How does your payment processor stack up? What should you look for when selecting a payment processor?

Payment processing is an integral part of the payment cycle. Without payment processors, none of your business’s online sales would ever reach your business bank account. However, it can be challenging to perform a payment processors comparison. So why is this the case?

Firstly, there are plenty of outfits to choose from. Secondly, it’s because when evaluating companies that process online payments, side-by-side comparisons don’t work. Some merchant services providers give you a payment gateway, payment processing, and a merchant account, all wrapped into one solution. Others focus exclusively on processing. Sometimes your acquiring bank is your processor and vice versa.

It’s all very tricky to try and decipher. That’s why we’ve put together this short guide to help you better understand the criteria you should be using to judge which payment processor is for you. However, before we start, it’s worth running over the differences between a payment gateway and a payment processor. They are often confused, and they are not one and the same thing.

Payment Gateway vs. Payment Processor

Before we dig deeper into the evaluation criteria for your payment processors comparison, you need to understand the differences between a payment gateway and a payment processor.

Let’s take the payment gateway first.

Payment Gateway

Simply put, in an online setting, a payment gateway acts as a middleman between your online store and the payment processors themselves. When a customer comes to the checkout, they enter their credit card or debit card information. This payment information is then encrypted via a process known as tokenization and sent to the payment processor.

That payment request is met with an approval or decline from the card issuer at the payment gateway stage. If it’s approved, the transaction progresses along the payment chain to the payment processor.

Payment Processor

Payment processors are the financial institutions that work in the background to actually execute your e-commerce store’s transactions, such as card payments made on Visa and Mastercard (along with other payment types).

Again, to keep this simple, here is how they work. Your payment processor takes the info about the transaction from the payment gateway, validates it, executes it, and then deposits the funds into the merchant account. It also the instrument that notifies the payment gateway if the transaction was successful or not and also tells your merchant bank to credit your account.

This process happens within a second or so. After this point is known as the settlement period, this is when the card issuer sends the funds to your merchant account. Sometimes, your acquiring bank lets you access your money before it’s even sent to them. In most cases, they will also keep a portion of those funds segregated. These are known as reserves held back to deal with possible customer refunds and chargebacks later down the line.

Want to learn more about who is involved in the processing of your credit card payments? Then read our all-inclusive guide here!

Why Some Payment Processors Are Difficult to Compare

As mentioned, it’s not always easy to compare payment processors to each other. In many cases, payment processors bundle multiple services into one. Some offer a payment gateway, payment processing, and a merchant account all-in-one monthly fee. Many offer in-person card processing hardware too, or virtual terminals for card-not-present transactions.

The most well-known payment processors all leverage this business model. Names including PayPal, Stripe, Braintree, Authorize.Net, and 2Checkout are just a few of the payment processors that offer these so-called “all-in-one” packages.

These solutions are popular with small business owners as they are easy to set up. However, their convenience is matched by their added cost. Their transaction fees alone make them one of the most expensive payment solutions for startups looking to scale their online business. They also present a risk to your credit card processing as you will likely share a merchant account with other high-risk merchants. This is why they are labeled merchant aggregators.

By contrast, you have some payment processors that merely focus on processing transactions. In some cases, the acquiring bank associated with your merchant account will act as your processor. Thus, when performing a payment processors comparison, it’s vital that you are comparing providers that actually offer the same services.

Now that you can head into the evaluation process fully informed, let’s take a look at the categories under which you should be evaluating your potential processing partners.

Merchant Processor Pricing

Pricing is always going to be essential. You obviously need to know how much each processed transaction is going to cost you. There are several fees you could be charged, the first of which is usually a set-up fee. Then you’ll likely be faced with a percentage amount of each online payment, a flat fee for processing each transaction, and sometimes a monthly fee on top.

These fees will cover the interchange fees charged by the major credit card companies as well as assessment fees, markup fees, and processing fees involved in each and every transaction.

When assessing processing services, always look for hidden charges and penalties. Some payment service providers stipulate minimums and maximums that could become very costly if you don’t stay within limits. These hidden fees can really hurt your cash flow and overall business needs. Watch out for cancellation and chargeback fees too.

Software Integration

As an online business owner, you’ll need a payment processor that can seamlessly connect to your e-commerce platform. Whether you’re using Magento, Shopify, or WooCommerce, you need to ensure your payment processor of choice is a good fit for your online store. Many leading processors connect to online payment systems (such as gateways) using an API. Others utilize a plugin that connects your processing backend to your shopping cart front end.

