How to Evaluate Credit Card Processors: 8 Factors

The vast majority of all payment processors on the market offer the same core capabilities. Some may have slightly “better” hardware (usually subjective), and others have more friendly customer support teams.

But I’d say 90% of what you’re getting is the same from every provider.

So how do you choose the right payment processor for your business? Focus on these 8 evaluation criteria that matter most.

Note: If you’re already accepting credit cards, it’s almost always in your best interest to stick with your current processor. Switching isn’t worth it. The information below is primarily for new businesses getting started with credit card processing for the first time. 

1). Type of Processor

There are thousands of different merchant services providers out there all offering the same thing. But the way those companies are set up structurally on the backend is important to understand because it directly impacts your costs.

Merchant Acquirers: Acquiring banks directly issue merchant accounts and handle all of the backend processing in-house. The underwriting process is stricter, which means it can take longer to be approved. But you cut out third parties and can theoretically have access to lower rates. Examples include Fiserv, Worldpay, Elavon, Global Payments, and Chase Payment Solutions.

ISOs: Independent Sales Organizations (ISOs) resell services from acquiring banks. These can be small, local reps. Or they can also be large banks. For example, CardConnect is a super ISO of Fiserv. And national banks like PNC, Wells Fargo, and Bank of America all resell Fiserv services, too. 

PayFacs: Stripe, Square, PayPal, and Shopify Payments are popular examples of Payment Facilitators. Rather than issuing individual merchant accounts to each business, PayFacs use an aggregate model in which they operate a master merchant account and then issue sub-merchant accounts to each business. This speeds up the onboarding process, but often results in higher fees potential holds on your funds being released. 

Integrated Software: Lots of industry-specific software now offer their own branded payment solutions. Examples include TylerPay from Tyler Technologies, Gingr Payments from Gingr, MindBody Payments from MindBody, and WorkWave Payments from WorkWave. These are often more expensive because of the integrated setup. Plus, the software provider takes a cut and the acquirer they’re partnering with on the backend needs takes a piece, too.

2). Pricing Structure

How are you going to be charged to accept credit card payments? 

Typically, processors structure contracts in one of the following ways:

• Interchange Plus: This is by far the best option for merchants. Interchange fees and assessments from the card networks (Visa, Mastercard, etc.) are passed through at the wholesale rate, and your processor adds a fixed markup on each transaction (Ex: 0.10% + $0.05).
• Flat Rate: You pay the same fixed fee for every transaction, like 2.9% + $0.30 per transaction. Lots of PayFacs try to push this. And while it sounds simple, it’s way more expensive than interchange-plus. 
• Tiered or Bundled: Processors put transactions into three buckets, such as qualified, mid-qualified, and non-qualified (with qualified being the cheapest). The problem with this structure is that your processor determines the buckets and the criteria is arbitrary. So you’ll end up paying the mid or non-qualified rates for most transactions. 
• Subscription or Membership: With this model, you fixed a monthly fee based on your volume (like $99) for access to wholesale interchange rates with no markup. It can be a decent option for low to mid-volume merchants that don’t have specific needs. 

For the vast majority of businesses, I strongly recommend going with an interchange-plus model. 

It’s the most transparent and is going to be the cheapest option over the long run. Plus it puts you in the best position to negotiate better rates over the lifetime of your account. 

Definitely avoid flat-rate processors and tiered/bundle setups. Those models will just bleed into your profits. 

3). Total Markup

Lots of merchants make the mistake of choosing a processor based solely on what they charge you per transaction. But you also need to factor in ALL of the other miscellaneous fees from your processor that ultimately inflates their markup.

This is one of the most challenging things to figure out before you actually start working with a processor because you don’t always know what they’re going to charge you.

• PCI compliance fees
• Monthly statement fees
• Risk fees
• Network access fees
• Settlement fees
• Authorization fees
• Security fees

There are literally hundreds of different miscellaneous charges out there that processors love to add to your bill. All of these inflate your effective rate.

To help you figure this out using real examples, I urge you to check out this post I just wrote about hidden charges on your merchant statement. It shows a merchant that’s paying 0.10% + $0.05 per transaction, which sounds like a good deal. But when you add up all these other fees charged by the processor, their total markup is actually closer to 0.90%.

And on the flip side, you can look at a transparent statement audit example where the processor charges 0.35% + $0.10 per transaction without extra fees. 

On the surface, 0.10% + $0.05 obviously seems like a better deal than 0.35% + $0.10. But the latter ends up being much cheaper when you factor in the rest of the processor-imposed markups. 

4). Integration Support

This is important to consider if you’re currently using or planning to use some type of industry-specific software, like:

• Practice management software
• Field service management platforms
• CRM software
• ERP software
• Etc.

