Updated August 18, 2022
If you’re in the market for a new payment processor, you might be overwhelmed with the number of choices available. Perhaps you are unsure of what properties to look for, or how to best incorporate your choice into your business’s needs. It’s true that there are several providers out there with payment processors available, but if you do the right research and take a hard look at your business from the inside out, you can absolutely make the best choice available for your needs.
But first, Credibly highlights four important questions you should ask yourself:
How Does the Payment Processor Work with a POS System?
When considering your payment processor, it’s important to note that technology is always changing, and certain software and hardware that you may be using is going to become outdated. You should take a look at your current POS system and decide if it will be compatible with the payment processors you’re considering. It can seem like a lot of money upfront to replace your POS system, but over the course of the next several months, the cost-effective nature of the new system can help pay for the upgrade.
Here are a few factors to consider when looking to integrate your POS system with your payment processor:
- Look for an all-in-one POS and payment processor. If you don’t need to buy separate systems, this makes it even more convenient for you to keep your data organized and in one place.
- A direct connection. A payment processor integrated with your POS software provides a direct connection with you and the payment processor, which leaves less room for error.
- Tech support. Look at the technology that each provider uses, and determine how much support they provide. This is key to understanding your system and troubleshooting any issues that may arise.
Two key elements in determining what payment processor you want to use are compatibility and convenience. With compatibility comes fewer errors, higher efficiency, and more cost-effective approaches. With convenience comes the ease of use and the automated compilation of data for you to analyze. If you’re willing to upgrade your POS systems now, it may very well be worthwhile in the long-run.
How Does the Payment Processor Integrate With Accounting and Security Software?
Data breaches might be your worst nightmare, but they are a reality, and precautions should be taken to prevent them. You want your customers to feel that their information and credit card information are secure. so when considering a payment processor, research how well they integrate with security software.
You can take steps to prevent a breach by looking for:
- EMV technology. Chip card acceptance has become more widely used and has prevented fraud on a higher scale in recent years.
- Encryption and tokenization. Encryption is what protects the credit card data while it’s being transmitted, while tokenization keeps this data secure for post-authorization transactions (tips, recurring billing, etc.).
- PCI compliance. This is mandatory for all businesses that accept credit cards. Make sure your payment processor is compliant with PCI payment system requirements.
- Anti-fraud services. Check and see if the payment providers have a team of people dedicated to anti-fraud services.
- Breach protection. Make sure there are financial protections in place that can help prevent breaches. Ask about the availability of breach protection to reduce your liability if a breach does occur.
In addition to security software, you should check to see if the payment processors you’re considering work well with your accounting software. Use a processor that integrates with your accounting software so you can:
- Automatically generate invoices for each transaction.
- Manage all transactions with a searchable list of invoices.
- Track, manage, and export your revenue data.
Clearly, you want to ensure your customers feel their information is safe and secure, but you also want to be able to streamline your own accounting process and gain control of your cash flow. By ensuring your payment processor integrates both with secure software and accounting software, you are making the process efficient for yourself, but also safe for your customers.
What Is the Pricing Plan for the Processor?
In order to successfully find the payment processor best suited to your business, you need to consider the pricing plan for each one you’re researching. There are several pricing structures in the payment processing market, and it’s important to break them down.
First, let’s take a look at two types of fees that are incorporated into the pricing plans:
- Wholesale fees go to the credit card-issuing banks and the credit card associations. These are fixed amounts and non-negotiable.
- Markup merchant account fees go to your credit card processor, in addition to any other equipment or software providers; however, these are negotiable.
Now that you’re more familiar with these terms, there are some pricing models for payment processors that you should be aware of:
- Interchange-plus. This is the most transparent plan and easiest to understand, as it itemizes all wholesale fees and markup merchant account fees for your monthly statement.
- Scalable. This plan follows a tiered nature. Your rates will be adjusted once you meet certain requirements. For instance, as your business starts to grow, this tiered pricing makes it more affordable to stay with your system.
- Flat-rate. This account pricing is transparent and applied as a flat monthly fee and per-transaction fee, rather than a percentage of sales volume. It’s simple and sometimes offered without a transaction fee. The costs don’t change, but it’s not meant to a competitive fee; it’s meant to be simpler in nature.
Understanding these pricing plans is integral to determining which is best for your business. It’s important to think about the amount of revenue your business brings in, and which pricing model would be most convenient and/or cost-effective to put in place as a result.
What Kind of Merchant Account Should Be Used?
