Complete Guide To Credit Card Machines And Terminals

We don’t typically think about what happens in the moments after we swipe our debit and/or credit cards. More often than not, we simply run or insert our card into the credit card machine and hope that the cashier doesn’t use the next few moments to initiate small talk. The number in our checking account decreases or the number on our credit card bill increases, and that’s all we care about.

But, to the business owner, credit card processing is exceptionally important and it can play a huge role in your bottom line. There’s a lot of information to take in if you’re a novice when it comes to credit card processing, and you’ll need to decide what elements are most important to your business. Do you need mobility when accepting payments? Will you be accepting transactions online or over the phone? What security measures should you be taking to protect both your business and your customers? What companies are highly rated or come heavily recommended?

We’ll try and answer the bulk of your questions about credit card machines and terminals below.

Credit Card Machines

Credit card technology has evolved rapidly over the years. It doesn’t seem like that long ago when the process involved a terminal with just the option for credit. Then came debit cards. As the internet became the world’s go to for conducting business, the processing game had to change as well. Now, merchants can take payments with readers connected to their phones or tablets — they can even accept payments remotely without the physical card present. This has created a need for increased security which has led to encryption technology and the relatively recent advent of the EMV chip card.

Before we get into that, however, let’s start with some basics about credit card transactions. You have, no doubt, used hundreds of different types of card readers throughout your illustrious tenure as a consumer. But what happens once your card’s magnetic strip has been read? In simple terms, there are three phases involved in actual processing:

  • Authorization: Once your card is scanned, its information is sent over with a request to be processed. The processing request is then sent to the company of the cardholder (VISA, Mastercard etc…). The company sends the request on to the issuing bank. If there are enough funds in the account, and if the card is registered as valid, the purchase is approved. All of this takes place in a matter of seconds, generally speaking.
  • Settling: After a transaction has been approved, it is forwarded on to be cleared via an interchange. When the request is received, a credit is given to the merchant for the amount of the sale. The bank will then issue a statement to the customer in that amount which the customer must then pay off.
  • Funding: So far in the transaction, no actual money has changed hands. After the card has been authorized and the credit is issued, the payment company then makes a deposit into the merchant’s checking account. These funds can generally be accessed in just a few days.

In order to accept these forms of payment, you will need some type of card reader. Your options here have also evolved rapidly in the past couple of decades. The most common type of credit card machine is still the stationary card terminal. This is a machine that needs a physical connection either to a phone line or to the internet in order to process physical cards.

The next type of machine, and one that is rapidly gaining in popularity, is the wireless processor. These often look very similar to a stationary device, using a magnetic strip or chip reader to take a customer’s card information. However, these devices only require a wireless connection, making them far more versatile and mobile for merchants (albeit with slightly higher security concerns).

Finally, you can also accept payments via a virtual terminal, something we’ll get into more thoroughly a little bit later. In short, virtual terminals allow you to take a customer’s card information without that card being physically present.

Of course, within these different machines, you’ll have some other hardware choices to make. One item you may want to look into is a PIN pad. With this device, customers can manually type in their debit card password to process a payment. Debit cards with either a VISA or Mastercard logo can be processed almost identically to credit cards. However, with a PIN pad, a transaction that is specifically run as debit usually costs the merchant a smaller fee. This ends up saving you a lot of money in the long run, particularly on large transactions.

Some point of sale systems have this technology built-in, allowing customers to enter their PIN numbers on a touchscreen. PIN pads encrypt a customer’s information, giving an inherent level of security on those transactions. As previously mentioned, you don’t need a PIN pad to run these types of transactions. A signature debit card is processed just like a credit card, but the money comes directly from a customer’s checking account. However, in most instances, the merchant is still charged the same rate as if the transaction was run as credit.

One of the more recent changes in the world of credit card processing has been the introduction of the chip card. EMV (which stands for Europay, Mastercard, VISA) is a method of payment based on a standard for cards and machines that is meant to dramatically reduce the possibility for fraud when it comes to credit card payments. EMV cards store data in a chip within the card that is scanned when it is “dipped” or inserted into a card reader or payment machine. Companies have been steadily trying to meet EMV standards and the majority of processors and point of sale companies are now EMV compliant or claim to be in the process of becoming compliant in the near future. VISA and Mastercard have also issued standards for card-not-present transactions as a way to increase security measures in the world of eCommerce.

It’s difficult to predict what the future will look like when it comes to payment processing, but one trend that seems like a near sure bet is that consumers will continue to seek out convenience. This means that services like Apple and Android Pay will probably continue to spike in popularity. Given society’s increased dependence on iPhones for everything from communication to driving directions, the ability to pay with one’s phone is something all companies will want to make sure they can handle — sooner rather than later.

Looking for a credit card machine for your business? Buy, don’t lease! 

Virtual Terminals

What is a virtual terminal? Let’s delve in deeper to get a sense of whether or not it’s a solution your business needs. Virtual terminals are online applications that allow customers to input credit card information directly online to then be processed electronically. These terminals allow for transactions to be processed even when a credit card is not physically present. This can be an ideal solution for any business that is highly mobile or conducting transactions remotely with clients.

Many companies, including PayPal and Helcim, offer the ability to use a virtual terminal for payments. The implementation process is exceedingly simple. Generally, for a small, monthly fee, your processor can give you the ability to enter payment information from pretty much anywhere with an internet connection. Most companies will offer a percentage rate and a flat fee for virtual terminal transactions. This fee is often slightly higher than it would be for a typical transaction as card-not-present transactions have a slightly higher risk of fraud.

With PayPal, for example, all you need is a phone, tablet or computer and you can quickly log in to your account and go to the virtual terminal setting. This leads you to a screen similar to one you would see if you were entering your own information online for a purchase. Once the information is entered, you’ll receive confirmation. 

