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Buying Payments

Prerequisites

Before selecting a processor, understand:

Most SMBs overpay for payments because they don't know what questions to ask. The difference between a good processor deal and a bad one is 30-50 basis points. On $500k/year, that's $1,500-$2,500 walking out the door.

What Matters​

  1. All-in cost, not quoted rate. The rate they advertise is not the rate you pay. See reading statements.
  2. Contract terms, not just pricing. Early termination fees, reserves, and auto-renewals hurt more than basis points.
  3. Volume-appropriate stack. What works at $20k/mo is wrong at $200k/mo.
  4. Exit strategy. Can you leave with your tokens? If not, you're locked in.
  5. Support quality. When money stops moving, response time matters. See processor management.

The 3-Bid Method​

Get three bids. Not one. Not two. Three.

Why this works:

  • Processors assume you're not shopping
  • Rates are negotiable (especially above $50k/mo)
  • You learn what's standard vs. what's padding

How to run it:

  1. Request pricing from your top 3 candidates
  2. Get everything in writing. Verbal quotes mean nothing.
  3. Compare all-in cost, not just interchange-plus rate
  4. Use the lowest bid to negotiate with your preferred choice

Don't spend more than a week on this. Paralysis costs more than a few basis points.

SMB Stack Recommendations by Volume​

Under $100k/mo​

Use an aggregator. Stripe, Square, PayPal. Don't overthink it.

  • Instant approval, no underwriting friction
  • All-in pricing (2.9% + $0.30 typical)
  • You're paying for simplicity, and that's fine
  • Focus on running your business, not optimizing payments

What to watch:

  • Reserve holds if you're in a risky-looking category
  • Account stability issues at scale (the "PayPal freeze" problem)

$100k-$1M/mo​

Time to shop. You have negotiating power.

  • Interchange-plus pricing starts making sense
  • Dedicated merchant account may beat aggregator pricing
  • Account manager access becomes valuable
  • You can negotiate reserves and terms

What to ask:

  • "What's my all-in effective rate including assessments?"
  • "What triggers a reserve on my account?"
  • "What's the early termination fee?"

Over $1M/mo​

You're enterprise now. Different game.

  • Custom pricing is standard
  • Multiple processor redundancy becomes smart
  • Direct Visa/Mastercard relationships possible for the largest
  • Dedicated support and SLAs

What changes:

  • Processor negotiation and redundancy planning become real
  • Token portability is non-negotiable
  • Consider a payments consultant for contract negotiation

Junk Fees vs. Real Costs​

Every processor has fees. Some are legitimate. Some are padding.

Legitimate Costs​

Fee TypeWhat It IsTypical Range
InterchangeCard network cost, non-negotiable1.5-3.5%
AssessmentsVisa/MC fees, non-negotiable0.13-0.15%
Processor markupTheir profit margin0.1-0.5%

Padding to Negotiate or Avoid​

Fee TypeWhat It IsAction
PCI compliance feeMonthly charge for "compliance help"Often removable if you're compliant
Batch feePer-batch settlement chargeShould be $0 or pennies
Statement feePaper statement chargeRequest electronic, remove fee
Minimum monthly feeCharge if you don't hit volumeNegotiate away if possible
Annual feeYearly account chargeOften removable
Gateway feeSeparate from processor feeAsk if included in rate

Reality check: A processor with a clean 2.5% all-in is often cheaper than one quoting 2.2% plus seven line-item fees.

PayFac vs. Direct Merchant Account​

When Aggregators Work (PayFac Model)​

  • Under $50k/mo volume
  • Simple business model (retail, basic e-commerce)
  • Need to start accepting payments today
  • Low tolerance for paperwork

Examples: Stripe, Square, PayPal for most uses.

Tradeoff: Higher rates, but instant setup and minimal underwriting.

When to Graduate to Direct​

  • Volume above $50k/mo (negotiating power)
  • High-risk MCC (adult, CBD, travel, nutraceuticals)
  • International needs requiring local acquiring
  • Chargeback ratio concerns (aggregators have lower tolerance)
  • You need processor redundancy

Migration friction:

  • Expect 2-4 weeks for underwriting
  • Documentation requirements (bank statements, processing history)
  • Token migration if you have stored cards (see "Golden Handcuffs" below)

Contract Gotchas Beyond Pricing​

The rate is the easy part. The contract language is where you get hurt.

Early Termination Fees​

  • Range: $0 to $500+ or "liquidated damages" (percentage of remaining contract value)
  • Watch for: Multi-year contracts with steep ETFs
  • Ask: "What's the early termination clause, and what triggers it?"

Reserve Release Schedules​

  • What it is: Processor holds a percentage of your volume as protection
  • Typical holds: 5-10% of volume, released 30/60/90 days after transaction
  • Problem: Cash flow crunch if you're growing fast
  • Ask: "Under what conditions do you increase my reserve? What's the release schedule?"

