Payment processing company fees are another cost for small business owners and they can rack up quickly. Get recommendations for the best business processing company for your needs and maybe save some money in the bargain.
Small business owners face plenty of challenges, not the least of which is paying for all the costs that go into running a restaurant, apparel shop, beauty salon or any other company. And some of the most confusing costs for business owners to navigate are the fees they pay to the companies that process their credit card payments.
Small businesses that accept credit and debit card payments must work with payment processing companies. These companies provide card readers, online gateways and other equipment that businesses use to take credit and debit card payments. Payment processing companies, also known as merchant services providers, also process these payments for small businesses.
However, none of this comes without a charge and figuring out which payment processing company is best for your small business is no easy task, largely because the fees that these companies charge vary. Some processors will be cheaper for businesses that specialize in online credit card payments, while others will be more affordable for businesses that take mostly in-person card payments.
Businesses that specialize in higher-risk services – such as those that sell medical marijuana or CBD products – might find that some processors won’t work with them. And businesses that generate a large volume of sales each month might get a discount price from some credit card payment processors, while those that accept fewer credit card payments a month will pay more for every transaction.
How, then, can small business owners find the right payment processing company? Here’s a look at the factors business owners should consider and our recommendations for some of the industry’s top payment processing companies.
See related: Best business credit cards
The payment processing challenge
Vinay Amin, founder and chief executive officer of Henderson, Nevada-based e-commerce health supplements store EU Natural, said that choosing a credit card payment processing company for his business was a challenge.
Why? The number of fees. These start with setup fees, the money credit card processing companies charge for installing and setting up your payment systems. There are also interchange fees, the percentage of each credit card sale that goes to the credit card networks (Visa, Mastercard, American Express and Discover) and the card-issuing banks. Then there are markup fees, the charges that processing companies add to these interchange fees.
You might also have to agree to a minimum monthly fee that you’ll pay if your monthly credit card sales don’t meet a level set by your processing company. And if you want to end your agreement with a card processing company early? Your processor might charge you an early termination fee.
“Credit card payment companies aren’t nice when it comes to fees,” Amin said. “As the customer, small business owners need to conduct a deep analysis of their chosen payment company’s fee structure. Otherwise, it’ll lead to a nasty shock.”
Three different pricing models
There are three main pricing models that processing companies offer: flat-rate, interchange-plus and tiered pricing.
Samantha Ettus, founder and chief executive officer of the Los Angeles payment processing company Park Place Payments, said that while flat-rate pricing systems might be simpler, the interchange-plus model is typically less expensive for most small businesses.
This pricing model breaks up the fees that go into each credit card payment, making it easier for business owners to determine how much they are paying for each transaction and how much of that payment is going toward their payment processing company.
The “interchange” part of the interchange-plus model is the fee charged directly by the credit card networks of Visa, Mastercard, American Express and Discover. Payment processors don’t control these rates and you can’t negotiate them.
The “plus” part is the markup that your payment processing company charges in addition to the interchange fee. This is usually expressed as a percentage of the transaction plus an additional small charge.
Under the interchange-plus model, you might be charged an interchange fee of 1.80% of a credit card transaction. You’ll also be charged a fee by your payment processor. Depending on your processor, this might be .20% of the transaction plus a fee of 7 cents for an in-person credit card payment or .40% of the transaction and a fee of 15 cents for a riskier online credit card payment.
In tiered pricing, credit card payments are broken into three tiers: qualified, mid-qualified and non-qualified, each representing safer or riskier transactions. This model could be more expensive depending on how many riskier “card-not-present” purchases your business takes. But if your business relies mostly on in-person card transactions, tiered pricing might save you money.
Owners interested in simplicity can choose flat-rate pricing. Under this model, you pay a fixed rate for all types of credit card transactions, whether consumers are paying with credit, debit or rewards cards. Business owners will still pay a higher fee for online purchases than they would with in-person card transactions because the rate is flat for all types of cards but not for all transaction types.
Business owners might pay more than they would with interchange-plus or tiered pricing if a high percentage of their customers pay with debit cards or other payment categories that fall in the “qualified” category.
“I know a lot of business owners like flat-rate pricing because it’s simple. But it’d be like paying the same for your soup and entree when you’re at a restaurant,” Ettus said. “You wouldn’t pay $20 for a bowl of soup. You shouldn’t get charged the same rate if your customer is using a debit card instead of a credit card.”
