. will start taking a more active role in regulating financial instruments like deposits and securities, creating new rules around banks and money transmission providers, and help define customer protections and disclosures. This is especially true when it comes to cryptocurrencies, but questions around digital payments and security — especially across international borders — will also play a major role.
All of these issues may seem like far-off advances, and they may be above your head as a small business owner. But they could be important aspects of which payment processing company you choose to use.
How Do I Choose a Credit Card Processing Company?
Whether you have a fully online ecommerce business or a brick-and-mortar business, you are going to need a payment processor to handle credit and debit card payments. This is because accepting credit card payments isn’t as easy as just interacting directly with the credit card issuing company or network. Networks like Visa, Mastercard, Discover, and American Express work with third-party service providers, also referred to as merchant account providers or aggregators. These service providers manage payment processors that push transactions through payment gateways, which communicate payment information to your bank account.
As a small business owner, you have options when it comes to which credit card processing company you want to use to handle your credit card transactions. In general, most companies provide you with everything you need to process credit card payments. This includes hardware like point-of-sale (POS) systems for physical swiping, chip reading, or contactless payments, and software for accepting online payments.
Picking the right processing company for your business means considering a few factors alongside your business needs, such as:
- What kind of fees do they charge? Credit card companies already charge transaction fees (usually a percentage of the charge), but there are also interchange fees, processing fees, monthly fees, and even early termination fees to consider. Do your research thoroughly to make sure you don’t miss any hidden fees or monthly minimums.
- What kind of POS system do I want to use? If your customers are making in-person payments, you’re going to need a credit card reader where they can swipe, insert the chip, or use contactless methods to pay. This credit card terminal is called a point-of-sale system, or POS system, and you’ll need to consider its functionality in your business. For instance, do you need iPads to do on-the-floor sales? Do you just want a virtual terminal? Do you want to accept digital payments through Apple Pay, Google Pay, or PayPal?
- What kind of integration does their proprietary software have? Depending on your business, you will probably want the POS software to integrate with your back office accounting software like Quickbooks. You may also have your own hardware that you want to use, which can limit which credit card processing companies you can work with.
- What kind of customer support do they offer? Even the best credit card processing companies will have off days when it comes to customer service, but if the company you’re considering has consistently low reviews, you probably don’t want to work with them.
- What kind of security do they offer? All merchant services providers should handle PCI compliance (standards set forth by the payment card industry) for you, but you’ll want to see what other types of security they offer. If they have a reputation for data breaches, steer clear.
What Are the Fees and Costs of Processing Credit Cards?
While there are credit card processing companies that offer flat-rate pricing, most of them make their money by charging transaction fees. This should all be outlined in your initial contract, but you can ask the company for a sample monthly statement to see what kinds of fees they charge.
A few common processing fees include:
- Initial application fees: You may be charged to process your application.
- Setup fees: If the company sends a representative to set up equipment, they may charge a fee.
- Statement fees: These are incurred on a monthly basis and will be mailed to you.
- Gateway access fees: Another monthly cost, this covers the data transaction between the payment processor and the financial institution that issues the payment.
- Interchange fees: This is a fee pinned to every transaction as it is processed through the system. Look for companies that have interchange-plus pricing, which tells you exactly how much each credit card company charges for each interchange, as well as how much the payment processor charges.
- Chargeback fee: If a customer disputes a charge, you may be charged a fee for the ensuing chargeback, which is essentially a refund.
- Monthly minimum fee: This is an agreed-upon amount that the processor will collect from you each month, even if you’re not hitting your sales targets, especially for high-risk businesses.
- Non-qualified rates: Some credit card processors charge fees for specific types of transactions, like if a customer pays over the phone. This is something you should look out for, because they can be very high.
- Early termination fees: If you cancel your contract early for whatever reason, including because you went out of business, some credit card processing services may still charge you the full amount of the contract.
How Do I Get a Credit Card Machine for My Business?
