How to Choose a Merchant Service Provider

A very common approach for merchants new to the industry is to choose a provider solely based upon price. I am not suggesting that getting competitive rates is not important. I am suggesting that price is one of many factors that should be considered. However, since other salient variables are unknown at the time, price usually ends up being the primary driver which can lead to some larger and more costly challenges. Even those that have years of experience with credit card processing fees struggle to truly understand enough to successfuly negotiate good pricing.

More experienced merchants better understand technical capabilities, security and compliance implications, underwriting and risk management, products and solutions, customer support, and rate disclosure practices. (I thought this was funny and noteworthy. In the middle of writing this post I got a call from a large merchant that was looking for a different provider. He recounted his very unpleasant first, second, and third experience choosing a provider and then walked me though what he was looking for in a company - noting many of the items above). Before I make some suggestions about what you may want to consider when choosing a provider, let me quickly provide some context about the different types of providers.

There are two types of providers: processors and ISO's

In Merchant Account Basics I outlined that there are basically two types of providers, processors and ISO's (resellers for processors). One of the takeaways of that post was that ISO's can be just as good if not better than processors in providing high value processing solutions. I mention this because this is counter intuitive to some who run with 'cut out the middleman' thought process. I of course fully disclose my personal bias in the matter but will also call out that I worked for a large processor for several years prior to starting my own ISO.

First, don't let price be your primary decision making factor

It's understandable that watching your costs is one of the most important parts of your business, but don't let it be the primary driver when choosing a merchant service provider. Providers know this and so to appeal to your needs they advertise rates and fees that are not all inclusive. This industry is so competitive and the margins that merchant processors make are so small, get a competitive rate, but focus your energy on larger and more important issues.  If you're not convinced and still want to pursue price as your sole decision making factor, just know that the 'creative' selling strategies being used by some are really just part of a larger, and accepted culture in the industry. Here is an example.

Not all providers are made equal

Not all merchant service providers are made equal. Some only focus on specific business types while others are generalists. Some are upfront and straightforward while others are not. Some have best in class solutions while others have standard services. It will be helpful to ask the sales person you're dealing with about their current customer portfolio to get an idea of the types of specializations they've developed.

Try not to piecemeal solutions together - find one provider that can meet all your needs

For example, if your business is selling goods and services online you may need credit card storage, a payment gateway, virtual terminal, and risk and fraud management. What services you need depend on your acceptance channels such as website, phone, fax, mail and instore.  Make sure your provider can not only do all of those things - but do them well. Ask to look at their solutions before committing.

Do enough research about prospective providers to gain a level of trust

This industry is fundamentally very complex. As a business owner, you won't have time to learn or keep up to date on everything going on in the payment processing industry. You will need to work with a company that won't take advantage of your limited understanding. One of the best indicators is to evaluate whether or not they are upfront with their prices and capabilities. For example, if they list their fees on their website, do they disclose all fees or is it bait and switch. You can also read Some advice to help you avoid common mistakes

Other Suggestions

Ask good and thorough questions in the beginning of a relationship to find out what your provider's capabilities are. Ask them to thoroughly explain all fees, rates, and conditions. Ask them if they have experience with different products and services and then ask for examples of when and where they previously implemented it. Try to avoid getting into a relationship where your vendor runs out of steam right after the most basic service is in place. Also remember that the things I generally discuss in these blog posts are just the most basic topics in merchant processing. There is a whole additional layer of value added services that your business can benefit from in partnering with a more sophisticated provider.

Braintree We enable beautiful commerce experiences so that people and ideas can flourish. More posts by this author

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