If you start an e-commerce company, being able to take card payments is practically mandatory. While many people use debit cards for a majority of their purchases, consumers are also incentivized to use credit cards, whether it’s because they’re making large purchases or because they receive rewards for shopping with their credit card. Unfortunately, card payments also come with associated fees – and credit card fees are substantially greater than those associated with debit cards. When you need to maximize profitability, finding the cheapest way to accept credit card payments can make a big difference.

If you’ve never taken credit card payments before, start by doing a little research. Instead of going with the first payment processor you find, take the time to understand how their fees work and how they compare to other processors.

Here’s an overview of how credit card payments work, and the cheapest way to accept them.

Why does accepting credit card payments cost your business money?

Ever wondered why businesses stay “cash only,” even in this day and age? It’s primarily due to the fees involved with accepting card payments, and particularly credit card payments. To keep prices down and profits up, merchants try to cut out credit card processing fees. But it’s not a practical solution for most companies.

So, why do the fees exist? Credit card processing companies offer a service. When a customer offers their credit card information, you can’t just assume they have enough credit to make their purchase. Your point of sale (POS) system and credit card reader collect the information. This includes credit card and customer information, the purchase amount, and other relevant details. The system sends the transaction information to a third-party processing company.

Once the information is received, the processor performs a two-part service. First, they verify with the credit card company whether the customer has available credit. Next, the processing company pays the merchant, usually by sending the funds—minus fees—to their bank account.

Trying to do all of this on your own would be time-consuming and expensive. The fees pay for the service provided, and are usually far cheaper than the alternative.

Choosing a payment processor

Choosing a payment processor can be intimidating. Fees and equipment setup vary dramatically between processors. Some processors are better suited for e-commerce, some are strictly in-person, and some offer the ability to do both.

When choosing a processor, follow these steps:

  • Decide on transaction types: First, determine whether you’ll take payments in person, online, and/or over the phone. Many processors offer the ability to take all three, but fees may be higher depending on the type of transaction. Don’t forget to leave room for growth. For example, you might not take in-person payments now, but have plans to later open a brick-and-mortar location.
  • Research processors: Next, research the processors that offer the transaction types you need. For example, if you’re strictly an e-commerce business, you can rule out exclusively in-person payment processors.
  • Compare payment fees: Payment fees are usually split into two parts: a percentage of the purchase price plus a small flat fee (often ranging from 10 cents to a dollar). But some might only charge a percentage or a flat fee.
  • Consider equipment and incidental fees: There may be other fees involved. These include equipment and setup fees, monthly or annual charges, and chargeback fees.
  • Attempt to negotiate: Finally, you may be able to negotiate the fee amount and type. Businesses that process large numbers of credit card transactions may be able to convince the processor to reduce their portion of the fee in exchange for increased business. If you can’t negotiate, look for flat fees and avoid tiered pricing.

What features to look for in a credit card processor

You already know how to compare fees, transaction types, and fee types. Here are some other items to consider:

  • Mobile payment processing: Processors like Square transform any tablet or phone into a POS system. They can also grow with your business.
  • No (or short-term) contracts: Some processors try to lock businesses into lengthy contracts. Look for companies that offer no-contract processing, or short-term contracts.
  • Flat-rate pricing: Make sure you know exactly how much you’ll be charged for every transaction. Tiered pricing is often confusing and difficult to predict.
  • Complimentary equipment: Some processors offer complimentary equipment (like mobile swipe attachments) or e-commerce POS options.

The cheapest credit card processors

Here are some of the cheapest credit card processors available:

  • Helcim: Helcim offers merchant accounts with no monthly or card-present transaction fees. They also offer a free POS system, virtual terminal, free e-commerce, hosted checkout, and customer portal.
  • Payment Depot: This company offers merchant accounts for $59 to $99 monthly. There is no chargeback fee or percentage markup. They also offer a free virtual terminal and gateway.
  • Square: Square is popular for small businesses and startups. If you process under $10,000 per month, you’ll love their flat-rate fees. There are no chargeback, cancellation, or monthly fees. They also offer free mobile swipe attachments, a free POS system, and free invoicing.
  • Stripe: Stripe is another popular choice with no long-term contract. The processor offers transparent pricing, global payment processing, and free business management tools. But, you might need specific technical skills to use the platform.
  • PayPal: PayPal’s pricing is not as competitive as some other processing options but it does come with many benefits. The processor accepts PayPal, PayPal Credit, and Venmo payments. They offer free online checkout, free invoicing, and free QR payment tools. There is a weekly limit for in-person and keyed-in transactions. This is a good option for occasional card transactions. Just make sure you choose PayPal business account!

Open up a whole new world of transactions

Accepting credit card payments is the best way to encourage sales—but not all processors are created equal.

The right processor is usually the one that’s able to offer the cheapest way for you to accept credit card payments. Take the time to research as many options as possible. What works for a similar company may be completely wrong for you. Finding the right processor will help you maximize your profits and bring in new sales.

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