Choosing a Payment Processor
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Choosing the right payment processor is one of the most important decisions for your business. It affects your fees, your cash flow, and how much work you have to do when things go wrong.
If you're launching a new business and want to start accepting payments today, sign up for Stripe or Square. Both are free to set up, charge around 2.6-2.9% + $0.05-$0.30 per transaction (lower for in-person, higher for online), and you can be live in under an hour. Read the rest of this page when you're ready to optimize.
Which Setup Is Right for You?
Use this flowchart to find your starting point:
Bottom line: If you're unsure, start with an all-in-one provider. You can always switch or add processors later as your needs become clearer.
All-in-One vs. Gateway + Merchant Account
You have two main options for setting up your payment processing:
| Setup | Pros | Cons | Best For |
|---|---|---|---|
| All-in-One (Stripe, Square, Braintree) | Fast setup, single contract, great developer tools | Less fee negotiation power | Most businesses under $1M/year |
| Gateway + Merchant Account (Authorize.net + bank) | Lower fees at scale, more control | Complex setup, multiple contracts | High-volume businesses optimizing costs |
What to Look For
Beyond the basic setup, here's what separates a good processor from a bad one.
Security and PCI Compliance
PCI DSS is a set of security requirements for anyone handling card data. If you get breached and aren't compliant, you're liable for fines and fraud losses.
What to ask:
- "Are you PCI Level 1 certified?" (This is the highest level)
- "Do I need to fill out a Self-Assessment Questionnaire, or does your integration handle that?"
- "What fraud protection is included?" (Look for: 3D Secure, tokenization, fraud scoring)
All-in-one providers handle most PCI compliance for you. If you use their hosted checkout or payment elements, you never touch raw card numbers, which dramatically reduces your compliance burden.
Your integration choice determines your compliance burden:
Payment Methods
Cards aren't enough anymore. Customers expect options.
| Payment Method | Why It Matters |
|---|---|
| Apple Pay / Google Pay | 2x faster checkout, higher mobile conversion |
| PayPal | Trust signal for new customers who don't know you |
| Buy Now Pay Later (Klarna, Affirm, Afterpay) | Increases average order value 20-30% |
| ACH / Bank Transfer | Lower fees for high-ticket items |
| Local methods (iDEAL, Bancontact, PIX) | Essential if selling internationally |
What to ask:
- "Which wallets and BNPL providers are included vs. extra cost?"
- "Can I add new payment methods later without re-integrating?"
Settlement Speed
Cash flow matters. The gap between when you make a sale and when money hits your bank account can make or break a small business.
| Provider Type | Settlement Speed |
|---|---|
| PayPal, Square | Next business day (sometimes instant for a fee) |
| Stripe | 2 business days standard, next-day available |
| Traditional merchant account | 2-3 business days |
| High-risk processors | 7+ days, often with rolling reserves |
How money moves from customer to your bank:
What to ask:
- "What's the standard settlement time?"
- "Is next-day or instant payout available? What does it cost?"
- "Will you hold a reserve? For how long?" (See holds and reserves)
Uptime and Reliability
If your processor goes down, you can't accept payments. Every minute of downtime is lost revenue.
What to ask:
- "What's your uptime SLA?" (Look for 99.9%+)
- "Do you publish real-time status?" (Good sign: a public status page)
99.9% uptime = ~8.7 hours of downtime per year 99.99% uptime = ~52 minutes of downtime per year 99.999% uptime = ~5 minutes of downtime per year
Contract Terms
Some processors lock you into multi-year contracts with expensive exit fees. Others are month-to-month.
What to ask:
- "Is this month-to-month or a fixed term?"
- "What's the early termination fee?" (Can be $300-500+)
- "Can I take my stored payment tokens if I leave?" (Important for subscriptions)
- Contracts longer than 1 year for a new business
- Early termination fees based on "projected revenue"
- Vague language about "rate adjustments"
- No clear answer on token portability
Chargeback Handling
Every business gets chargebacks eventually. How your processor handles them affects both your costs and your win rate.
What to ask:
- "What's the chargeback fee?" (Typically $15-25, but can be higher)
- "Do you provide tools to help me fight disputes?"
- "What happens if my chargeback rate gets too high?" (See network monitoring programs)
Quick Comparison: Popular Providers
Here's how the major all-in-one providers compare on key factors:
| Stripe | Square | PayPal | |
|---|---|---|---|
| In-Person (CP) | 2.7% + $0.05 | 2.6% + $0.10 | 2.29% + $0.09 |
| Online (CNP) | 2.9% + $0.30 | 2.9% + $0.30 | 3.49% + $0.49 |
| Settlement | 2 days | Next day | Instant to PayPal, 1-3 days to bank |
| Contract | Month-to-month | Month-to-month | Month-to-month |
| Apple/Google Pay | Included | Included | Included |
| BNPL | Klarna, Affirm, Afterpay | Afterpay | Pay Later |
| Best For | Online/tech-savvy | Retail + online | Customer trust |
Rates as of 2024. All three are PCI Level 1 certified with hosted checkout options. See Processor Comparison for 50+ processors.
Blank Checklist
Use this when comparing other processors:
| Question | Processor A | Processor B |
|---|---|---|
| PCI Level 1 certified? | ||
| Hosted checkout available? | ||
| Apple Pay / Google Pay? | ||
| BNPL available? | ||
| Settlement time | ||
| Contract length | ||
| Early termination fee | ||
| Chargeback fee |
Test to Run
Before you commit to a processor, run a small test:
- Sign up for a free account with your top 2 choices (most are free to create)
- Process a real $1 transaction on each using your own card
- Check your dashboard: Can you find the transaction? See the fee breakdown? Export data?
- Submit a support ticket: How fast do they respond? Is it helpful?
This takes 30 minutes and tells you more than any sales call.
Where This Breaks
This guide assumes you're running a standard retail or e-commerce business. It doesn't fully apply if:
- You're high-risk (CBD, adult, gambling, firearms): Most all-in-one providers will reject you. You need a specialized high-risk processor.
- You're a marketplace: Splitting payments between sellers requires specific features (Stripe Connect, PayPal for Marketplaces).
- You process over $1M/month: The economics change. Get a payments consultant to negotiate custom rates.
- You're heavily international: Local acquiring in each country often beats cross-border processing.