The best payment processing companies
Fattmerchant: best for businesses that take a lot of credit card transactions
Fattmerchant charges no markup fees. Instead, it levies a small per-transaction fee and a monthly fee.
For businesses with less than $500,000 a year in sales volume, that monthly fee is $99. Fattmerchant then charges the proper interchange fee – which, remember, is set by the credit card networks and can’t be negotiated – plus 8 cents to 15 cents a transaction, depending on whether the transaction is in person or online.
For businesses that log more than $500,000 a year in sales volume, Fattmerchant charges a $199 monthly fee. It charges 6 cents, plus interchange fees, for in-person card transactions and 12 cents for online sales.
Helcim: best for businesses looking for discounts
Helcim offers plans that get more affordable as your business closes more sales.
If you do up to $25,000 in sales volume each month, Helcim will charge .30% of each transaction plus 8 cents for in-person sales and .50% plus 25 cents for online sales.
These figures fall, though, if your business takes more card transactions each month. For instance, if you close from $100,001 to $250,000 in card transactions every month, Helcim will charge .18% plus 6 cents for in-person card transactions and .35% plus 15 cents for online purchases.
National Processing: best for businesses looking for a deal
National Processing is known for its affordable rates.
Say you run a restaurant. You’ll be charged a $9.95 monthly fee in addition to .14% plus 7 cents for each card transaction. If you run a retail business, you’ll again be charged that $9.95 fee, but you’ll also be charged .18% plus 10 cents for every card transaction you accept. For e-commerce businesses, that per-transaction fee increases to .29% plus 15 cents.
You can also pay a larger monthly fee to lower the prices that National Processing charges for each transaction. If you pay $59 a month, National Processing will charge you 0% plus 9 cents for every credit card transaction. If you pay $199 a month, that falls to 0% plus 5 cents.
PayPal: best for businesses with lower sales volume
PayPal is a good choice for small businesses that accept a lower number of credit card transactions each month. PayPal is simple to use, and while its prices might not be the best for busier companies, that ease of use can be an important benefit for the owners of smaller businesses.
With PayPal, you’ll be charged 2.7% of every in-person card transaction plus 30 cents. For online sales, those numbers rise to 2.9% plus 30 cents.
Stripe: good for businesses who want things simple
Don’t want to deal with a variety of pricing plans? Stripe might be a good processor for you.
Stripe charges 2.9% plus 30 cents for all online credit card transactions. It charges 2.7% plus 5 cents a transaction for card payments made in person. There are no monthly fees and businesses are not required to meet any monthly minimum transaction volume.
Redde Payments: best for flat-rate pricing
Redde Payments is all about simplicity, which is apparent in its flat-rate pricing model.
Redde charges 2.5% plus 25 cents for swiped card transactions, 2.8% plus 30 cents for e-commerce transactions and 3.4% plus 25 cents for keyed transactions.
Redde focuses on flat-rate processing, so you’ll pay the same rate no matter what card your customers use. Redde also doesn’t charge contract or termination fees or statement fees.
How to find the best processing company for your business
Francisco Hernandez, director of risk and underwriting at Redde Payments, said that business owners should be wary of payment processing companies that charge extra fees, including early cancellation fees.
The contracts that businesses sign with credit card payment processing companies often last three years. Some providers might charge your business a fee ranging from $250 to $500 or higher if you break that contract, Hernandez said. Others might charge your business an early termination fee based on its average sales volume and the number of months remaining in your contract, an even worse deal.
“That can be thousands of dollars,” Hernandez said.
Business owners should also ask how quickly their funds show up in their accounts when they run a credit card transaction, Hernandez said. And they should make sure the payment processing companies they are considering are willing to work with their business type. Hernandez said that marijuana dispensaries or businesses selling CBD products, for example, might do the work to research a processing company only to find that the company considers these products too risky and doesn’t work with such merchants.
Then there’s customer service. Hernandez said that some payment processing companies prefer to communicate almost entirely through email. Others employ a full staff of customer service reps who are happy to get on the phone with customers.
“It’s important to know what kind of support you will get from your process,” Hernandez said.
Ettus recommends avoiding any processor that says it will match a better rate if you can find one – he calls that a red flag. You want to work with a processing company that will always give you its best rate, not one that will charge a higher rate unless you can find a competitor charging less.
“You want a company with one rate card,” Ettus said. “You don’t want to be negotiating on the fly with a processing company.”