This simplicity and flexibility has made the virtual terminal an increasingly popular way for businesses of all types — not just mail order or eCommerce businesses — to accept payments. An increasing number of companies are now also offering USB card readers that connect directly to your terminal. These automatically take the card information and run it through your virtual terminal, keeping your transactions in the same location but charging you a lower rate since the card is present at the time. Some of these same companies offer pads which can collect customer signatures in the same way. Even with an external card reader, virtual terminals are usually not designed to accept advanced payment types, like contactless payments, from mobile wallets such as ApplePay. If you want to accept contactless payments, you’re better off getting a standard NFC-enabled credit card machine or credit card reader.

Virtual terminals can also take automated clearinghouse (ACH) payments for one-time or recurring transactions. These payments are processed in bunches, meaning the payment is usually received a little later. However, you aren’t subject to interchange fees for these payments.

Obviously, when making or accepting payments where credit card information is simply entered online, security is going to be of the utmost importance. It is highly recommended that you choose a payment provider that encrypts credit card data; this both reduces the risk of theft and the scope of the Payment Card Industry (PCI) compliance.

From there, you will generally have two options.

You can choose a non-validated solution which can cut down the risk of having data stolen. This is an affordable option that is offered by most processing companies, though these solutions are not defined as secure by the PCI. In other words, there is an increased chance that hackers could gain access to encryption keys which could eventually lead to a data breach.

The other option is a PCI point-to-point (P2PE) provider which meets all of the PCI standards and includes secure hardware. Processors that provide this level of protection must accept Merchant P2PE Implementation Responsibilities. Because of this added security, a much smaller number of processors offer this service (although that list is growing). If you are set on providing increased security, you will need to make sure you have hardware that meets these standards — you will also have to submit to regular security check-ups.

Merchant Services

When we talk about merchant services, what exactly do we mean? In simple terms, ‘merchant services’ is a broad term to describe the hardware and software products that make it possible to accept credit and debit card transactions. These companies and services help to connect the issuing bank (the bank that gave your customers their credit cards) and the merchant bank (the bank that is behind your merchant account). In the last couple of decades, this term has expanded to include much more than just your standard terminal scanner. The internet has opened the door for payments to be made online and those purchases can be tracked and managed from your computer or mobile device.

Merchant services providers are any businesses which accept payments (aside from just cash and checks). These can include credit and debit card processors, point of sale terminals, analytic software etc. There are a handful of different kinds of merchant services providers, including:

  • Merchant Account Providers: These providers can set you up with a merchant account and services that allow you to collect your money following a debit or credit card transaction. Some larger companies also come with direct processing services.
  • Payment Service Providers: Even though it’s advisable, it’s not essential to have a merchant account to process payments. Payment service providers, like the ubiquitous PayPal, don’t give you an ID number and are popular because they generally do not come with account fees or long-term contracts. These accounts can be frozen, sometimes without notice, and customer service can be sketchy. However, for smaller or seasonal businesses, payment service providers are a popular choice.
  • Payment Gateway Providers: Payment gateway providers represent a service provider that has emerged with increased popularity of eCommerce. These providers may or may not come with a merchant account. Some give you a choice of using their own merchant account or using a gateway with an existing account. Others only offer a gateway service, meaning you’ll have to have a merchant account from a third party.

When you’re looking at various card processors, there are a few things that you should keep an eye on. Perhaps most importantly you’ll want to research the company’s reputation. Processing payments is a crucial aspect of your business and an unreliable company can give you a lot of headaches (and affect your bottom line).

You’ll also want to compare the costs and potential fees that various processors implement. Square, for example, charges no monthly fee, which is yet another appeal for smaller or mid-sized companies. However, they also implement a 2.75% fee on transactions — if your business takes off and you’re suddenly processing a high number of transactions, those fees will add up and quickly wipe out any savings you’re receiving from not paying a monthly fee.

You’ll also want to doublecheck the compatibility of your processor. If, for instance, you’ve found a point of sale system that you are comfortable with, you’ll want to make sure that the processor integrates seamlessly without additional costs. If you’re forced to set up an aforementioned gateway, you could end up paying a large monthly fee.

To enable transactions, merchants will have to fill out an application. If you’re opening a merchant account, this process can take a little longer than going through a third-party processor. One of the reasons smaller and mid-sized merchants lean towards a third-processing account like Square is that you can be up and ready to take payments almost immediately. The price for that instant gratification, however, is an increased likelihood for potential account freezes later on.

When you’re in the process of picking out a processor, you’ll also want to pay close attention to transaction fees. The best merchant account providers usually offer what is referred to as interchange-plus pricing. This means that the provider takes the wholesale cost of the transaction and tacks on a small, standardized markup. This ensures an affordable and transparent pricing plan. It also means a slightly higher rate for transactions when a card isn’t physically present since those transactions have a higher frequency of fraud. Third-party processors sometimes provide a flat rate for all transactions — this is convenient and offers a simple way to quickly figure out your fees. However, it may not be the most cost-efficient in the grand scheme of things. A company like Square, which offers a flat rate for swiped and dipped transactions, also charges a slightly higher rate for key-in and eCommerce transactions.

There are a few other things you’ll want to watch out for when finalizing your decision about a merchant accounts provider. Along with the potential for account freezes or funding holds, keep an eye on how businesses handle chargebacks (where customers dispute a charge) and fraudulent charges in general. There are ways to mitigate these dangers, of course. You can use fraud management tools, including things like address verification services. Using a chip card terminal also dramatically cuts back on fraudulent charges.

Here are a few of our most highly recommended processing companies:

  • Fattmerchant: Fattmerchant is one of the best companies for eCommerce transactions. Its pricing is transparent without undisclosed fees. There is also a 0% markup, meaning you pay only the wholesale cost plus the monthly fee and a small authorization fee. Fattmerchant also has terrific customer service.
  • Dharma: Dharma provides a full array of processing services and also has a simple, affordable pricing structure without hidden fees. They exclusively use the interchange-plus format and are a particularly good choice for non-profits, as they offer a discount to those companies.
  • Helcim: For slightly large companies, Helcim is a very strong option. While offering a wide range of services, they have extremely competitive rates for companies that process more than $2500 a month. They also have very strong customer service and their fee structure is transparent and easy to understand.
  • Square: For companies that don’t provide a full-service merchant account, Square is the standard bearer. There is no monthly account fee and they offer free or low-cost readers. Square also doesn’t force you to sign up for a long-term contract or charge you for early termination.