This consideration is key if you are looking to go with a processing provider that includes a payment gateway as part of their offering. Don’t forget, the best payment gateway and processing partners can integrate to external programs too, such as Quickbooks invoicing software, for example.

Range of Accepted Payment Methods

Offering credit card and debit card payments is not enough. Today, you need to offer as many of the 450+ types of payment available across the world. Especially if you operate globally. Today’s consumers expect to pay using their PayPal account just as easily as checking out with Amazon Pay, Apple Pay, or even eCheck. For subscription businesses, customers expect to pay once and have your payments infrastructure take care of the monthly rebills thereafter.

If you operate a brick-and-mortar store in addition to your e-commerce store, then you might want to ensure that you can process payments taken on your physical hardware such as mobile payments, those taken on a countertop point-of-sale device, or payments accepted via a physical card reader or card machine. For example, if you have an iZettle suite of physical POS products, you have no choice but to find a payment processor who can seamlessly integrate with the hardware and associated software.

Finally, you need to choose a payment processor with similar relationships on the backend of the transactions. Having access to dozens of acquiring networks is a huge advantage as it increases your likelihood of securing conversions from each of your payment options.

Security and Anti-Fraud Tools

Of course, one of the biggest business risks associated with e-commerce is processing customer data. Therefore, when assessing your processor (especially those that supply you with a payment gateway), you need to make sure they handle compliance for you. PCI DSS compliance is vital and ensures you don’t end up on the wrong side of a big fine or a lawsuit in the case of a data breach. Most online merchants need to conform to the standards set out on the SAQ-A PCI questionnaire. 

In addition to PCI compliance, look for providers who can also offer SSL certificates (to ensure a secure connection) and tokenization software that encrypts payments data and makes it worthless to any would-be hackers.

Moving on to anti-fraud tools, those offering 3DS2 is an excellent sign. It shifts chargeback liability and the burden of proof for fraud from the merchant to the consumer. You might see the protocol advertised as Verified by Visa, Mastercard Identity Check, or American Express SafeKey 2.0. Again, the above features are more on the payment gateway side of online payments, but since most processors include one as part of their payment solution, it’s important to consider.

Settlement/Payout Times

It’s all well and good to secure a payment processor to take care of your online card transactions (among others), but what it takes take several days before it arrives in your account?

You need to look closely at the relationships your potential payment processor has with merchant account providers. In some instances, these two transactional flow elements will be the same company (e.g., a bank), reducing the time it takes to receive the money into your account. Bespoke or fragmented arrangements may take much longer than a few days to settle. In which case, you have to weigh up the advantages of such an approach against the downside of longer settlement periods.

Number of Accepted Currencies

One of the best ways for online startup businesses to scale is by entering new markets. However, what happens if you have a payment processor that does not accept your new territory’s currency? The answer is that conversions will plummet. Consumers unable to buy products in their own currencies usually abort the checkout.

That’s why it’s useful to choose to partner up with a payment processor that has relationships with several local acquirers in each market to ensure you can process payments from customers all over the world.

Customer Support

As a business owner in a high-risk vertical, we don’t need to tell you that things can go wrong unexpectedly. However, when it comes to payments, if something goes down, you suddenly lose the ability to make a sale. For high-volume sites, even a dozen minutes of downtime can be catastrophic.

Therefore, not only do you need to assess your potential processing partner’s track record through their status page, but you also need to know that you have a rapid-response customer service team on hand in case of emergencies. This is harder to assess from the outside looking in. However, online reviews and forums might give you some of the information you’re looking for. You can get the rest from industry experts such as ourselves here at DirectPayNet.

Choose You Payment Processor Wisely

Starting an online business is exciting. However, it can soon turn into a nightmare if you’ve rushed into the wrong decision regarding your payment processing partner. Hopefully, you can use what you’ve learned in this article to narrow the hundreds of providers down to a shortlist of a few options very quickly.

Once you’ve performed that initial payment processors comparison, you can reach out to us for expert advice regarding the best solution for your high-risk business. We have long-standing relationships with every major payment gateway, payment processor, and merchant account provider. Our industry knowledge, paired with these excellent working relationships, allows us to secure you the best possible solutions for your online business.

So what are you waiting for? If you’re unsure about which payment processor to go for, just reach out to the friendly DirectPayNet team to get some help from the payment experts!