What is a Payment Processor? Here's Processing Explained, Plus the Top 10 Service Providers.
Credit cards were used to purchase $188 billion in merchandise in 2020. For merchants, that’s a glaring incentive to take credit and debit cards when and however possible, as soon as possible.
You can’t accept card payments all on your own, though. You need a payment processor to take credit card payments.
In this article, we’re taking a deep dive into payment processing. We’ll explore what a payment processor is, what they do, and what you should consider before choosing one over another. Plus, we’ll provide you with a comprehensive list of the highest-rated payment processors available, along with the pros and cons of each, according to merchants like you.
- What is an Acquiring Bank? The Acquirer's Role in Payments
- What are Merchant Category Codes or MCC Codes?
- 7 Common Reasons Why Issuer Declines Happen
- How Credit Card Interchange Fees & Rates Affect Merchants
- Independent Sales Organization (ISO) in the Payment Process
- Should a Return Item Chargeback be Cause for Concern?
What is a Payment Processor?
- Payment Processor
A payment processor is a company that facilitates credit card payments on behalf of a merchant by receiving, communicating, and relaying the cardholder’s information between issuing and acquiring banks.
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Processors work as a “middle man” to conduct payments. As long as the customer has the necessary funds available for the transaction and has been verified by their issuing bank, the transaction can be processed quickly.
Here’s how payment processors work:
Customers present their card to a merchant to pay for goods or services. Once those details are entered via online form or physical POS terminal, the information is submitted through a payment gateway. This is often included with the merchant’s payment processing account.
The customer’s payment credentials and transaction information are sent to the payment processor via the payment gateway. The processor then sends that information to the card network for approval.
The card network will notify the payment processor whether or not the payment request is approved or denied.
The merchant finishes the transaction with the customer.
After the transaction is completed, the payment processor requests that the issuing bank send the funds from the transaction to the acquiring bank.
The merchant receives access to the funds from the sale. Depending on the processor and type of account, the transfer could occur instantly or within a few business days.
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Payment processing can be relatively swift if the processors and networks they work with have a streamlined payment gateway. However, if a third-party payment processor like PayPal or Venmo is used, it would be the third party who communicates with the network to facilitate payments. This extra step could cause delayed responses and fund transfers that could take several business days.
Determining the Best Pricing Model for Your Needs
First, you want to choose the company that best suits your budget. Pricing structures for payment processors tend to vary according to your industry, sales volume, and merchant status (standard versus high-risk processing). The three most common pricing models are:
#1 | Interchange-Plus Pricing
This pricing method includes the interchange rate plus a markup, which can either be a fixed amount or percentage-based.
Interchange rates can vary from transaction to transaction, making it difficult to predict costs month to month.
#2 | Flat-Rate Pricing
This pricing method ensures a single rate for all transactions through a given method, regardless of interchange rates and fees. This would mean you’d pay a set percentage on top of your transaction rate; for example, 3% of the total plus $0.25 for every transaction.
Flat-rates aren’t subject to fluctuation. You know what you’re getting into.
#3 | Tiered Pricing
This pricing method combines both interchange-plus and flat-rate pricing by sorting rates into grouped categories. To illustrate this, let’s say that you might pay 2% plus $0.15 for debit transactions and 3% plus $0.10 for credit card transactions. These rates and fees are variable, following a predetermined ruleset.
Tiered pricing offers predictability combined with competitive pricing.
Additional pricing details to think over:
- Most payment processors list their pricing details on their websites. Some will require that you contact them for an individualized quote.
- Some processors offer more than one payment method according to your industry, vertical, etc.
- Online transactions carry higher fees due to the increased fraud risk, as compared to brick-and-mortar sellers.
- The actual POS terminal can get expensive. If up-front costs are a concern, some processors allow you to take payments from a tablet or other device.
Other Things to Consider Before Choosing a Payment Processor
With few exceptions, there’s simply no way you can operate a profitable business without taking credit card payments. Which service provider should you choose, though? How can you tell which is best suited for your needs, though?
Beyond the pricing model, here are a few other things to consider before you choose a payment processor:
What About Processing Payments Online?
As mentioned above, online payments are similar to POS terminal payments but are not quite the same. To process payments online, your processor must expressly state that they handle online transactions and supply methods to facilitate those transactions through an online portal.
For instance, if you strictly take online payments, it might be worth taking payments through an aggregator like Square, which provides instant-payout options and increased security.
Otherwise, payment processing mostly look like this:
- The cardholder uses the online portal to make a payment.
- The merchant sends the secured transaction to the processor through the payment gateway.
- The processor verifies the cardholder and approves the transaction.