Your POS System

Another way to process payments is through your POS or point of sale system. Point of sale systems have come a long way, especially in the past decade. Today, you can virtually run your entire business from one, simple device. With the influx of cloud-based systems, you can make snap decisions and check the status of your operation from anywhere with a wireless connection.

With so many options available, and with point of sale systems offering more and more features all the time, choosing the correct system to meet your needs is an important decision. The first thing you’ll need to decide is whether you want a system that is cloud-based or locally installed. Most companies have been moving toward cloud-based options for numerous reasons. First and foremost, it’s incredibly convenient. All of your data is automatically stored off-premise, so if something happens to your store or to your system, all of your payment, customer, and inventory information is still accessible. These systems are often extremely user-friendly as well, designed to be intuitive with very little training time needed. They tend to be sleek, modern, and visually appealing both to your customers and employees.

Many cloud-based systems also perform routine updates automatically, fixing bugs and adding new features so that you always have the most current software at your fingertips. Along these same lines, the best POS systems sync seamlessly to any number of integrations that can help your business in ways you may not have even considered before.

When you’re looking at purchasing a POS system, there are a number of factors to keep in mind. First and foremost, it’s likely that the cost of the POS hardware and software is going to play a large role. Some systems allow you to purchase your system and all necessary hardware upfront for a flat rate, allowing you to own the software. But if dropping a few thousand dollars isn’t something you’re comfortable with, the majority of point of sale companies offer monthly rates. A few companies, such as Square, offer a free version of their software that is generally suited for small operations, though most other POS software systems run anywhere from $39 to $99 a month for basic services while often offering advanced packages with additional features.

Let’s talk about some features you can expect to find in pretty much any good, modern point of sale system:

  • Inventory Management: Not only can you view all of your stock on hand, you can set your POS to alert you when certain products are running low or, even more conveniently, you can set the system to automatically reorder products when they hit a certain level. This can be an enormous time saver and, in most systems, inventory management can be accessed remotely. You can set up quick transfers across multiple locations and, in many cases, create and print your own purchase orders.
  • Employee Management: Likewise, your staff is easy to track and manage from your centralized POS station. You can set permissions and create alerts for suspicious transactions to cut down on fraud. Employees can be given unique codes when they log into the system and can view their hours and current schedules.
  • Customer Management: Many point of sale systems come with their own built-in loyalty programs or integrate with other companies for a small monthly fee. But these days, your POS can help with so much more when it comes to analytics and marketing. Most systems allow for customer data to be stored and easily searched. Customers can look up their own loyalty points and control their own profiles in some cases. More useful for business owners, however, is the ability for the system to analyze what items are being purchased by certain customers, assessing buying habits and creating personalized marketing campaigns that can be implemented with ease, helping to maximize profits. The same can be done with coupons, targeting customers to boost repeat business.

You will also want to do your research to see what systems specifically cater to your particular business. For example, if you’re opening a pizza shop, you may want to look for a system with built-in features that makes online ordering simple, or functions that allows customers to create a custom order which is then automatically sent to the kitchen, freeing up your employees. There are also niche POS systems for specific types of businesses. Quetzal, one of our highest-rated systems here at Merchant Maverick, is built for the retail industry with a significant bent towards shoe stores.

Many POS software systems have their own app store, like Clover, or integrate with scores of apps that might help your business out tremendously. If you’re technically savvy, most POS providers also give you access to an open API, meaning that you or a developer can create your own apps within the software.

When you’re doing your research there are a number of other features you’ll want to keep an eye on. Definitely check to see what features come in the form of add-ons which will increase your monthly fee. You will also want to make sure you have appropriate, compatible POS hardware. Several companies offer hardware packages that can be purchased directly through their websites.

A robust reporting feature should be available in most highly-rated systems and many offer their own eCommerce platforms, making it easy to set up your own website and sell online, all from your POS device.

Another key factor to research is what credit card processors are compatible with your system. While some offer a wide range of choices, integrating with most major companies, others lock you into a limited number of options or offer their own processing services for credit card payments, for better or worse.

You’ll also want to see what your system has in terms of an offline mode. Most point of sale systems have evolved to now offer at least some offline functionality, but what you can actually do in the case of an outage can vary. Many systems still function as normal, allowing you to process credit cards, encrypt transactions, and store the data to be run once the internet is restored.

It’s difficult to make a decision, but at Merchant Maverick, we’ve come across a number of point of sale systems that we would happily recommend depending on your business.

  • Shopkeep: Shopkeep is routinely on the top of our lists. This simple and reasonably priced system features everything you would expect in a point of sale system. It’s well suited for small to mid-sized retail shops and restaurants with a sleek design, excellent reporting and management tools, and terrific customer service.
  • Revel: For slightly larger restaurants or retail establishments, we often recommend Revel, a product that can manage multiple locations and large amounts of inventory with ease. Revel is intuitive and extremely robust with a top-notch kiosk function and Kitchen Display System.
  • Lightspeed: Lightspeed is another highly rated company and offers both a Retail and Restaurant product. Lightspeed has great customer service and is easy to set up while also providing intuitive front end and back end features. It also has an excellent and simple to use eCommerce platform.
  • ERPLY: ERPLY is one of the top retail point of sale systems that we’ve reviewed. One of its biggest features is the ability to integrate with most major credit card processors. It also has terrific shipping integrations and excellent customer management tools, particularly when it comes to loyalty.

Final Thoughts

There is obviously a lot to process when it comes to… well… credit card terminals and payment processing. If you’ve made it this far, hopefully you’re feeling a little more confident about your knowledge of credit card processing machines, virtual terminals, merchant services, point of sale systems, and what you should be looking for from the various companies that provide this technology. Make sure you have a good grasp on what each company charges for different transactions and what might be the best option for your type and size of business. Also don’t overlook things like a company’s customer service reputation. It’s a competitive market and you have the ability to make sure you end up with a credit card terminal and processing system that can best help your business thrive.