Volume Commitments and Rate Reversion​

  • What it is: "You quoted me 2.2%" becomes 2.9% if you don't hit volume targets
  • Watch for: Minimum monthly volume requirements
  • Ask: "Are rates conditional on volume? What happens if I miss the target?"

Auto-Renewal Traps​

  • What it is: Contract auto-renews for another year unless you cancel 30-90 days before
  • Problem: Miss the window, you're locked in
  • Ask: "What's the notice period for non-renewal? Can we do month-to-month after initial term?"

Liability Language​

  • What it is: Who eats the loss on fraud and chargebacks
  • Watch for: Broad indemnification clauses
  • Ask: "What's my liability cap for fraud losses?"

MCC Implications​

Your Merchant Category Code (MCC) affects more than you think.

What Your MCC Affects​

Impact AreaHow MCC Matters
InterchangeSome MCCs qualify for lower rates (grocery, utilities)
Reserve requirementsHigh-risk MCCs face higher reserves
Processor toleranceSome processors won't touch certain MCCs
Chargeback thresholdsHigh-risk MCCs may have lower tolerance
3DS requirementsSome MCCs require 3DS in certain regions

Common MCC Misclassification Problems​

  • Selling supplements under "general retail": Works until chargebacks spike, then you lose your account
  • SaaS coded as "computer services": May miss out on subscription-friendly interchange
  • Multi-product business with wrong primary MCC: Your main product should drive the code

When to Request MCC Review​

  • You've added product lines that don't fit your current code
  • Your chargeback pattern doesn't match your MCC
  • You're paying higher interchange than similar businesses

Underwriting Expectations​

What processors ask for depends on your risk profile.

Typical Documentation Requirements​

Standard (Low Risk):

  • Business license or registration
  • Owner ID
  • Bank account for deposits
  • Website URL

Elevated Risk:

  • 3-6 months bank statements
  • Processing history from previous processor
  • Beneficial ownership documentation (25%+ owners)
  • Business financials

High Risk:

  • All of the above, plus:
  • Personal financial statements
  • Business plan or model explanation
  • Higher reserves (10-20%+)
  • Ongoing monitoring and document refreshes

What Triggers Manual Review vs. Instant Approval​

Instant approval likely:

  • Common MCC (retail, restaurants, professional services)
  • Low volume ($0-50k/mo)
  • Good personal credit
  • US-based with US bank

Manual review expected:

  • Volume above $100k/mo
  • High-risk MCC
  • International or complex business structure
  • Previous processor termination

The Information Request Loop (Ongoing KYC/KYB)​

Getting approved is step one. Staying approved requires ongoing compliance.

Keep Recent Documents Ready​

  • Last 3 months of bank statements
  • Current beneficial ownership information
  • Updated business license if it's been renewed

Expect Volume-Triggered Reviews​

Processors re-underwrite when you grow. Thresholds vary, but expect attention at:

  • 2-3x your original volume
  • New high-ticket products
  • Sudden volume spikes (Black Friday doesn't count if you warned them)

Avoiding Funds Holds​

Respond to document requests within 24-48 hours. Delays = holds.

If a processor asks for bank statements on Tuesday and you respond Friday, expect your payouts to pause.

What Triggers Re-Underwriting​

  • Business model change (new products, new markets)
  • MCC shift (you started selling something different)
  • Volume spike without warning
  • Chargeback ratio approaching thresholds
  • Ownership changes

Proactive Document Refresh​

If you're high-growth, update your processor quarterly before they ask:

  • "Here's our latest bank statement"
  • "We're adding a new product line, here's the plan"
  • "Volume is up 50%. Here's why."

This builds trust and reduces surprise holds.

Choosing Integration Method​

How you connect to your processor affects PCI scope, conversion, and flexibility.

API vs. Hosted Checkout vs. Plugin​

MethodPCI ScopeControlSpeed to MarketBest For
Hosted checkoutLowestLimitedFastMost SMBs
PluginLowLimitedFastPlatform users (Shopify, WooCommerce)
APIHigherFullSlowCustom flows, omnichannel

You Probably Don't Need an API​

If you're asking "should I use the API?", the answer is probably no.

Use hosted checkout if:

  • You're under $1M/mo
  • Standard checkout flow works for you
  • You don't have dedicated dev resources
  • PCI compliance scares you (it should)

Use API if:

  • You need custom checkout flows
  • You're building omnichannel (online + in-person unified)
  • You're a marketplace or platform
  • You have dev resources to maintain it

Ask Your Dev​

"What's our PCI scope with our current integration? What would change if we switched methods?"

Token Portability: The Golden Handcuffs​

Your exit strategy is part of the purchase decision.

Why This Matters​

If you have stored cards (subscriptions, repeat customers), those cards are tokenized by your processor. If you leave, you need those tokens. If your processor won't export them, your customers have to re-enter cards. That means churn.