- The processor takes payment from the cardholder’s account and sends it to the merchant’s bank.
- A payment approval message is sent to the merchant.
- The merchant receives payment.
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Many payment platforms like Etsy and Shopify support a ton of payment gateways and processors. If you want to use a single platform to manage both online payments and POS terminal payments, a third-party gateway may be required. If this is your situation, we recommend ascertaining your online presence ahead of your payment processing choice and factor dual capacity into your selection.
If you already have a brick-and-mortar shop to which you’re looking to add eCommerce (or vice-versa), you may need to consider switching processors.
The 10 Best Payment Processor Companies, According to Merchants
We took a detailed look at today's highest-rated payment processing companies and developed a comprehensive rundown of the leading service providers.
#1 | PayJunction
“Best Payment Processor for Balanced Service”
PayJunction provides small and medium-sized businesses with solutions that make it easy to accept credit and debit card payments in-store, online, and on the go. They deliver secure, innovative services, including a contactless payment system for in-person transactions, plsu eco-friendly remote payment features like digital invoicing, signatures, and receipts.
PayJunction’s cloud-powered payment solution easily and securely integrates with industry-leading business software and management platforms. This is done via RESTful APIs for businesses seeking an integrated payments solution. Companies looking for a stand-alone, out-of-the-box solution should look no further.
- Outstanding, personable customer support
- Clean and concise reporting
- Accurate and easy-to-use online portal and POS terminals
- In some cases, processing fees are deducted daily instead of monthly
- For a multi-location business, transaction limits cannot be extended or applied to sister locations
- Limited mobile processing options
Pricing: Two-tier, volume-based pricing
Transaction Fees: Interchange + 0.75% per transaction. Additional fee of $0.07 for swiped credit card transaction, which may vary depending on card/transaction type.
- Month-to-month service
- Securely store and recharge cards on file
- Streamlined electronic invoice payments
- Automated sales reports
- Hosted checkout
#2 | Payline
“Best Payment Processor for Brick-and-Mortar”
Payline is a Pineapple Payments company headquartered in Chicago, Illinois. They provide solutions to businesses ranging from startups to Fortune 500 companies, focusing on the payment experience.
Payline offers gateway payment processing, and its web solutions are designed to integrate with over 175 online shopping carts. The company also offers mobile solutions designed to accept payments via mobile apps. The Payline payment processing gateway also integrates with QuickBooks for ease of payroll management and business financials in general.
Pricing for brick-and-mortar stores includes a monthly fee, plus a small percentage fee per transaction. For online stores, the monthly and transaction fees are a little higher.
- Easy to use and set up
- No early termination fees
- Excellent customer service and clarity are guaranteed
- Occasional program glitches noted by customers
- Transaction costs are not fully transparent
- Not available outside the US
Pricing: Call for a free quote
Transaction Fees: In-person transactions are 0.2% + $0.20 per transaction, and a fee of $20 per month. CNP transactions are 0.4% + $0.20 per transaction, plus the $20 monthly fee.
- Built-in security and fraud protection
- Mobile app integration
- Lower monthly fee
#3 | Stripe
“Best Payment Processor for Payments Technology”
According to Forbes, Stripe outshines its competitors in terms of online payments because it accepts all types of mobile wallets. They take Apple Pay and Google Pay, plus popular international wallets like Alipay and WeChat Pay. Stripe also lets merchants accept payments or recurring charges with ACH debit, ACH credit or wire transfers for an 0.8% fee (capped at $5).
Stripe is designed for larger firms, and offers a plethora of APIs that allow merchants to create their own subscription services, on-demand marketplaces, or crowdfunding platforms. It supports a range of development languages, including Ruby, Python, PHP and Java.
The company also offers credit card readers that integrate with popular eCommerce and accounting software, including Shopify, WooCommerce and Xero. Payouts are typically available within two days but you can also choose instant payouts for an additional 1% ($0.50 minimum). Stripe also offers 24/7 email, chat, and phone support.
- Faster, frictionless payments
- Seamless to set up and use, and comes with a variety of integration options
- One of the best tools for collecting payments from different countries/currencies
- Requires fundamental tech savvy to operate (large learning curve)
- Stripe has slightly higher fees than Square, and takes a day longer to deposit funds
- Spotty customer service where troubleshooting is involved
Pricing: Flat rate pricing, with $0 monthly fees
Transaction Fees: 2.7% + $0.05 per transaction for card-present payments. 2.9% + $0.30 per transaction for online or manually keyed-in payments.