Interested in learning more? Download our free Beginner’s Guide To Payment Processing.

The post Complete Guide To Credit Card Machines And Terminals appeared first on Merchant Maverick.

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Shopify Payments Review: What Are The Pros And Cons Of Shopify’s Integrated Payment Processor?

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If you’ve spent any time on our blog, you know that Shopify (read our review) is one of our favorite shopping cart solutions, primarily because they provide an all-inclusive solution to a wide range of merchants. One monthly rate gives you access to Shopify’s hosting, security, administrative abilities, customer service features, inventory management features, web design tools, and more.

With the addition of Shopify Payments, an integrated payment processor, you can even access built-in payment processing features. Shopify Payments allows you to quickly begin accepting orders on your online store. You won’t have to worry about integrating a third-party processor, and Shopify will waive their shopping cart transaction fees.

However, despite its convenience, Shopify Payments is not a perfect solution. Customers often complain that they do not qualify to use the service. Others say that Shopify Payments has frozen their account or is holding payments.

Keep reading to learn if you qualify for Shopify Payments and if it’s right for your business.

In this article, we’ll be discussing payment service providers (PSPs). If you’re new to the world of payment processing, we’d love to help get you oriented. Download our free ebook, The Beginner’s Guide to Payment Processing, to get started.

Table of Contents

What Is Shopify Payments?

Shopify Payments is a payment processor that allows you to accept customers’ money securely on your account. Shopify is responsible for these transactions, although they are effectively processed through Stripe and Wells Fargo.

Shopify Payments is already integrated into your Shopify account, so it requires very little setup. There is no need to integrate a third-party processor or coordinate payments with a separate company. All you have to do is select Shopify Payments in your admin and add your banking information. Read Shopify’s setup instructions.

What’s more, Shopify Payments comes with a few additional features, including chargeback management and fraud prevention.

When you use Shopify Payments, Shopify will waive their usual shopping cart transaction fees. The only transaction fees you’ll need to pay are those associated with payment processing.

What Are The Rates?

Every PSP comes with its own processing rates and fees. Shopify Payments bases their rates on users’ subscription level. Users on higher Shopify plans benefit from lower rates. Take a look at the screenshot below for a breakdown of those rates.

Shopify states that they do not charge any monthly fees, hidden fees, or setup fees on their payments service.

Who Can Use Shopify Payments?

Perhaps the most obvious requirement is that you must be a Shopify customer to use Shopify Payments.

Shopify Payments is only available to merchants in the US, Canada, the UK, Ireland, Australia, New Zealand, and Singapore. Shopify Payments is not available to US territories, with the exception of Puerto Rico.

You must follow Shopify’s Acceptable Use Policy. Take a look at the extensive list of products and services Shopify does not support below:

If you do not comply with Shopify Payments’ Terms of Service, you will not be approved or the service may be revoked.

When Do I Get Paid?

Payday is on everyone’s mind. One of the most frequently-asked questions regarding Shopify Payments is how long you’ll have to wait to receive your customers’ payments.

This period — the time between when a customer places an order and when those funds are sent to your bank account — is called a pay period. You should keep in mind that this pay period does not include the amount of time it takes for your bank to process that deposit after it’s sent (typically between 24-72 hours).

Your pay period with Shopify Payments will depend on the country in which your company is based. You can view the full breakdown of pay periods in Shopify’s knowledgebase, or you can see my summary below:

  • US: 2 business days. Funds from Friday, Saturday, and Sunday are grouped and sent together as one payment.
  • Canada: 3 business days. Funds from Friday, Saturday, and Sunday are grouped and sent together as one payment.
  • Australia: 3 business days. Funds from Saturday, Sunday, and Monday are grouped and sent together as one payment.
  • New Zealand: 3 business days. Funds from Saturday, Sunday, and Monday are grouped and sent together as one payment.
  • UK & Ireland: 4 business days. Funds from Saturday, Sunday, and Monday are grouped and sent together as one payment.

Make sure you keep in mind this delay in payments as you plan your business. It might be worth setting up a business credit card so you always have funds on hand.

Pros & Positive Reviews

Customers choose Shopify Payments for a number of reasons. Here are the primary benefits of using Shopify Payments:

  • No Shopify Transaction Fees: While there will always be processing fees, when you use Shopify Payments, you’ll no longer have to pay that 1%-2% transaction fee associated with your Shopify plan. I assume Shopify instead takes their money from your payment processing. Either way, it’s savings for you.
  • Potentially Lower Processing Fees: As I’ve said before, higher-level Shopify merchants benefit from lower rates. You may find that Shopify’s rates are competitive with those of other major processors.
  • Already Integrated: You won’t need any developers to connect with Shopify Payments.
  • Integrated Fraud Prevention: Shopify Payments helps you reduce fraudulent transactions. You can choose to enable an address verification system and a card verification value upon checkout to ensure customers are real cardholders. Read more about fraud analysis.

Shopify Payments is a great solution if you meet the requirements and are looking for a processor that’s easy to integrate.

Cons & Complaints

While Shopify Payments is great for convenience, I’ve seen numerous reports blaming the service for being unreliable and difficult to contact. Here are a few of the most common complaints and disadvantages of using Shopify Payments:

  • Ineligibility: Shopify users often complain that they are not eligible for Shopify Payments. For some, this is because Shopify Payments is not available in their country. In some cases, Shopify has actually revoked payment services because, for one reason or another, their business was deemed “high-risk.” Shopify’s Terms of Service states: “We reserve the right to modify or terminate the Service for any reason, without notice at any time.”
  • Shopify Holds Funds: Merchants frequently complain of their funds being withheld for an extended period of time. Here’s what Shopify Payments’ Terms Of Service says about that: “Stripe, on behalf of Shopify and/or Wells Fargo reserves the right to change the Payout Schedule or suspend payouts to your Bank Account should we determine it is necessary due to pending disputes, excessive Chargebacks or refunds, or other suspicious activity associated with your use of the Service or it required by law or court order.”
  • Difficulties With Chargebacks: Chargebacks are an unfortunate and inevitable part of running an online business. If customers file too many chargebacks against you, Shopify may withhold your funds, further complicating the issue.

