Types of Payment Processors
When shopping for a payment processor, there are several different types of processors that you can choose to sign up with.
Although they are all offering payment processing, there are pros and cons that we will highlight in the section below. Different processors will be better suited for some industries and businesses over others, so it’s worth doing your research to see which provider is best for your business. Ultimately, all providers will let you accept credit cards, but understanding how they’re structured and who they might be partnering with to deliver their services can help you make an informed decision.
The Bank Processors
The large, bank-owned processors in the United States are First Data (now Fiserv), Chase Paymentech, Elavon, Global Payments, Vantiv, and Wells Fargo. In Canada, they are TD Merchant Services, Moneris, Desjardin, and People’s Trust.
The way you feel about a bank processor will most likely be like how you feel about your bank as a day to day consumer. Do you feel like your bank provides you with the lowest rates, the best customer service, and the most cutting-edge software and services in the industry? Probably not, though you can likely count on them for securely storing your money and treating you with respect.
With the bank processors, status-quo is the name of the game. They have millions of merchant locations and decades of established business history, so these providers rarely need to innovate their services or payment tools. Instead, they focus on maintaining their margins and market share through their well-established distribution channels. Bank processors may be slower to add new technology to their offerings, which may be limiting for some businesses who are looking for new integration options or who are looking to keep up with the evolving demands of their customers.
It’s important to note that these providers are also the backend partner for nearly all the processors listed below, even the new wave of Silicon Valley payment providers, and for Helcim as well. If you read the fine print in any merchant account agreement, one of the bank processors will be listed as the backend acquirer. In a way, this means that they are unavoidable as they hold the keys to accessing the Visa and Mastercard networks. However, adding the right (or wrong) partner in between your business and the bank processor can make a world of difference.
A Quick Note on Review Websites - Many merchants try to learn about their payment processor alternatives through review websites, however, not all review websites are created equally. Most review websites (especially in the financial services spaces) are operated by for-profit companies, who may be incentivized to promote service providers with high-reward affiliate and referral programs, over those with the best rates or service. Unfortunately, this can create a conflict of interest with unsuspecting merchants, who think they are reading unbiased reviews online.
MSPs and ISOs (Resellers)
Merchant Service Providers (MSPs) and Independent Sales Organizations (ISOs) essentially resell a payment processor’s product and use them for transaction processing. They are commonly referred to as resellers, and the pricing and service you might receive from them can vary from being fair to downright dishonest.
While resellers might be willing to offer you lower processing fees than you would be able to get by signing up with a processor directly, they are just as likely to charge higher rates, include extra or hidden fees, or have long-term contracts that are difficult to cancel in order to make up their own margins. As with any other payment processor that you might be considering, it’s important to carefully review the processing fees, contract terms, and any applicable charges that might be applied to your account. While some resellers may offer better customer service because they are a smaller company with fewer merchants, others may offer poorer customer service and simply blame the processor for issues you encounter without providing a solution.
If you’re considering signing up with an MSP or an ISO, then it’s important to do your research into the specific company you’re considering. Reference a variety of online reviews on different websites, check for reviews on Google, Facebook or other similar sites, and check the Better Business Bureau to get a sense of what experiences other merchants have had with them.
High-Risk Payment Processors
Sometimes a business might be deemed high-risk if they operate in one of several flagged industries or if there are concerns about financial stability about either the business or the business owners. Generally, any business involved in selling weapons, adult materials, drugs or drug paraphernalia, or other higher-risk products can expect to be met with added scrutiny and may not be approved by some processors.
There are, however, certain high-risk processors that specialize in approving and providing payment services to high risk businesses, usually at the cost of significantly higher processing fees, increased document submission requirements, and lengthy fund holds called reserves.
Retailers Selling Merchant Services
It can seem strange that you can sign up for a merchant account while also stocking up on a family sized bag of snacks and a massive pack of your favorite soft drink, but if you’ve browsed through your local retail warehouse club, you might have noticed that they may also offer merchants services. The retail warehouses are essentially resellers offering merchant services on behalf of their backend processor. While they might offer great discounts on snacks and drinks, the lower pricing may not extend to their merchant accounts. In addition to their processing fees, you likely need to maintain a membership with the retail warehouse club to sign up for their merchant services.
A Quick Note on Associations, Chambers and Lobby Groups - If you’re a member of a local Chamber of Commerce, professional association, or business lobbying group, then you might have noticed that they have a recommended processor under the “Membership Benefits” section of their website. Members may assume that this processor was carefully chosen as the most affordable and best-fitted choice for its members and that their association would not be profiting from their choice. Unfortunately, this assumption isn’t always necessarily correct as there is often an arrangement in place that directly benefits the chamber or association, and it’s still a good idea to do your own research.
The Payment Facilitators
Payment Facilitators, or PayFacs for short, are a relatively new type of payment provider, but they’ve had a significant impact on the industry in recent years. Helcim is a PayFac, along with Square, Stripe, and PayPal who are all household names because they’ve changed the way people think about payments.
These providers are issued one master Merchant ID, or MID. It is under this single master MID that they are essentially able to aggregate all their merchants as sub-merchants (the old terminology for these providers was “aggregators” for this very reason). Since the PayFac itself takes on the risk of underwriting all their merchants, they are able to offer their merchant services in a very streamlined manner, while often expediting their onboarding process. Some PayFacs may opt to offer flat-rate pricing, which can cost more, to compensate for the risk they are taking on by not requiring as much application information from the merchant.
The Software Platform
There are now more software companies who also offer integrated payments than ever before because of the influx of payment providers coming out of Silicon Valley. Generally, the primary focus for software platforms is online transactions, which is something to keep in mind, especially if your business needs card-present solutions. Some of the most well-known examples of software platforms that offer payments as part of their service are FreshBooks, Salesforce and Shopify.
One thing to note is that software platforms offering integrated payment solutions are essentially just resellers of their partner processor, and for this reason, they usually cannot offer the lowest rates. This is because in order for them to benefit from the processing, they need to add an additional margin on top of their existing partner processor’s margin. So, while you may have the added functionality of the software, many merchants soon realize that the cost of their processing can quickly eclipse the cost of the software’s monthly fee.