You need to choose the payment processor that best meets the unique needs of your business. How do you find one that is the perfect fit for your growing business? Here's a closer look at the best credit card processors for business entities.
What is a payment processor?
A payment processor, also known as a credit card processor, is the intermediary that delivers money from the customer’s bank to the merchant’s bank. Your payment processor will facilitate transactions between you and your customers.
Each payment processing company specializes in different types of transactions (like online vs. in-person). They create agreements that include various fees and usage terms. They also help maintain transaction details' security and handle fraud or chargeback issues.
How to choose a payment processor in 6 steps
Payment processing companies aren't one-size-fits-all. You need to research multiple credit card processors to identify the best one for your business.
These 6 steps can help you determine which partner is the best option for processing credit card transactions:
1. Decide between third-party or merchant accounts
Before you do anything else, you'll have to determine what type of credit card processor you want to work with. Businesses should consider transaction volumes, cost structures, and scalability when deciding between third-party credit card processing and traditional merchant services.
Third-party processors are generally more suitable for businesses with lower transaction volumes due to their simple setup and higher per-transaction fees but no monthly fees, making them ideal for startups or small enterprises. Conversely, with their monthly fees and lower transaction rates, merchant services are often better for businesses experiencing high transaction volumes. They typically offer more robust support and customization options that aid in scalability and regulatory compliance.
The choice also hinges on the business’s technical resources and long-term financial strategy. Third-party processors offer ease of use and quick setup, which benefits businesses lacking technical expertise. On the other hand, merchant services provide more detailed reporting and more robust customer support, which is essential for companies planning significant growth or those in highly regulated industries.
Ultimately, the decision should align with the business’s operational needs and growth projections.
2. Consider customer service
After you've settled on the type of credit card processing service you want to use, it's time to evaluate specific payment processing providers. You want to prioritize credit card processing providers that offer exceptional customer service.
Credit card processing errors can cause frustration among consumers and tarnish your reputation. Choosing a reputable provider can help boost cash flow and keep customers happy while also allowing you to meet your payment processing needs. It's a win-win.
3. Research POS, mobile, and online features
Consider how you plan to engage in credit card processing. Will you only be accepting credit card payments online, or do you need a mix of in-store and digital capabilities? Look at how your customers like to shop and choose a credit card processing solution that aligns with their preferences.
The best payment processors provide all of the tools you need to be able to accept credit card payments on your customers' terms. They offer point-of-sale solutions, e-commerce tools, and much more.
4. Assess security and PCI compliance
Every consumer has a right to secure payment processing that protects their data. You need to work closely with your credit card processor to ensure that your operations are Payment Card Industry Data Security Standard (PCI DSS) compliant.
PCI compliance is a set of security guidelines designed to protect credit card information. If your business handles card payments, it must follow these standards to protect customers from breaches and keep transactions secure. Your processor is also bound by PCI rules.
“The pace of payment services is moving at a tremendous clip, and organizations need to stay current with PCI DSS requirements and security solutions,” – Troy Leach, PCI Security Standards Council CTO
Be sure that any POS terminals or online payment portals allow data encryption to protect both you and your customers.
5. Investigate transparency
Make sure that you consider the credit card processing cost of each merchant account or third-party provider. Some credit card processing companies charge numerous hidden fees, which can cut into your profit margins and drive down revenue.
The best merchant services providers and third-party processors are upfront about what fees they charge. Align yourself with an honest company that tells you exactly what they charge for their services. Also, read third-party review sites to find out what other businesses have to say.
6. Crunch the numbers
Partnering with a credit card processing company that charges a flat rate might sound appealing. However, it isn't always the most cost-effective option. More complex pricing models could save you money in the long run and offer additional benefits, like spending tracking and rewards.
Explore several payment gateways and credit card processing companies. Run the numbers to see which pricing model makes the most sense based on your transaction volume and the size of your business.
You can also ask payment processors to input last month's transaction data into their pricing models. This will give you a clearer picture of what using each payment processor will cost your business. If they can't or won't do the math, crunch the numbers yourself.
How does credit card processing work?
A credit card processor is the go-between running the transaction data between the merchant, the customer’s bank, and the merchant’s bank. The credit card processor facilitates the exchange of information as well as authorization for payment.
For your customers, credit card processing is a seamless swipe of their credit card. But behind the scenes, there's a flurry of activity in exchanging information, sending and recording payments, and completing transactions.