Make sure you read the Terms of Service for every solution you sign up with, including Shopify and Shopify Payments. It could save you a world of pain.

Final Thoughts

I’ve seen enough negative reports about Shopify Payments to be skeptical of the service. Many merchants have been denied payments or had the service revoked entirely.

However, without the specifics, it’s difficult to determine whether Shopify was justified or not in these actions. If merchants were not complying with Shopify Payments’ Terms of Service, Shopify was within their rights to cancel the service.

As you make your decision, read every word of Shopify Payments’ Terms of Service to ensure your business qualifies. There are some great benefits to integrated payments, and if your store follows all the rules, Shopify Payments could be the best choice for your store.

But, don’t stop your research there. Take a look at our complete review of Shopify (and the real customer comments below) to learn more about the software, and be sure to read up on Shopify Payments in their knowledgebase. Best of luck!

Liz Hull

Liz is a recent college graduate living in Washington state. As of late, she can often be found haunting eCommerce forums and waiting on hold with customer service representatives. When she’s free, Liz loves to rock climb, watch Spanish dramas, and read poorly-written young adult novels.

Liz Hull

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The Top 5 Payment Gateways for Online Credit Card Processing

Online payment gateway

Setting up an eCommerce business involves making a lot of choices, but one important decision you might have overlooked is choosing the best payment gateway to allow your customers to actually make purchases on your site. Pick a good gateway, and you’ll be able to accept just about any payment method imaginable, interface with the online shopping cart of your choice, and, perhaps most importantly, easily be able to migrate your customer payment data to a different system if you later decide to change gateway providers. If you pick a not-so-great gateway, you may someday find yourself with a product that no longer meets the needs of your business – and no easy way to switch to a better one.

If you’re new to eCommerce, your first question might be “Just what the heck is a payment gateway, anyway?” Admittedly, payment gateways are something of a nebulous subject. Merchants are often unsure about what they do, and why they might need one in the first place. They’re also often confused with merchant accounts, which is a related (but separate) merchant service that you’ll also need to accept credit cards and other forms of payment.

We’ll try to keep it as simple as possible. A payment gateway is a software application that establishes a communication link between your eCommerce website and your merchant account provider’s payment processing system. Much like your computer’s BIOS and other operating system functions, payment gateways run in the background, and your customers won’t have to interface with them directly. The primary purpose of a payment gateway is to allow your customers to make purchases on your site using the payment method of their choice. While almost every gateway will support credit card purchases, the better ones will also allow customers to pay using eChecks, debit cards, their PayPal account, and even contactless payment methods such as Apple Pay. Most gateways also maintain a secure database of your customers’ payment method data, shipping and billing addresses, and other information. With this database, returning customers won’t have to re-enter their payment method information every time they make a purchase. This feature naturally translates to increased sales due to the convenience it offers your customers. For more details about payment gateways and how they work, see our article The Complete Guide to Online Credit Card Processing With a Payment Gateway.

Merchant accounts, on the other hand, process payment transactions and disburse the funds to you after a customer makes a purchase. Both retail and eCommerce businesses need a merchant account to accept credit card payments, although today payment service providers (PSPs) such as Square and Stripe can offer basic credit card processing without the need for a full-service merchant account. If your business is strictly retail and you don’t make any sales online, you can stop reading now. You won’t need a payment gateway. eCommerce merchants, on the other hand, will usually need both a payment gateway and a merchant account. This is because their transactions will all be in a card-not-present environment where they won’t be able to verify their customer’s identity or have access to the magstripe or EMV-chip data that helps to prevent fraud in the traditional card-present environment of a retail location.

With so many different choices of merchant account and payment gateway providers on the market, you might wonder what the best way is to set your business up with both of these services. There are two methods you can use: an integrated approach, or a non-integrated approach. Under the integrated approach, you’ll use the same provider for both services. For example, an account with a payment service provider (PSP) like Stripe includes both payment gateway functions and transaction processing services. The non-integrated approach, on the other hand, requires you to sign up for each service separately. The easiest way to do this is to use the payment gateway offered by your merchant account provider. Often this will be a proprietary product, such as the Quantum Gateway provided by CDGcommerce. While most providers will charge you additional fees for a payment gateway, CDGcommerce will let you use their gateway for free. Many providers also offer access to third-party gateways, which may be a better option if you need more advanced features than what the proprietary gateways have to offer or simply want to have more flexibility to change your merchant account provider at some point in the future. The majority of merchant account providers (including CDGcommerce) offer Authorize.Net as one of their payment gateway options. Signing up for the Authorize.Net gateway through your merchant account provider is often less expensive than going with the company directly, as providers can negotiate discounted rates and fees for their customers.

Another way to take the non-integrated approach is to sign up for your merchant account and payment gateway separately. For example, let’s say you’ve found a great merchant account provider that offers significantly lower processing rates than you’ve been able to find elsewhere. Unfortunately, they don’t offer a gateway that includes all the features you need for your business. You can always sign up for a third-party gateway and integrate it into your merchant account. While this may be the best option for some merchants, be aware that there are two disadvantages to this approach. For one thing, you’ll have to make absolutely sure that the two services are fully compatible with each other before you sign up. Also, you will almost always end up paying more money with this approach. Watch out for gateway setup fees and additional per-transaction charges for using a third-party gateway.

So, which approach is right for your business? There’s simply no clear-cut answer to this question, unfortunately. As a general rule, however, smaller businesses will usually save money by signing up with a payment service provider (PSP) that doesn’t charge monthly fees for either transaction processing or the use of their payment gateway. The trade-off, of course, is that you will pay higher per-transaction processing costs, as most PSPs only offer flat-rate pricing. Upgrading to a full-service merchant account and adding in a payment gateway will cost you more in monthly fees, but you’ll usually save money on processing charges – at least if your provider offers interchange-plus pricing. Larger businesses that have a higher monthly processing volume can more easily afford the extra fees and will save money overall because of the lower processing rates available from full-service merchant account providers. Because of the number of variables involved, there is no easy way to determine what your processing volume needs to be for a full-service merchant account plus a gateway to be more cost-effective than simply going with a PSP. We recommend that you take a close look at the total percentage of your transactions each month that goes to paying for merchant services and compare this to what you would pay under a different provider.

