How to Choose a Merchant Services Provider: Step-by-Step Guide
To choose the right merchant services provider, evaluate pricing transparency, contract terms, integration capabilities, and customer support quality. The best provider for your business depends on your transaction volume, average ticket size, industry type, and whether you need in-person, online, or omnichannel payment acceptance. Taking time to compare options can save thousands in annual processing costs.
Step 1: Assess Your Business Needs
Before comparing providers, understand your specific requirements:
Transaction Volume: How many transactions do you process monthly? High-volume businesses qualify for better rates and should prioritize interchange-plus pricing.
Average Ticket Size: Businesses with low average tickets (under $15) should look for providers with low per-transaction fees. High-ticket businesses should focus on percentage rates.
Sales Channels: Determine if you need:
- In-person POS terminals
- Online payment gateway
- Mobile payment solutions
- Phone/mail order processing
Industry Requirements: Some industries (restaurants, healthcare, e-commerce) have specific needs like tip adjustment, HIPAA compliance, or recurring billing.
Step 2: Understand Pricing Models
Payment processors use different pricing structures. Understanding these helps you compare true costs:
Interchange-Plus Pricing
The processor charges interchange (set by card networks) plus a fixed markup. Example: Interchange + 0.25% + $0.10 per transaction.
Best for: High-volume businesses, those wanting transparency
Flat-Rate Pricing
A single percentage for all transactions. Example: 2.9% + $0.30 per transaction.
Best for: Low-volume businesses, those wanting simplicity
Tiered Pricing
Transactions are sorted into qualified, mid-qualified, and non-qualified tiers with different rates.
Best for: Rarely beneficial; often the least transparent model
| Pricing Model | Transparency | Best For |
|---|---|---|
| Interchange-Plus | High | High-volume businesses |
| Flat-Rate | Medium | Low-volume, simple needs |
| Tiered | Low | Avoid if possible |
Step 3: Evaluate Contract Terms
Read the fine print before signing:
- Contract Length: Month-to-month is ideal. Avoid 3-year contracts with auto-renewal clauses
- Early Termination Fees: Can range from $0 to $500+. Negotiate these out if possible
- Rate Guarantees: Ensure quoted rates are locked in, not introductory offers
- PCI Compliance Fees: Should be reasonable ($50-$100/year) or waived
- Equipment Leases: Avoid long-term equipment leases; purchasing is usually more cost-effective
Step 4: Check Integration Capabilities
Your payment processor should work seamlessly with your existing systems:
- POS Software: Verify compatibility with your current or planned POS system
- Accounting Software: Look for integrations with QuickBooks, Xero, or your accounting platform
- E-commerce Platforms: Ensure compatibility with Shopify, WooCommerce, BigCommerce, etc.
- Business Tools: CRM, inventory management, and reporting integrations add value
Step 5: Assess Security and Compliance
Non-negotiable security requirements include:
- PCI DSS Compliance: The processor must be PCI compliant and help you maintain compliance
- EMV Support: Chip card acceptance is standard and reduces fraud liability
- Encryption: End-to-end encryption protects data in transit
- Tokenization: Replaces card numbers with tokens for secure storage
- Fraud Prevention: Look for AVS, CVV verification, and advanced fraud detection tools
Step 6: Evaluate Customer Support
Support quality matters when issues arise:
- Availability: 24/7 support is important for businesses with extended hours
- Channels: Phone, email, and chat options provide flexibility
- Response Time: Ask about average response and resolution times
- Dedicated Support: Some providers offer dedicated account managers for larger merchants
Test support before signing: Call their support line and note wait times and helpfulness.
Step 7: Request and Compare Quotes
Get detailed quotes from at least three providers:
- Provide accurate transaction data (volume, average ticket, card mix)
- Request a full fee schedule, not just headline rates
- Ask for a cost comparison based on your actual transaction history
- Clarify all monthly, annual, and incidental fees
Red Flags to Avoid
Watch for these warning signs when evaluating providers:
- Pressure tactics: Legitimate providers don't require same-day decisions
- Vague pricing: If they won't provide a clear fee schedule, walk away
- Long-term equipment leases: Often cost 3-5x the equipment value
- Too-good-to-be-true rates: Hidden fees often make up the difference
- Poor online reviews: Check BBB, Google, and industry review sites
Frequently Asked Questions
How long does it take to switch payment processors?
Most merchants can switch within 1-2 weeks. The process includes application approval, equipment setup or reprogramming, and testing. Plan the switch during a slower business period.
Will switching processors cause downtime?
With proper planning, no. Run both systems in parallel during transition, and schedule the final switch during off-hours. A good processor will coordinate the transition to minimize disruption.
What questions should I ask a potential processor?
Ask about: total monthly cost based on your volume, contract length and termination fees, funding time, PCI compliance support, and what happens if rates increase.
Should I use my bank for payment processing?
Banks often resell third-party processing services at a markup. Compare your bank's offer against specialized processors. Loyalty to your bank may cost you more in processing fees.
What's a good processing rate?
For most businesses, effective rates between 2.0% and 2.75% are reasonable. Rates below 2% are excellent, while rates above 3% may indicate room for negotiation or a need to switch providers.
Key Takeaways
- Assess your transaction volume, average ticket size, and sales channels before comparing providers
- Interchange-plus pricing offers the best transparency for high-volume businesses
- Avoid long-term contracts and equipment leases that lock you in
- Verify PCI compliance, EMV support, and integration with your existing business systems
- Get quotes from at least three providers and compare total costs, not just headline rates
Red Rock Payments offers transparent pricing, month-to-month agreements, and dedicated support for growing businesses. Request a free cost analysis to see how much you could save.