Most credit card processing companies will provide you with the hardware and software needed to accept credit card payments. This may be as simple as providing you with a credit card reader that plugs into your tablet or mobile phone, but may also include printers, barcode scanners, computers, or monitors. Note that some may charge a set-up fee.
Best Credit Card Processing Companies
Let’s get into the best merchant services and payment processing companies so you can find the right one for your business.
Pilothouse Payments’ XFEE Program Program allows merchants to eliminate credit card fees. Instead, customers who pay by card pay can choose to pay with cash for a 4% discount.
One of the most popular platforms for sellers, Shopify enables both online and in-store sales. It serves millions of sellers around the world.
Chase Payment Solutions
Whether it’s retail, restaurants, e-commerce, professional services, or even healthcare, Chase Payment Solutions allows you to accept multiple different types of payments from anywhere in the U.S. They are known for their security and boast that you can get deposits as soon as the next business day. They also offer transparent pricing with no hidden fees.
With 100% transparent pricing, no monthly fees, and a slew of payment options, including invoicing, in-person, and online, Helcim can be a great option for startups. Plus they offer 24/7 customer support.
A customizable POS system, mobile card reader, and easy setup make Clover a great choice for new businesses. They don’t charge based on your number of employees, so they’re great to grow with, too.
Beyond having no cancelation or early termination fees, Payment Depot uses a membership-style pricing model and doesn’t charge markup rates or other hidden fees. In simple terms, you pay the same amount every month, which can be helpful if you go from low-volume to high-volume sales throughout the year.
Payline Data offers online and in-person payment solutions, integrations to handle online transactions, and next-day funding. They offer a straightforward pricing structure and a number of solutions to suit your business needs. You can check interchange rates directly on their website, too.
Stax by Fattmerchant
Stax offers an all-in-one processing solution and membership pricing that’s well suited to high-volume businesses. They charge a monthly subscription fee for transaction processing up to $500,000 per year, and can create custom solutions for anyone who has more processing volume than that.
With transparent pricing and a willingness to work with high-risk industries, National Processing is a good choice for established businesses. They’ll reprogram your existing hardware for free, and offer a free mobile card reader among other add-ons. They also integrate with many popular software programs, including accounting, customer relationship management (CRM), and online store programs.
Square offers a number of options for restaurants, including an all-in-one POS system, free online sites for mobile ordering, delivery, or pick up, and more. They scale to meet the size of your restaurant, and integrate with apps to help you deal with inventory, accounting, and CRM.
CDGCommerce provides terminals and POS systems, integrations with your reservation system, options for loyalty programs, and CRM options, on top of their membership pricing and no cancelation fees.
PayPal is everywhere in online shopping carts, and they’ve built a name for themselves for helping people accept online payments, whether for personal or business purposes. It’s as easy as setting up an account and copy-pasting the PayPal button onto your site in order to start receiving payments.
What Is the Difference Between Credit Card Processing and POS?
The terminology used to describe these services can be confusing, so let’s spell out some basic terms:
POS refers to “point of sale,” which is where the transaction takes place. It’s often used to describe in-person transactions (at a restaurant or retail store, for example) but can include online purchases as well.
POS devices typically refers to the hardware used to facilitate payments and may include card readers or registers. They’re part of larger POS systems that may include a range of features beyond payment processing, including inventory management, sales analytics, employee management, customer relationship management (CRM), and integration with other business systems.
Credit card processing is a broad term that’s often used to describe services that help businesses process credit and debit card sales.
POS, then, refers to the overall system used for managing sales and transactions, while credit card processing specifically focuses on the handling and authorization of card payments within that system. But don’t be surprised if these terms are sometimes used interchangeably.
Another term you’ll encounter is “merchant services.” These companies often facilitate the process of payments all the way from checkout to depositing payment into the seller’s account. A business needs a merchant services account to receive payments from sales paid for with cards. A full-service merchant services provider will also offer essential services like security compliance.
As you can see there is a lot of overlap between the terms used to describe the hardware, software and services used to help businesses accept payments of various types.
FAQs on Credit Card Processing
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This article was originally written on July 29, 2022 and updated on August 19, 2023.