How We Chose:

While all payment gateways offer the basic function of processing transactions over the internet, there’s a lot of variability beyond that. The best gateways on the market offer a combination of fair pricing and a robust feature set that will meet the needs of most eCommerce merchants. In evaluating how well each gateway stood up against the competition, we used the following criteria:

  • Pricing: While everyone wants to save money, we firmly believe that pricing should be evaluated in terms of overall value rather than simply trying to find the cheapest option available. Trying to save a few dollars can easily result in being stuck with a product that doesn’t fully meet your needs. Nonetheless, there are some things to look out for. Many gateway providers, for example, charge a gateway setup fee when you first open your account. While this is a one-time charge, it’s mostly a junk fee that you should avoid paying. You’re more likely to get hit with a setup fee if you sign up directly with a gateway provider. Merchant account providers often waive this fee if you get your gateway through them. Monthly gateway fees (usually around $15.00 – $25.00 per month), on the other hand, are very hard to avoid. Unless you sign up with a company like CDGcommerce, which doesn’t charge a monthly fee for their gateway, you can expect to pay this on top of whatever monthly fee you have to pay for your merchant account. Gateway processing charges (typically $0.05 per transaction) are another thing to look out for. Some companies will charge you separately for this, while others will include it in their processing rates. You might also have to pay PCI compliance fees, particularly if you’ve signed up directly with a gateway provider. Usually, however, these fees are included in your merchant account pricing.
  • Contracts: Most payment gateway providers will bill you on a month-to-month basis, with no long-term contract and no early termination fee (ETF) if you close your account. However, your merchant account provider might include both of these provisions, so read all your contract documents very carefully before signing up. It won’t do you much good to be able to drop your payment gateway whenever you want if you’re stuck in a three-year contract for your merchant account.
  • Features: Obviously, you’ll want a gateway that includes the features you’ll need to run your business. Confirming that a gateway will meet your needs, however, isn’t always as easy as it should be. Companies naturally tend to play up the unique features of their services, but in most cases, they won’t disclose the limitations or shortcomings of those services. For starters, you’ll want to confirm that the gateway supports all the payment methods your customers use. For example, almost every gateway on the market will support Visa and MasterCard credit card purchases. Support for less-common cards isn’t as easy to find. If your customers use Diners Club (as unusual as that may be), you’ll want a gateway that supports it. Support for multiple currencies is also important for some merchants, and you’ll obviously need a gateway that supports the specific currencies your customers use. If you prefer a particular online shopping cart for your site, you’ll need a gateway that is certified to integrate with it. If you need to customize the integration between your site and your gateway, access to an API that allows you to do that will be essential. Finally, we recommend that you choose a gateway that allows for easy and convenient data portability in case you need to switch to a different gateway.
  • Security: No eCommerce merchant ever wants to have their site hacked and their customer’s sensitive payment data exposed in a data breach. Your gateway provider doesn’t want this to happen, either, which is why every gateway on the market comes with a number of security and encryption features to keep your account safe. Some of these features, however, are more effective than others. Look for point-to-point encryption (P2PE) and a gateway that meets Level 1 PCI compliance standards. Other features, such as data breach insurance, are also useful to have.
  • Customer support: Like any other software product, payment gateways are prone to occasional hiccups and glitches – often at the most inconvenient times. The eCommerce world runs around the clock and isn’t limited to just regular business hours. For this reason, you’ll want a gateway that’s backed up by 24/7 customer support. While options like email and online chat are nice to have, you really should be able to talk to a customer service representative via telephone when a problem arises.

Before we dive into our specific recommendations, let’s be clear about one thing: there really isn’t a perfect gateway out there that will meet the needs of every merchant. Even the best gateways fall short of perfection in one aspect or another. Nonetheless, there are several gateways that provide a significantly better combination of features and services than others. Here are our recommendations:

Authorize.Net

Authorize.Net logo

Originally founded in 1996, Authorize.Net is one of the oldest and most experienced payment gateway providers in the industry. Thanks to partnerships with a host of merchant account providers, they’ve also cornered the lion’s share of the market for payment gateways. There’s a good chance that your merchant account provider offers Authorize.Net as their payment gateway.

But, does being the biggest gateway provider also make them the best? Well, maybe. With over twenty years in business to perfect their product, they’ve definitely managed to add a lot of bells and whistles to their core product. Their gateway can accept all major credit cards (yes, even Diner’s Club), debit cards, eCheck payments, and even digital payment methods such as PayPal and Apple Pay. They can accept international transactions from just about any country in the world, although your business must be based in the United States, Canada, the United Kingdom, Europe, or Australia. Their Advanced Fraud Detection Suite (AFDS) can protect your site from card-not-present fraud – a common issue with eCommerce. Best of all, their gateway seamlessly integrates with a huge number of third-party eCommerce platforms.

Sounds great, doesn’t it? Well, there are a few things to watch out for. Pricing can be on the high side if you sign up directly with Authorize.Net, with a $49.00 gateway setup fee, a $25.00 monthly gateway fee, and a $25.00 fee for chargebacks. If you already have a merchant account, you’ll still pay an additional $0.10 per transaction for the use of their gateway. International transactions also pay an additional 1.5% for processing. If you don’t have a merchant account, Authorize.Net will set you up with one, but it uses a flat-rate pricing plan of 2.9% + $0.30 per transaction. While this is the same as what you’d pay for PayPal or most other payment service providers (PSPs), you can get lower rates by signing up with a merchant account provider that offers interchange-plus pricing.

