How to Choose the Right Merchant Account Provider for Your Business

Five Simple Rules for Picking a Credit Card Processor

The merchant services industry is notorious for hidden fees, unethical agents, and expensive contracts. As a result, finding a quality provider can take hours of research. With so many other things on your plate, you might be tempted to simply go with the company that quotes the lowest rates.

Don't make this mistake.

Rates matter, of course, but choosing a merchant account provider based on rate quotes alone can be a costly error for your business. In fact, rate quotes can be one of of the most deceptive aspects of the merchant services industry. Even if you can see through the “teaser” rates and deceptive marketing gimmicks, you still won't be able to make an apples-to-apples comparison between most providers. This is because many providers bury their markups in confusing pricing structures instead of clearly disclosing their built-in margins on each transaction.

But if you can't trust the rates you've been quoted, then how are you supposed to make a selection? We've got you covered. Below are the five most important points to consider when selecting your merchant account provider:

1. Look for a provider that serves your business's specific needs.

You should start by asking yourself what you want out of your payment processor. Do you require mobile processing? Online payments? Do you run a large retail location, or are you a one-person operation? How often do you need to accept credit cards? Is your business only open for a few months out of the year? Questions like these can help you narrow your search from the outset.

Many merchants simply find the lowest price and work backward from there, but this method can force them to fit a square peg into a round hole. The better option is to first compile a list of providers who specialize in your business needs before you turn your attention to contractual considerations. If you sign an agreement under the expectation that a provider will operate outside of its comfort zone, then it's only a matter of time before that provider lets you down.

2. Request a month-to-month contract with no early termination fees.

Let's say you sign up for a merchant account through a company that seems promising, but you realize after a few months that it's not the right service for you. That's okay. You'll just call the provider up and request cancellation, right?

Sadly, it's rarely that easy. Most credit card processing contracts last for years and can include harsh fees for merchants who cancel the service early. In addition, these agreements often have complicated cancellation procedures that must be correctly followed in order to prevent the contract from renewing for additional terms. You might realize within weeks that you've made a bad choice, but you'll have to live with it for years.

Luckily, some providers are starting to listen to merchant frustration on this issue. Month-to-month contracts are increasingly common, and it's getting harder for processors to conceal expensive penalties in their terms and conditions. You should make it clear from the start that you expect a month-to-month agreement with no termination fees, and then you should double-check the actual language of your contract to ensure that you will be able to cancel without consequences if you are unhappy with the service. This is the easiest way to protect yourself from a bad merchant account contract.

3. Look for a provider with excellent customer support.

Customer service is changing at a rapid pace. Traditional call centers and personal service reps are being replaced by options like FAQ sections, user forums, live chat, email tickets, and social media channels. Before you sign up with a provider, you should ask yourself what kinds of customer service are most important to you and what kind of availability you expect from your payment processor.

At a minimum, it's best to find companies with phone support during business hours. You never know what emergencies might arise during the business day, and it can be a major frustration to lose sales because you can't contact a real human being. Beyond basic phone support, you'll have to determine which methods you find most effective. Do you like to be able to chart a ticket's progress through a backend support system? Do you prefer to ask other customers how they were able to solve their issues? Will your employees need 24/7 phone support?

Once you've found a company that offers the support you require, you should also be sure to search for user reviews of that company. Are other merchants satisfied with the service they receive? How does the company respond to public complaints? Are there positive testimonials of the company available in public forums? If you can find a provider that is available when you need it, that takes its reputation seriously, and that will work to retain your business, then you're well on your way to securing peace of mind as a merchant.

4. Avoid processors who push long-term equipment leases.

Consumer electronics like iPads and iPhones are becoming increasingly viable options for payment processing, but most merchants still require traditional hardware like credit card terminals, PIN pads, printers, or check readers to accept digital payments. If you find yourself in the market for specialized credit card processing hardware, be sure to watch out for a very common scam within the merchant services industry: predatory equipment leases.

The rule of thumb in this case is simple: in the vast majority of cases, it is cheaper to buy your credit card processing equipment than it is to lease it. Processors like to throw all kinds of offers at you to convince you that an equipment lease will save you money, but these offers usually require a lot of creative math and more than a little misinformation. Most credit card terminals can be purchased for $200-$300 (at the very most) on eBay or Amazon, while most equipment leases average $40-$50 per month. It doesn't take too much calculation to determine that you will dramatically overpay for that equipment over the life of a 48-month lease.

Long-term equipment leases are a major cash cow for sales agents, so they're often included as part of your merchant account paperwork in the hope that you won't realize what you're committing to. They're also airtight, legally binding contracts, so they could leave you on the hook for the full repayment term regardless of when you decide to cancel. To avoid this, you should be sure to select a provider that does not advertise long-term equipment leases, and you should double-check all documentation during the application process to ensure that you aren't being duped into a lease you don't wish to sign.

5. Ask for interchange-plus pricing instead of tiered pricing.

While rates and fees aren't everything, they are certainly important. The problem, though, is that it's nearly impossible to compare merchant account rates across providers. This is because of a common pricing tactic called tiered pricing.

Let's say that one merchant account provider advertises “rates as low as 1.15%” while another offers “rates starting at 1.25%.” Which is the cheaper option? Well, the answer is that you simply can't know. For one thing, these rates only apply to a certain class, or “tier,” of credit cards, known as the “qualified” tier. Certain card types like signature debit and non-rewards credit cards will swipe at this rate, but most other cards will process at higher rates known as “mid-qualified” and “non-qualified” rates. You rarely see providers quoting these other rate tiers because they are much higher than the qualified rates, with many “non-qualified” rates exceeding 3% per transaction.

As if this isn't confusing enough, most providers won't tell you which card types fall under which tiers. Processors are free to move card types between tiers as they see fit, and they are under no legal obligation to tell you exactly how they've structured their tiers. This leaves you in the dark as to how much the processors are marking up each transaction and makes it impossible for you to compare your current provider's rates to those offered by a competitor.

Luckily, there's a solution to this problem that is available to all merchants: interchange-plus pricing. Interchange-plus pricing is a different kind of rate structure that removes the confusion surrounding tiers. Under an interchange-plus pricing model, providers pass along card costs at predetermined “interchange” rates (a non-negotiable per-transaction rate set by Visa/MasterCard) and then add their own per-transaction markup. For instance, you might see one provider quote you a rate of “Interchange plus 0.18% per transaction” while another provider quotes you a rate of “Interchange plus 0.20% per transaction.” In this case, it's easy to tell which processor offers cheaper rates, since the processor's markup is clearly listed as the “plus” portion of the quote. For a more in-depth breakdown of credit card processing rates, including advice on how to spot hidden fees and negotiate lower overall costs, be sure to read “Fee Sweep.”

Remember: the best overall fit will depend on a combination of factors.

You may not find a provider for your business type that meets all of these criteria—at least not at first. Some providers might offer excellent customer service but try to pressure you into equipment leases. Others might offer month-to-month agreements but charge higher-than-expected rates. The key is to stick to your priorities and avoid common hazards like misleading rate quotes or multiyear contracts. If you can find a handful of businesses that meet your specific needs and narrow your list down to two or three providers based on the points above, then you can negotiate with each remaining provider to secure the best rates and eliminate fees. With some patience and a little bit of research, you should be able to land yourself an excellent deal.

Check out our list of best processors by business type.