Picking a payment processor

Posted 4/14/14

These days, it’s easy for almost any small business to tap into the electronic payment system and accept credit and debit cards along with other types of e-payments. And there are plenty of payment processors competing for your business.

The tough part, say payment experts at MasterCard, is comparing costs and finding the processor that’s right for your type and size of business. Simply opening what’s called a “merchant account” to process payments is the easy part. Knowing you’re getting the best deal possible is what’s difficult.

It starts with understanding the different entities that process credit, debit and prepaid card payments. For example:

Electronic payment networks are built and maintained by giants like Visa, MasterCard and American Express. Banks such as Citi, Chase and Capital One then obtain a license from these networks to issue their cards.

Acquiring banks are local, regional or national banks that participate in the electronic payment network on the merchant’s side – your side. You can set up a merchant account (payment processing account) at one of these banks.

Third-party processors (TPPs) focus mainly on larger merchants.

Independent sales organizations (ISOs) cater to small-business accounts. But they don’t usually offer payment services themselves. Instead, they have deals with acquiring banks or TPPs to provide the actual processing services.

Internet payment service providers (IPSPs) focus exclusively on Internet-only businesses.

Here are some tips on picking a provider and getting the best rate:

• Look for a provider with expertise handling your type of transactions. For example, do you offer mainly products, or services? Are purchases done in person, by phone, mobile, online or all of those?

• Ask how fees are calculated. For example, are rates tiered by number of transactions? Or by dollar amount? Ask processors for sample reports to compare.

• Terms and prices are negotiable, so get multiple bids from different processors. Don’t let them talk you into signing a nondisclosure agreement until you’ve seen several bids and you understand the costs.

• Get tough on pass-through fees. Many processors pay fees to third parties that they then pass along to you. But you don’t necessarily have to pay those fees. Find out the purpose of the extra fees first, and then try to eliminate or reduce them. •

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