The good news is that you can usually get a better deal on the Authorize.Net gateway by signing up with a partner merchant account provider. Most providers will waive the setup fee, and they’ll often charge a lower monthly gateway fee and per-transaction processing fee (typically $0.05 per transaction). However, Authorize.Net does have one major weakness: data portability. Or, rather, the lack of it. Their Customer Information Manager (CIM) is a powerful feature that allows you to store customer data, including credit card numbers, securely. Unfortunately, it’s difficult and very expensive to download that data and take it with you if you ever decide to switch to a competing payment gateway. This is a serious limitation, especially considering that other providers (such as Braintree) offer you the freedom to take your customer data with you if you want to. You’ll want to very carefully evaluate whether Authorize.Net will be able to meet the long-term needs of your business before you sign up.

PROS:

  • Broad support for multiple payment methods and currencies
  • Strong security and fraud prevention features
  • Month-to-month billing with no long-term contracts

CONS:

  • Pricing is expensive for merchants who sign up with the company directly
  • High flat-rate pricing for optional merchant account
  • Data portability is unusually difficult and expensive

For a more in-depth look at Authorize.Net, check out our full review.

Braintree Payment Solutions:

Braintree Payment Solutions logo

Founded in 2010, Braintree Payments Solutions is now a PayPal company. They offer an integrated approach to eCommerce, with each account including both a payment gateway and a full-service merchant account. It’s available in 44 countries, including the United States, Canada, Australia, and most of Europe. Payments can be accepted in over 130 currencies, including Bitcoin if you’re particularly adventurous.

Standard accounts at Braintree follow a pay-as-you-go pricing model, with no account setup fees, monthly fees, or even gateway fees. All transactions are processed at a flat rate of 2.9% + $0.30 per transaction. Billing is on a month-to-month basis, with no long-term contracts or early termination fees. While the flat-rate pricing is not particularly cost-effective for larger businesses, the lack of monthly fees makes it a great deal for smaller companies. Braintree addresses this limitation by offering enterprise pricing for larger businesses (presumably with interchange-plus rates), but you’ll have to process over $80,000 per month to qualify for it.

Braintree’s gateway includes some excellent standard features, including its Drop-In UI for customer checkouts and support for recurring billing. It’s also compatible with a huge variety of third-party integrations, including shopping carts, accounting software, and analytics. Developers can further customize the gateway using Braintree’s client and server SDKs. Perhaps the best feature Braintree has to offer is that they provide complete data portability for free. If your needs change and you want to switch to a different provider, you’re free to take your customer data with you.

While Braintree offers an excellent service at a fair price, it’s not for everyone. If you already have a separate merchant account (particularly if you’re stuck in a long-term contract), their gateway-only option is quite expensive at $49.00 per month and $0.10 per transaction processed over the gateway. There’s also almost no support for card-present (i.e., retail) transactions, although they do support a handful of third-party mPOS solutions.

PROS:

  • Pay-as-you-go pricing with no monthly fees
  • Simple flat-rate pricing for standard accounts
  • Free, unrestricted data portability

CONS:

  • No support for eCheck (ACH) payments
  • Gateway-only option is expensive

Check out our full review of Braintree for more information.

PayPal:

PayPal Logo

You might not think of PayPal as a payment gateway provider, but their Payflow Payment Gateway is actually a very capable product. In fact, PayPal offers a host of merchant services for eCommerce businesses, and you can integrate most of them with the merchant account, shopping cart, or another service you’re already using.

Offering PayPal as an additional payment method is the simplest option, as it’s free to set up and there are no monthly fees or long-term contracts. Pricing is pay-as-you-go and based on a flat rate of 2.9% + $0.30 per transaction (4.4% + $0.30 per transaction for international transactions). While this is certainly the least expensive option, realize that as a payment service provider (PSP), PayPal is not giving you a full merchant account. Instead, your account is aggregated with those of other sellers so that you won’t have a unique merchant ID number for your business. The downsides to this arrangement, of course, are that your account won’t be nearly as stable as a merchant account, plus account freezes and holds on your funds are more common. PayPal is rather notorious for withholding seller’s funds at the slightest suspicion of fraud, so it’s better to use them as a backup payment method rather than relying on them entirely for your transaction processing needs.

If you already have a merchant account through a different provider, the Payflow Payment Gateway is designed to integrate with it and expand your payment options. There are two pricing plans for the Payflow gateway: Payflow Link and Payflow Pro. Payflow Link (the best choice for most merchants) is practically free. There are no gateway setup or monthly fees. You pay an extra $0.10 per transaction, and that’s it. You can use a PayPal-hosted payment page or a template embedded on your website. Payflow Pro, on the other hand, offers full customization and additional PCI compliance features. However, it’s rather expensive, with a $99.00 setup fee and a $25.00 monthly fee after that. You’ll also still pay $0.10 per transaction with this option.

PROS:

  • No setup or monthly fees (for Payflow Link)
  • Simple, transparent flat-rate pricing with no hidden fees
  • Easy to setup and begin accepting payments

CONS:

  • Flat-rate processing charges are higher than most merchant accounts offer
  • Elevated risk of account holds, freezes, and terminations
  • Inconsistent quality of customer support

For more detailed information about PayPal, see our complete review here.

PayTrace:

PayTrace logo

While they’re not nearly as well-known as the other heavy hitters in the payment gateway industry, PayTrace offers a solid product with lots of specialized features, particularly for merchants in the B2B sphere. Unlike other merchant services providers who offer a broad range of products and services, PayTrace is a payment gateway provider first and foremost. They don’t offer merchant accounts or any hardware, so you’ll have to go with a third-party provider for these items. Although the PayTrace gateway is their primary product, the company also offers a virtual terminal and a mobile payments app.

PayTrace offers both Basic and Pro pricing plans, with the former being suitable for small eCommerce businesses and the latter offering specialized options for larger B2B merchants. The Basic plan has no setup fee and costs only $15.00 per month after that. You’ll also pay $0.30 per transaction processed over the gateway, which is in addition to any processing charge you pay to your merchant account provider. The Pro plan requires a $75.00 setup fee, and $20.00 per month after that. However, your gateway processing fee drops to $0.10 per transaction. You’ll also be able to process Level II and Level III credit card data, which will save you up to 1.0% in processing charges due to the lower interchange rates for these transactions. Processing Level III data requires some additional data input on your part and is mostly useful for B2B transactions, but if you process a lot of these types of transactions, the savings could be significant.

