5 Factors in Choosing a Credit Card Processor

August 01, 2012

Choosing the right credit card processor can save your small business money.

Your credit card processor is an important part of growing your small business. It needs to work reliably, and it needs to do so at a cost you can afford. As just about any small business owner can tell you, if you’re not careful those credit card fees can eat away at your bottom line significantly.

Yet, choosing a credit card processor isn't as simple as choosing a car loan or a retirement account. There are many factors that go into picking the right credit card processor and making sure that it’s the one that best fits your business.

Here are 5 things you need to look at in any credit card processor you’re considering:

1. Payment gateway vs. merchant account. Some credit card processors simply act as a payment gateway for you. They accept the credit card funds and then release them to you, without the direct involvement of your bank. Perhaps the best known example of a payment gateway is PayPal, although there are alternative services like Google Checkout and others that are competing with that industry leader. A merchant account, on the other hand, is an account with your bank where they processes your credit card transactions directly. Each has its own requirements, with merchant accounts being more stringent in general. Consider whether your customers are comfortable with payment gateways, or would prefer direct processing through a merchant account.

2. How you accept payments. A business that has a retail location and swipes a customer’s card through a machine works differently than one that takes orders over the phone. Both function differently than an Internet retailer. The rules for different types of transactions will affect your rates, as well. Choose a credit card processor whose terms cater to your most common payment acceptance method.

3. Transaction volume. A business that does hundreds of credit card transactions a day is very different from a business that does a few transactions a week. Accordingly, some credit card processors work better for high volume businesses, while other credit card processors have more favorable terms for those with a lower number of transactions.

4. Transaction size. Some credit card processors are a better fit for a business that has a small average transaction size, perhaps of just a few dollars for each transaction. A restaurant would be a good example of this kind of business. On the other hand, a high-end clothing store would probably have transactions with a much higher average amount. Choose a credit card processor that fits your business model to maximize efficiency and meet your needs.

5. Interoperability. If you’re running a website through which you process credit card transactions, you need to be keenly aware of this issue. You need to make sure that the credit card processor can be integrated seamlessly with your shopping cart solution. This doesn't affect every business, of course, but if you are thinking of having an online presence you need to take this one into account.

Each of these factors will help you decide if a given credit card processor is right for you. In the end, you’re going to probably have to run some example scenarios through a spreadsheet, and see just how much you’re looking at in fees and charges for each processing company.

David Rodwell is a seasoned writer in business, personal finance and economics, taking a particular interest in payment processing. You can find more of his articles located at CreditCardProcessing.net.