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Businesses need a way to securely process their customers' transactions for their goods and services, whether online or in person. Making sure your payments are taken quickly and securely is extremely important, not only for your business but for your customers as well. If you accept credit cards, you'll need to choose a third-party payment processor to process those transactions and ensure the safe transfer of funds.

In this article, we'll examine some of the top payment processors available on the market and their fees so you can choose the best one for your business.

What is a payment processor?

A payment processor is a facilitator of monetary transactions. They work to ensure that funds from the customer get securely processed and transferred to the merchant’s bank account. These companies' services entail acting as the middleman between the banks of two parties.

Your customers may make a purchase either online or in person at a physical point-of-sale location. This payment then needs to be processed to get from the customer's bank to your bank. Payment processors take credit card information provided by customers when they purchase something and use that information to verify adequate funds or credit, authorize the transaction, and finalize it. The money transfer is completed while safeguarding the customer's financial information and ensuring the safe transfer of funds.

When you have a reliant payment processor, clients can pay for goods or services quickly and easily. You can monitor a payment's progress and get notified instantly that the payment went through. Otherwise, you would be waiting days or even weeks for checks to go through the mail and clear into the merchant's bank account. Payment processors make payments convenient for both businesses and their customers.

Payment processor examples

There are several popular payment processors for you to choose from. Below are just a few of the most popular payment processors and some of their fees for you to compare. Each transaction will incur a cost to process the payment and is an essential factor to consider since it could affect the pricing of your goods and services and how much profit you gain from each sale.

Examples of payment processors, along with their respective fees, include:

  • PayPal: 2.9% plus $0.30 per online transaction in the US and 4.4% plus $0.30 for international transactions; in-store transactions are 2.7% plus $0.30 in the US and 4.2% plus $0.30 for transactions in international locations
  • Square: 2.6% plus $0.10 for in-person transactions and 2.6% plus $0.30 for online transactions
  • Payline Data: Interchange plus 0.2% + $0.10 per card swipe and 0.3% and $0.20 for keyed-in transactions
  • Stripe: 2.9% plus $0.30 per transaction
  • Payment Depot: $0.07 to $0.15 per transaction flat fee depending on the plan, plus monthly membership fees starting at $79

How do payment processors work?

The process of facilitating customer payments and sending the funds to the merchant's account is relatively simple. For a payment to be made successfully, several steps take place:

  1. The customer and merchant need to set up accounts with the payment processor, ensuring that all information and details are accurate. This can vary from processor to processor, so check the details as you get started.
  2. The payment process starts when a customer makes a purchase or payment using a credit card, debit card, or other electronic payment methods. If the client pays by credit card, the client is charged for the payment and the payment amount is subsequently added to their credit card balance. If the client pays with a debit card, the funds are transferred instantaneously to the merchant's account from the client’s bank account.
  3. If a client has their banking information saved with the payment processor, they can choose to use an EFT instead of a credit or debit card. Electronic funds transfers, or EFT, are funds transferred electronically through the Automatic Clearing House (ACH). EFT payments are made using bank account information such as account numbers and bank routing numbers instead of credit card numbers.
  4. When the customer provides payment information, the merchant transmits the data securely to the payment processor for the sale to be processed. Note that the payment processor uses encryption and tokenization to protect the information being shared.
  5. The payment processor forwards the payment details to the issuing bank or card network to verify the transaction. The bank/network will ensure that the customer has sufficient funds to cover the purchase if it's on a debit card. If the purchase was on a credit card, the verification will be to ensure they haven't exceeded the card limit.
  6. The bank or network will respond with either an approval or a denial. If the payment is authorized, the funds are transferred electronically. If the payment is denied due to a lack of funds or available credit, the client will be notified that the payment has not gone through and is canceled. If this happens, the customer can try another payment method.
  7. Once authorized, the merchant will receive the funds from the customer - the payment processor is responsible for transferring the customer’s funds to the merchant’s account.
  8. The client will receive a notification that their payment has gone through, and they get a transaction receipt.

Thanks to the power of software and fast computers, the payment processing system works quickly and efficiently. Depending on the payment processor, payments can go through immediately or take a few business days.

The security of the transfer of funds for online payments is possible using Secure Sockets Layer (SSL) encryption. Payment processors must also follow standards, such as the Payment Card Industry Data Security Standard compliance. This security is essential as it safeguards your customers' financial information and helps prevent fraud, theft, and hacking.

What are the best merchant processing services?

Businesses need to make sure their payment processor does what it's supposed to do, which is to process payments quickly, accurately, and securely. If the processor fails, your business could suffer consequences such as customers losing faith that your business will keep their private information secure and payments for your goods or services won't go through properly.

Business owners have several options when it comes to payment processors. When choosing which payment processor is best for your business, consider the features of each processor and other factors unique to your business.

For example, rates for merchants range from 1.4% and 3.5%. There may be initiation, termination, annual, or gateway fees. Compare payment processors for these fees to lower your costs, and choose a more affordable processor for your business.

When comparing the merchant payment processors available on the market, consider the following questions:

  • Is there a fee to open an account?
  • What are the annual or monthly fees?
  • What are the transaction fees?
  • Are there any other kinds of fees, such as gateway fees?
  • Will my business have to pay anything when a chargeback occurs?
  • Are there termination fees to cancel the account?

Research these questions and contact the payment processor if you have any other concerns. Compare the various options available to you and pick the payment processor that's right for your business.

In addition to the right payment processor, it’s critical to have access to business capital. Ramp offers a secured business charge card with competitive rates and numerous rewards, like 1.5% cash back. When you take advantage of Ramp’s business corporate cards, you get access to top-of-the-line software for your expenses, payments, and accounting so you can monitor and track spending and payments as they happen. 

Contact us today to get started.

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Finance Writer, Ramp
Richard Moy has written extensively about procurement and vendor management topics for companies like BetterCloud, Stack Overflow, and Ramp. His writing has also appeared in The Muse, Business Insider, Fast Company, Mashable, Lifehacker, and more.
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