How Do I Choose a Merchant Provider?

Head of Financial Partnerships, Xero Americas
min read
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There are many options available in the market for choosing a credit card processor. While having choices is helpful for comparison shopping, it also can get quite overwhelming. To select a processor, you really want to focus on the factors that are most pertinent to your company.

The fees that processors charge can certainly add up over time. Let's suppose a business processes over $1 million per year through a credit card processor. If that business is able to negotiate a base rate with a provider at 1.75 percent or less, it will save $2,500 or more as compared to working with a processor that charges 2 percent. You will want to make sure that you understand the pricing differences for each of these three variables: volume, dollar value and credit card types. The setup fees and monthly fees will vary depending on these variables.

It's also important to note that stand-alone credit card processors such as First Data or Heartland Payment Systems typically offer lower rates than the merchant services department at a major bank such as Bank of America or Chase. It may seem that it would be more convenient for your bank to be the processor, but bank fees are usually at least one hundred basis points higher.

The fees that processors offer usually depend on the volume of transactions and the total amount of revenue generated. You should be selecting a provider based on your business size and the projected growth in the future. You should be choosing from a much different selection of processors if you're generating $50,000 a year with 5,000 transaction than a business with $2 million in annual sales with 100,000 orders. You also need to ask yourself if you're going to be offering processing through an online shopping cart, at your store, via phone or a combination of these methods. The rates can vary by method.

Another factor to consider is cash flow. What do I mean by that? Credit card processors can hold the money from the time it is processed to the time it reaches your bank account. Each processor follows a different system, and some even manage the time in order to gain the interest income on the "float." In contrast, a payment "wallet" provider such as PayPal offers immediate access to the funds. PayPal can do this because its process integrates the gateway, processor and merchant account into one step. However, such companies' fees are sometimes not as competitive as those of independent providers.

Bottom line: You're going to need to do your own homework for selecting a credit card processor. There's no one-size-fits-all answer to this question.

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