- Global processing
- Instant payouts available
- Transparent pricing structure
#4 | Square
“Best Payment Processor for Small Businesses & Startups”
Square is a highly integratable payment platform that was established to empower small businesses and startups the ability to take physical and online credit card payments. The company has added a multiplicity of channels, integrations, and portals over time to empower and enable every type of business.
Square offers a complete suite of business tools for eCommerce and brick-and-mortar businesses, with an intuitive dashboard that centralizes all income streams and data sources with advanced analytics. Hardware and software options work seamlessly to provide stress-free, modern business solutions.
Square also offers register and payment hardware for retailers, restaurants and more, as well as loyalty, appointment scheduling, and inventory software.
- Accepts multiple forms of payment that arrive in your bank account within one business day
- Pays out next business day
- Easy to setup and use
- Pricing model makes it less cost-effective for bigger companies
- Deposit limits and add-on services are pricey
- Hardware can sometimes be buggy
Pricing: Flat rate pricing, with $0 monthly fees
Transaction Fees: Card-present payments are 2.6% + $0.10 per transaction. Card-not-present payments are 2.9% + $0.30 per transaction. Keyed-in payments are 3.5% + $0.15 per transaction.
- Next-business day transfers
- Account takeover protection
- End-to-end encrypted payments
- Active fraud prevention
- Dispute management
- Data-security (PCI) compliance coverage
#5 | ACI Worldwide
“Best Payment Processor for Online Payments”
ACI Worldwide delivers white label global payment gateway solutions to payment service providers (PSPs), independent sales organizations (ISOs), acquirers, independent software vendors (ISVs), and value-added resellers (VARs). They allow merchants to fully outsource payment transaction processing and integrate a gateway-to-gateway solution.
It’s a smart, agile payments orchestration platform for international growth. ACI Worldwide enables customer journeys, accepts all payments, prevents fraud and optimizes payments configuration for maximum conversion with minimum cost.
- Best encrypted payment portal, with real-time alerts
- Superior analytics and conversion data
- Designed specifically with eCommerce in mind
- Pricing and fees lack transparency
- Limited personalization with integration
- Payments are not frictionless; advanced security measures increase false negatives
Pricing: Call for a free quote
Transaction Fees: No data; call for clarification
- Omnichannel solutions
- Wide range of products to choose from
#6 | Authorize.Net
“Best Payment Processor for Flexible Payments”
According to G2, Authorize.Net (from Visa) supports all major credit cards, including Visa, Mastercard, American Express, Discover, Diner’s Club, and JCB. The platform is compatible with digital payment services such as Apple Pay, PayPal, and Visa Checkout.
The software can accept transactions made by customers all over the world. However, your business must be registered in the US, UK, Canada, Europe, or Australia if you’d like to use this service.
Plans start with the gateway-only offering, which has no setup fee; only a monthly gateway fee, plus a per-transaction fee and a daily batch fee. At the other end of the spectrum are enterprise solutions that offer comprehensive, tailored pricing for larger business needs.
- Simple, easy-to-navigate interface
- Robust security protocols that help against fraud and chargebacks
- Merchant payouts are processed and finalized in just a few days
- False positives and negatives are common
- The Authnet Dashboard has not changed in over a decade, and could use a modern facelift
- The platform is pricey
Pricing: $25 monthly gateway fee. Setup is $49.
Transaction Fees: All-in-one option with a per-transaction rate of 2.9% + $0.30, with no setup fee.
- Global merchant account provider
- Support for credit cards and digital providers
- Wide range of currencies supported
- Designed for any business
#7 | Payment Depot
“Best Payment Processor for High-Volume Sales”
Unlike other payment processor companies, which take a percentage of each transaction, Payment Depot uses a subscription pricing model based on a merchant’s monthly transaction volume. Merchants pay a flat fee per transaction, plus the interchange rate, regardless of the transaction type.
Payment Depot doesn’t charge any cancellation or hidden fees. At the same time, they provide access to funds within 24 to 48 hours of a transaction. The company also offers a variety of terminals, credit card readers, and POS systems with customer support available 24 hours a day.
Payment Depot works best with high-volume merchants or merchants who frequently process high-dollar products and services.
- Saves merchants a ton of money in fees
- Customer care and support are top-notch
- Month-to-month billing
- Hardware options are limited
- Pricey for businesses with lower volumes
- High-risk businesses may be denied
Pricing: A flat $79 to $99 per month (Enterprise membership starts at $199) with a monthly transaction limit of $25,000 to over $300,000 depending on the plan.
Transaction Fees: Fixed $0.07 to $0.15 per transaction, plus the interchange rate.
