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How to Choose a Credit Card Processing Company

Running a small business isn’t easy. In fact, it’s a risky undertaking – especially from a financial perspective. Even allowing your customers to make purchases using credit cards can put your business in jeopardy, especially if the cost of processing credit card transactions eats into your profits. Finding the right credit card processing company can take time. If you need help getting started, here’s everything you need to know about choosing a credit card processor.

Check out our picks for the best credit cards.

Credit Card Processing: The Basics 

Before you can select a credit card processing company, it’s important to understand how credit card payments are processed. Several things happen when a customer dips or swipes a credit card. Through multiple stages, many different parties play a role in ensuring that credit card payments are authorized, cleared and settled.

In the authorization stage, a merchant sends a credit card payment request to an acquiring bank that works with an issuer and its card network to process transactions. Once an issuer authorizes (or declines) a credit card, it contacts the acquiring bank. Then, the acquiring bank tells the merchant whether a credit card can be used to make a purchase.

If a customer is allowed to pay with a credit card, the transaction must be cleared and settled in order for the merchant to get paid. The merchant contacts the acquiring bank, which reaches out to the credit card issuer. The issuer (and its credit card network) and the acquiring bank collect the fees the merchant owes them for processing credit card transactions. Then, the merchant receives its payment and the customer receives a bill.

What Is a Credit Card Processing Company?

How to Choose a Credit Card Processing Company

Credit card processing companies are often involved in the process of completing credit card transactions. These businesses usually take on the responsibilities shouldered by merchants’ acquiring banks. They act as liaisons between merchants, banks and credit card issuers and may provide additional services to small businesses (like thwarting fraudulent activity).

Generally, there are two types of payment processors. Front-end processing companies typically deal with credit card and debit card authorization. Back-end processing companies contact credit card issuers during the final stage (or the settlement stage) of the transaction process. Some processors perform both front-end and back-end functions. And some target specific kinds of business owners like mobile vendors or online shop owners.

What to Consider Before Choosing a Credit Card Processing Company

If you’re a small business owner with a lot on your plate, you might be tempted to pick the first processing company you come across. But if you want a processor who can help you expand your business, there are many factors that you’ll need to take into account.

For example, you’ll need to consider how well a certain processor might address any issues you have. The best credit card processing companies support small businesses and essentially become their business partners. A processor that isn’t readily available or that has a poor track record of handling credit card disputes may be difficult to work with.

Another key factor to consider is the cost associated with choosing a particular credit card processor. In addition to the fees they have to pay for processing each transaction, merchants may pay a fee for setting up their payment processing service, terminating their contract early or opting to receive a monthly statement.

If a credit card processing company offers a payment gateway (a server that connects to different payment applications and communicates with card issuers and banks), there may be an extra charge for that, too. And you can’t forget to compare companies’ pricing models. If your processor has an interchange plus pricing model, for instance, it will explicitly list all of the fees you owe. Knowing what you’re being charged can help you cut costs and manage your budget.

Before choosing a processor, you’ll also need to find out whether it accepts every form of payment that your customers might use, including mobile payments. If the processing company you’ve considered hiring isn’t compatible with your business – or only allows you to process a limited number of transactions each month – you may need to shop around for other options.

The Best Credit Card Processing Companies

How to Choose a Credit Card Processing Company

There are a number of companies in the credit card processing industry. Some of the most popular ones include Worldpay, Vantiv and banks like Chase and Bank of America.

The best credit card processing company for your small business will depend on your company’s goals and needs. If you’re having trouble narrowing down a long list of processors, you can compare them by reading company reviews or visiting bbb.org.

The Takeaway

Choosing a credit card processing company may require a bit of effort. But your hard work will pay off if you end up with a processor that charges very few fees and provides quality customer service. Before entering into an agreement with any third party, it’s a good idea to read your contract carefully and make sure you understand all of the terms and conditions.

Photo credit: ©iStock.com/courtneyk, ©iStock.com/MBPROJEKT_Maciej_Bledowski, ©iStock.com/andresr

Amanda Dixon Amanda Dixon is a personal finance writer and editor with an expertise in taxes and banking. She studied journalism and sociology at the University of Georgia. Her work has been featured in Business Insider, AOL, Bankrate, The Huffington Post, Fox Business News, Mashable and CBS News. Born and raised in metro Atlanta, Amanda currently lives in Brooklyn.
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