The PayTrace gateway also supports additional features such as eCheck (ACH) processing and recurring billing. However, these are optional features requiring additional fees, and are only available under the Pro plan. PayTrace bills on a month-to-month basis only, so there’s no long-term contract and no early termination fee to worry about. Be aware, however, that your merchant account provider might not be so generous. As always, we highly recommend that you read all contract documents thoroughly before signing up for a merchant account. The same advice goes for payment gateways, even though gateway providers are generally much more flexible about contract terms.

Like most gateway providers, PayTrace also offers a customer information database so returning customers don’t have to re-enter their payment method data every time they make a purchase. Unfortunately, it’s only available under the Pro pricing plan. Data portability is supported, although PayTrace notes on its website that “only truncated payment information is available for export from the system.”

PROS:

  • Month-to-month billing with no long-term contracts
  • Integrates with most merchant account providers and shopping carts
  • Supports Level II and Level III credit card data for B2B merchants

CONS:

  • High per-transaction processing charge under Basic pricing plan

To learn more about PayTrace, check out our full review.

Stripe Payments:

Stripe logo

Much like Braintree, Stripe Payments is a tech-focused merchant services provider that specializes in serving the eCommerce community. Those services are tightly integrated into their payments system, so the company doesn’t offer a discrete Stripe-branded payment gateway. Instead, it’s built into their overall payments platform and comes with every Stripe account. For small businesses, this is a very affordable approach, as there’s no separate account setup fee, no monthly gateway fees, and no additional per-transaction processing fee. You also don’t have to worry about trying to integrate two or more third-party services into your website. Another advantage is that Stripe includes several additional features for free that most gateway providers charge extra for, including eCheck (ACH) processing and recurring billing.

Stripe’s pay-as-you-go pricing couldn’t be simpler. Credit card transactions are processed at a single flat rate of 2.9% + $0.30 per transaction. eChecks are 0.8%, up to a maximum of $5.00. Stripe also supports digital payment methods such as Bitcoin and Apple Pay. Qualified nonprofit corporations get a discount on these rates, and enterprise users (i.e., those processing over $80,000 per month) can also negotiate volume discounts on their processing rates. Like most of its direct competitors, Stripe bills month-to-month only and doesn’t impose long-term contracts or early termination fees.

Sounds great, doesn’t it? If you think that there must be a catch – of course there is. Stripe is a payment service provider (PSP), and so they don’t provide true full-service merchant accounts. Like other PSPs (i.e., Square or PayPal), funding holds and account freezes or terminations are distressingly common. Customer service is another weak point, with almost all communications between Stripe and its merchants being conducted via email.

The best thing about Stripe is that it’s designed specifically for eCommerce merchants. Most providers are more focused on the retail sector, and their support for eCommerce always comes at a higher cost in the form of gateway fees and additional per-transaction charges. With Stripe, new eCommerce merchants get everything they need to start accepting payments as soon as their account is approved. While a Stripe account covers all the basics, you can also add or customize features through their huge API library or supported third-party integrations. Stripe also supports data portability, so you can easily take your customer information with you if you decide to change providers later.

PROS:

  • Pay-as-you-go pricing with no setup or monthly fees
  • Simple, transparent flat-rate pricing structure
  • No long-term contracts or early termination fees
  • Huge API library for developers

CONS:

  • Flat-rate pricing is more expensive than interchange-plus for high-volume merchants
  • Frequent account holds and terminations
  • No telephone customer support

For more information, see our complete review of Stripe Payments here.

Final Thoughts:

If you’ve been reading this far, you’ve probably concluded that selecting a payment gateway provider can be a very complicated decision. While that’s sometimes true, it doesn’t have to be all that difficult. Gateway providers offer a dizzying array of options, customizations, and add-ons, but in most cases, you won’t need all of them. Take a close look at what your business needs are today, and consider how those needs might expand over time as your business grows. For example, if you don’t need recurring billing, there’s no reason to pay extra for it. If your needs change later, you can always add it to your service. Level II and III credit card data processing is another feature that a sales agent might try to upsell you on. Yes, the rates are lower, but you still pay extra to access them, and if you don’t take many B2B transactions, you’ll wind up paying extra for something you don’t use.

You’ll also want to put some thought into whether the integrated or non-integrated approach will work best for you. Payment service providers (PSPs) like PayPal or Stripe are an excellent way to add credit card processing to your business without spending any money up front. However, once your business grows large enough, the high flat-rate pricing will end up costing you more money than you’d pay with a traditional merchant account offering interchange-plus pricing. Since there’s no long-term contract to worry about, it’s relatively easy to make the switch once this happens. However, you’ll probably have to find a merchant account provider and a new gateway.

Although there are no hard and fast rules, we recommend providers such as PayPal or Stripe for new, low-volume eCommerce businesses. Braintree is also a good option, especially if you’d like to get all your merchant services from the same company. When you’re ready to step up to a full-service merchant account, Authorize.Net is a good option. However, we recommend getting their gateway through a third-party provider rather than the company itself due to the generally lower costs. PayTrace is also an excellent choice if you already have a merchant account, especially if you run a lot of B2B transactions.

Much like merchant account providers, there is no single “best” gateway provider. Even the companies we’ve profiled here have their shortcomings. Every business has different needs, and it’s up to you to decide what features your business needs the most. Fortunately, most payment gateway providers offer a similar set of standard features that cover the most common requirements of a majority of businesses. They also provide a very high degree of customization to make their service work with your business, although in many cases you’ll have to have developer skills (or hire one) to implement them. If you’ve had any experience with the providers profiled in this article or you want to highlight a gateway provider we haven’t mentioned, please feel free to tell us about it in the Comments section below.

The post The Top 5 Payment Gateways for Online Credit Card Processing appeared first on Merchant Maverick.

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