- Low transaction fees
- 24/7 customer support
#8 | Veem
“Best Payment Processor for International Payments”
Veem is a payment processor that “uncomplicates the end-to-end AP/AR process.” They offer seamless integrations to leading accounting software, real-time tracking on payments and cost-effective, and flexible payment options. Now businesses have the power to pay how they prefer and eliminate friction with customers to get paid faster.
Veem provides broad access to online global payment tools to send and receive payments in 100 countries and in over 70 currencies, all on one payment network. The company enables businesses to track international payments from start to finish, providing live updates on transactions at any time.
- Transactions are easy and traceable
- All-in-one dashboard
- Low cost for international payments
- Transactions can take 4-6 business days to process
- Not all countries are represented
- Setup and onboarding is dodgy
Pricing: Two-tier pricing scale—international and domestic (international wire transfers start at $29 per transaction)
Transaction Fees: Transaction Fees: 2.9% per transaction; 1% of total amount.
- Mass pay options for contractors and partners
#9 | BlueSnap
“Best Payment Processor for Vendor Partnerships & Split Payments”
BlueSnap supports payments through multiple sales channels such as online and mobile sales, marketplaces, subscriptions, invoice payments and manual orders through a virtual terminal. For businesses looking for embedded payments, the company offers white-labeled payments for platforms with automated underwriting and onboarding. This supports marketplaces and split payments.
With one integration and contract, businesses can sell in over 200 geographies with access to local acquiring in 47 countries, 110+ currencies and 100+ global payment types. These include popular eWallets and automated accounts receivable, all backed by world-class fraud protection and chargeback management, built-in solutions for regulation and tax compliance, and unified global reporting to help businesses grow.
- New features continuously available
- Bluesnap is very accommodating for unique needs and works with merchants to modify workflows to fit the business requirements
- Integration with hosted fields is fairly simple and seamless
- Technical support needs work
- Good reference docs, but no helpful implementation guides, recommendations for choice among the various technical solutions, etc
- Patchwork system; not all facets of operations are on the same platform
Pricing: Pay-as-you-go pricing, with $0 startup, monthly, or cancellation fees
Transaction Fees: 2.9% + $0.30 per successful card transaction
- Global processing with one account
- Interchange plus, tiered or flat-rate pricing
- Level 2 and Level 3 data processing rates
- Charity or nonprofit payment processing rates
- Accounts receivable automation
#10 | GoCardless
“Best Payment Processor for Recurring Billing”
GoCardless is the global leader in recurring payments. They’re also the world's largest bank-to-bank direct debit platform, helping businesses accept payments in over 30 of the world’s largest economies. GoCardless takes the pain out of getting paid for more than 55,000 businesses worldwide, from enterprise to small businesses. Their clients range from small businesses to household names such as DocuSign, TripAdvisor, and The Guardian.
The company’s focus is on collecting payments through direct debit. This is done by seamlessly working with customers' existing billing software or payment gateway. The platform integrates with 200+ partners such as Zuora, Salesforce Billing, Recurly, and Yaypay.
- Online dashboard interface is clean and user-friendly
- Minimal fees
- Excellent processes for automated payments
- Any per-transaction price increases are substantial
- Can be difficult to speak to a real person when tech support is required
- Slight delay in payouts
Pricing: Two tier per-transaction pricing; custom pricing available.
Transaction Fees: 1% + $0.25 for domestic transactions, with a maximum of $2.50 per transaction.An additional fee of 0.3% applies to transaction values above $1,000. Failure and chargeback fees apply. For international transactions, the fee increases to 2% + $0.25 per transaction; currency conversion is included, with exchange rate powered by Wise.
- Personalized billing
- Accounting integration
- Usage tracking
Are There Alternatives to Payment Processing?
What if you don’t use a payment processor? How can you process payments?
It’s technically possible to run a business without a payment processor. However, you’d be limiting your business to just three payment options: cash, check, or money order.
Credit cards are the currency of our new digitized age. The majority of merchants today are aware that to turn a stable profit, they must follow consumer trends…meaning they must take credit and debit card payments to thrive.
Payment processing is just another cog in the commerce machine that can help propel your business to the next level. Choosing your processor based on the factors listed above will dramatically improve your chances of achieving a symbiotic relationship with processors and banks.
Chargeback Management Can Help
If you’re on the fence about payment processors because you are experiencing a high number of chargebacks, effective chargeback management could be your solution.
Chargebacks911® enables sellers in all MCCs, sales models, and product verticals to increase profitability. We help standard merchants avoid excess chargebacks and help high-risk merchants recoup revenue that would otherwise be lost to fraudulent chargebacks.
Call us today for your free ROI analysis!