The last question to ask yourself as you consider a payment processor is the kind of merchant account you’ll be using. First, a merchant account is an individual account that allows you or your business to accept credit cards for payment. When your customers uses their credit card to pay, the cleared transaction will then be deposited directly into your bank account through your merchant account.
Consider these merchant accounts based on your type of business:
- Retail merchant account. If you own a retail store, which is in a stationary location, this is the recommended merchant account for you. It offers low application and setup fees and applies mainly to grocery stores and department stores.
- Internet/e-commerce merchant account. If you sell products online but don’t have a physical store, this is your recommended merchant account. This is specifically designated for taking payments online, where the customer enters their credit card information into the system via an encrypted page. However, it should be noted that the fees are higher for transactions because the service providers don’t make money on terminal equipment.
- Mobile merchant accounts. If your business is “on the go,” this is a good option for you. Mobile merchant accounts allow you to accept credit card payments using a mobile device. It’s easy to set up, and the card reader is generally low-cost; however, the processing rates are a bit higher because your sales are going to be lower than those of retailers.
Mobile payments via customer phones are on the rise, so it may be worth considering a payment processor that allows your customers to pay using their own mobile devices.
Hopefully, this breakdown helps you more easily decide which merchant account type you’ll be using. It’s important to take a look at your business structure, your needs, and your revenue. From there, you can narrow down your choices and start looking at specific payment processors that work well with your specifications.
How to Find the Payment Processor for Your Business
For consumers, credit cards make paying for goods and services quicker and easier. But for merchants, they can be a headache. Many business owners are shocked to find that credit card payment processing is one of the largest expenses businesses face, second only to labor costs.
Unfortunately, it’s a problem that can’t be fully avoided. If businesses want to make their customers’ experience smooth and trouble-free, accepting credit cards is a necessity. Many businesses are forced to choose the lesser of two evils: Either they lose customers by not accepting cards or they lose a large percentage of their revenue to payment processing fees.
For those who want to minimize the impact payment processing has on their revenues, finding the right payment processor is crucial. But the payments industry is confusing — it thrives on merchants’ lack of education and patience.
Evaluate Your POS/Terminal Systems
Technology is always advancing and outdated POS/terminal systems can begin to cost you in more ways than one. When you’re evaluating your processing options, your existing POS situation must be considered. Not all systems will work with all processors, so if you want to keep your current POS system, be sure that any processor you research will integrate with them.
Of course, it’s also good to be open-minded about switching systems or upgrading your hardware if need be. Though the up-front investment of getting new equipment might seem daunting, processing savings can typically cover that cost in just a few short months. If you’re looking for a cost-effective option, consider looking into tablet-based systems that work with a variety of processors and help streamline your company.
Do Your Homework on Potential Payment Processors
There are hundreds of payment processors out there, and all of them are a little bit different. Business owners just don’t have the time to look at each one and make a selection. Fortunately, you don’t have to do it alone.
SwipeSum, for example, will help you find the best payment processor by connecting you with a network of processors that bid on your business. All processor bids are required to use the interchange-plus model, and you’ll be given a list of processors along with their offers for you. The best part? It’s free.
If you want to do a little digging yourself, look into customer reviews on sites like Merchant Maverick or Capterra. These can give great insight into what it’s like to work with a processor beyond their advertisements and sales pitches.
Once you’ve found an attractive option, have conversations with those processors to find out how they can serve you. Talk to their experts about the logistics of integrations, how quickly you can get paid, and other things that might be important to your business.
Negotiate Your Contract
While the payment processing industry is full of hidden fees and confusing contracts, the nice part is that everything is negotiable. Processors don’t want to give up their margin, but when given the choice between a smaller margin and losing your business, they’re definitely inclined to do what it takes to get you on board.
Fees are going to be a big part of that. While rates quoted by processors might suggest that you’re paying 2% of monthly revenue, additional fees can push your actual spend up to around 3-5%. That’s a big chunk of change, much of which can be negotiated away.
Fees aren’t the only negotiable part of a payment processing contract, though. Contract length and hardware provisions are also at stake, so address those in your negotiations. Remember: the first offer is never the final offer, so don’t be afraid to speak up.
Michael Seaman is the co-founder and CEO of payment processing marketplace SwipeSum. As a veteran of the payments industry, Michael is passionate about eliminating the barriers that businesses face in selecting a credit card processor. He’s also a big fan of deep dish pizza. Follow Michael on Twitter or connect on LinkedIn.