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How to Find the Best Payment Processor for Your Business


Jeffrey Bumbales

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.

Instead of falling victim to confusion and paying more than you need to, follow these five steps to picking the best payment processor for your business:

  • Know the pricing structures

Your best defense when looking for a processing company is to know what you’re getting into.

For instance, interchange, or the pre-set rate a processing company pays to the card issuing bank, is an essential part to payment processing. However, there are numerous pricing structures in the payments industry, some of which include interchange, and others which don’t. There are three pricing models you should be aware of: interchange-plus, pure percentage, and tiered.

Interchange plus is the most transparent. It breaks up what is going to the card-issuing bank (interchange) and what is just processor margin. These rates are consistent and can typically be negotiated.

The next best (and currently most popular) is pure percentage, which doesn’t separate interchange from margin. While this looks simple to the merchant, it’s actually advantageous for the processors. By using a pure percentage price, processors can extract extra margin when interchange rates are low.

The third and final structure, tiered pricing, should be avoided if at all possible. While these look similar to an interchange-plus structure, their tiered nature means that your rates will be adjusted when certain thresholds are met. Processors use this tiered structure to jack up your rates to astronomical levels as soon as your business starts to grow. If you’re not careful, a tiered structure can suffocate your growing business.

  • 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 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.

  • Don’t get too comfortable

A good rule of thumb is to evaluate your processor every year. Just because you’ve signed a contract doesn’t mean things can’t change. As time passes, you gain more and more negotiating power, both with your current processor and with any other processor that might want to steal you away.

The efficiency and ease of credit cards for customers is well worth the costs to merchants. Even so, payment processing is not an aspect of your business in which you can afford to be lazy or disconnected. There are still processing companies out there with the ability to help your company grow in an increasingly card-reliant world, but it might take some work to find the right one that brings your company value.

Author Bio:
Michael Seaman, CEO of Swipe SumMichael 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.