Beyond the branded payment processing solutions offered by the software provider itself, many of these tools offer support integrations from third-party processors.

For example, let’s say you’re a dentist interested in Curve Dental for practice management. CurvePay is the software’s in-house branded processing solution. But the software also integrates with Bluefin and Global Payments.

Avimark vet software integrates with Global, Worldpay, and Stripe. ServiceTitan integrates with TSYS and Adyen. OrthoFi integrates with Stripe and Breeze.

You get the idea. 

This requires a bit of forward-thinking for your business, especially if you don’t want to set up the integration right away. But if you know that you want your payment processing integrated with a certain software down the road, your options will be limited. So it’s better to pick one of those providers from day one to ensure a smooth transition later on without having to switch anything. 

5). Frequency of Rate Increases

This is a big one that’s often overlooked during the initial evaluation.

The rates you sign up for right now aren’t going to last forever. Rate hikes are inevitable, and every processor does this.

But the frequency of those increases matters. Here’s why:

Let’s say one processor starts you at 0.10% + $0.10 per transaction. But they raise rates annually, so after three years, you’re paying 0.45% + $0.20 per transaction.

Another provider might start you at 0.20% + $0.10, and hold your rates steady for the next five years. This will ultimately end up being the cheaper option over the long run, even though you had some initial savings in year one from the first processor. 

It’s difficult to figure this out because processors don’t tell you how often they plan on raising your rates. You have to look back at their history of rate changes (which is something we publish here at MCC for every major provider). 

And you should also be forewarned that signing a multi-year contract does NOT lock in your rates. 99% of merchant agreements contain clauses allowing processors to raise rates at any point, as long as they give you advance notice (usually 30 or 60 days).

6). Fine Print in Your Contract Terms

If you’re proceeding with a provider and they send you a contract, you need to read through each line with caution. Make no mistake, every single word of that document is designed to protect your processor while allowing them to make the most money from your account.

While there’s not a ton that you can change here. There are a few major red flags that you should avoid:

• Liquidated Damages: Don’t sign anything that even remotely mentions liquidated damages. This literally leads to penalties totaling hundreds of thousands of dollars if you attempt to cancel your agreement at any time. 
• Auto Renewal Clauses: This is your processor’s way to lock you in for longer than you might prefer. We tend to see three-year contracts that automatically renew for an additional three years. While we don’t recommend switching providers either way, it’s still good to have flexibility. 
• Account Holds: PayFacs are notorious for not releasing all of your funds to you at once. This can come in the form of rolling reserves (awful) or random subjective holds based on your risk (also terrible).

I know it’s not always practical to have an attorney read every single document that you sign, it may be in your best interest to pay for one here.

Alternatively, you can reach out to a merchant consultant that’s familiar with different providers and we can tell you what to expect depending on who you’re leaning towards working with. 

7). Industry-Specific Needs 

Depending on your niche or specific setup, your options may be a bit more limited.

For example, the following types of businesses would all need a very different processor:

• Single-location food truck processing $20,000 per month at a local farmer’s market.
• Restaurant chain doing $5 million in monthly volume across in-person dining, takeout, and online delivery. 
• High-risk merchant account selling CBD online across North America.
• Small mom and pop retailer that only sells products in-person.
• B2C and B2B ecommerce site selling saunas and hot tops with a $20k average ticket value.
• Municipality or government organization that wants to integrate payments within a software.

In these types of ultra-specific instances, you’re not going to have hundreds of different providers to choose from. This actually makes the evaluation process a bit easier, as it narrows the field. 

8). Reputation

At the end of the day you need to see what other people are saying about your processor. Online reviews are a good start, but they don’t always tell the full story because most people just talk about either really good or really bad experiences. 

Generally speaking, you should steer clear from processors that:

• Pad assessment fees (one of the most deceptive and unethical billing tactics in existence)
• Raise rates every year
• Add hidden or random fees to statements

So you need to look at multiple sources, and read between the lines to determine if your processor has a good or bad reputation.

Final Thoughts

First, I just want to reiterate that if you’re already set up with a credit card processor, you’re better off sticking with them 95% of the time. You can always negotiate better rates with your current provider, and switching is an expensive hassle. 

But for new businesses, focus on the factors I mentioned above.

I’ve seen similar lists like this online that mention stuff like compliant processing or ability to store cards on file. Other guides even say to make sure your processor can accept all major card types and mobile wallets.

All processors offer this stuff now. That’s just the basics and the bare minimum. 

To truly find the best option for you and your business, it all comes down to those handful of key differentiators. And most of it is tied to long-term cost.

Read More: Most Popular Merchant Services Providers Ranked