To understand how credit card processing works, let’s start by identifying the parties involved:
- Cardholder: The customer swiping their card
- Merchant: Business owner taking the payment
- Acquiring Bank: Business owner’s bank account accepting payment
- Processor: Credit card processing company that routes data to the card network
- Payment Network: The operating network of the credit card, such as Visa or Mastercard
- Issuing Bank: Financial institution that issued the credit card to the customer
The steps of credit card processing
When a credit card transaction takes place at your business, these are the steps going on behind the scenes.
- Merchant takes a card payment from the customer, online or in-store
- Credit card processing service routes customer’s payment information to the credit card network via an internet connection
- Credit card network sends transaction data to the card-issuing bank for authorization
- Bank authorizes payment and places a hold on the amount, or sends a denial if there aren’t sufficient funds or fraud is suspected. This step usually takes less than a minute
- Credit card processor sends transaction authorization or denial to the merchant.
- Merchant settles transactions in a batch, typically once a day, facilitated by the credit card processor
- When the credit card processor requests settlement, the customer’s bank releases funds to the merchant’s bank
- The credit card processor removes interchange and other fees, then deposits funds in the merchant’s bank account
- Deposits can usually appear within two days, though some processors may feature faster turnaround times
Credit card processing fees
No business owner wants to be bombarded by hidden fees. Unfortunately, some credit card processors tack on all sorts of extra charges. Certain processors may even adjust your fees without warning, leaving you to deal with the consequences. Always review your transaction statement and read the fine print of the agreement.
Here's a closer look at the various fees you'll encounter and what they mean:
None of these fees should be a dealbreaker or something to scare you off, but it can be important to understand and identify these fees while you weigh the pros and cons of various credit card processors for your business.
Credit card processing pricing models
The next factor to consider when evaluating credit card processors is the pricing model. The fees are important to understand, but they function as just one piece of the larger pricing model for credit card processors. Here are some common models:
Flat-rate pricing
Flat-rate pricing models for credit card processors are popular for the ease and straightforward nature of budgeting. A flat-rate model charges the same amount per transaction regardless of the number of transactions or the transaction total. The transaction fee might be slightly higher than with other processors, but it’s usually the only fee required—there won’t be monthly or other extra fees.
Best for: Flat-rate pricing models are usually designed for small businesses or those with small transaction volumes. Startups, e-commerce, and hobby businesses can benefit from a flat-rate credit card processing service that won’t charge extra for failing to meet monthly minimums or take unexplained percentages of each transaction.
Cost-plus pricing
This model is the most common choice for established businesses because it offers transparency for each transaction. Each transaction will show the interchange fee as well as the processor’s markup, which is usually a combination of percentage plus flat fee. There is a flat-rate/cost-plus hybrid model that can help many businesses save money on credit card processing if they have high transaction volumes each month.
Best for: Cost-plus pricing models are best for businesses with a regular, healthy volume of credit card transactions each month.
Tiered pricing
In a tiered pricing model, each credit card transaction is classified and assigned a tier with accompanying pricing. Classifications can be confusing, and transparency is lost. Each transaction is sorted into qualified, mid-qualified, and non-qualified. Qualified transactions are given a very low, favorable rate (which often attracts businesses), but higher credit card processing rates on non-qualified and mid-qualified transactions compensate for this. It’s important to note that these fees can be changed without notification.
Best for: Businesses that are mostly paid with debit and non-reward credit cards, meaning most of the transactions would be qualified and earn a very low markup rate.
Who is the largest credit card processor?
There are many credit card processors dating back to the 1970s. In fact, most of the largest processors have been in business for decades.
Who are the largest credit card processors?
- FIS
- Chase Bank
- First Data
- Bank of America
- Global Payments
While age and size can indicate stability and experience, there are many market disruptors making a splash in the credit card processing industry. Modern credit card processors are changing the game to provide solutions for small businesses, e-commerce, technology integrations, and more.
Process with peace of mind
So what is the best credit card processor for your business? It depends on your size, budget, and needs. The most important consideration is that you do the math on varied percentage + markup fees so that you don’t fall into the trap of choosing the simpler (but more expensive) option. We hope this guide helps you choose a credit card processor that helps you do what you do best—run your business well.
BILL offers financial solutions for businesses of all shapes and sizes, including expense reports, credit cards, bill pay, reimbursements, and more. BILL Pay by Card allows businesses to pay vendors using a credit card, even if the vendor doesn’t accept credit cards. Our platform automatically converts the credit card transaction to an electronic payment or check, ensuring the vendor receives funds securely.
See what we can do for you with a BILL demo.