Operator Questions to Ask Before Signing​

  1. "If I leave, do you export my tokens to a new PCI-compliant vault?"
  2. "What is the process, cost, and timeline?"
  3. "Is this supported for network tokens and processor tokens?"

Network Tokens vs. Processor Tokens​

  • Processor tokens: Tied to that processor. Portability depends on their policy.
  • Network tokens: Visa/Mastercard tokens. More portable, but still need processor cooperation.

Contract Language to Look For​

  • "Token export" or "data portability" clauses
  • Fee structure for token export (some charge per-token)
  • Timeline for export (30 days? 90 days?)

If it's not in the contract, assume you can't do it.

Related: Subscriptions and Recurring | Processor Management

Card-Present Considerations​

If you have in-person sales, processor selection gets more complex.

Terminal Bundling vs. Separate Purchase​

  • Bundled terminals: Often "free" but locked to processor. Leave, and the terminal is a paperweight.
  • Separate purchase: More upfront cost, but you own the hardware.

Ask: "If I switch processors, can I use my terminals with the new processor?"

In-Person Transaction Pricing Differences​

  • CP (card-present) transactions typically have lower interchange than CNP
  • Some processors quote blended rates that hide the CP advantage
  • Ask for separate CP and CNP rate breakdowns

Omnichannel Processor Requirements​

If you sell online and in-person, you want one processor for both. Why:

  • Unified reporting
  • Single reconciliation
  • Token sharing between channels

Not all processors do omnichannel well. Ask for a demo of the unified dashboard.

Related: Card-Present Terminal Decisions

Level 2/3 Processing: B2B Savings​

B2B Sellers

If you sell B2B, ask about Level 2/3 processing rates. This can be meaningful savings on corporate and purchasing cards.

What Level 2/3 Data Is​

  • Level 2: Tax amount, customer code, merchant postal code
  • Level 3: Line-item detail (SKU, quantity, unit price)

Why It Matters​

Corporate and purchasing cards qualify for lower interchange when you submit Level 2/3 data. Savings range from 0.3% to 1.0%+ per transaction.

Operator Questions​

  • "Does your gateway support Level 2/3 data submission?"
  • "Do I need to change my integration to submit it?"
  • "What's the expected savings based on my card mix?"

Related: B2B Commercial Cards (coming soon)

When to Hire Help​

When a Payments Consultant Is Worth It​

  • Negotiating enterprise-level contracts ($1M+/mo). The savings justify the fee.
  • Migrating from legacy processor with complex integrations. Project management value.
  • High-risk MCC requiring specialist broker. They know who will approve you.

What to Ask Before Hiring​

  1. "What's your fee structure?" Avoid percentage-of-savings for simple work.
  2. "Can you show me comparable deals you've negotiated?"
  3. "What happens if we don't save money?" No-results-no-fee is a good sign.

Caution​

Avoid overpriced retainers without measurable outcomes. If someone wants $5k/mo to "manage your payments," ask what specific actions they'll take and how you'll measure success.

The $50k/mo Exit Test​

Every 6 months, ask yourself:

  1. What's my all-in effective rate?
  2. Is my current processor still the best fit for my volume?
  3. Have I outgrown my current contract terms?
  4. Could I leave if I wanted to? (Token portability)

If you're paying more than 2.9% all-in above $50k/mo, you're likely overpaying.

Test to Run​

2-week exercise:

  1. Pull your last 3 months of statements
  2. Calculate your true all-in rate: (Total fees / Total volume)
  3. Get one competitive bid
  4. Compare

Success criteria: You either confirm you're well-priced, or you find savings worth pursuing.

Scale Callout​

VolumeFocus
Under $100k/moUse aggregators, don't overthink it. Focus on running your business.
$100k-$1M/moShop for rates, negotiate reserves, consider direct merchant account.
Over $1M/moCustom pricing, processor redundancy, token portability non-negotiable. Payments consultant may be worth it.

Where This Breaks​

  1. High-risk MCCs with limited options. Sometimes there's only one processor willing to take you, and they know it.

  2. Rapidly scaling businesses hitting reserve triggers. Growing 10x in 6 months? Your processor will notice and hold cash.

  3. International expansion with cross-border complexity. US processors with "international support" often means cross-border (expensive), not local acquiring (cheaper).

Analyst Layer: Metrics to Track​

MetricWhat It Tells YouTarget
All-in effective rateTrue cost of payments< 2.5% for most US e-commerce
Reserve as % of monthly volumeCash flow impact< 5% unless high-risk
Auth rate by processorProcessor performance> 95% for domestic cards
Payout timingCash flow predictabilityT+1 to T+2 standard

Next Steps​

Shopping for a processor?

  1. Use the 3-bid method → Get three competitive quotes
  2. Calculate your all-in effective rate → Compare apples to apples
  3. Review contract terms before pricing → Termination fees matter more than basis points

Negotiating a deal?

  1. Lead with volume → Higher volume = better leverage
  2. Ask about token portability → Can you leave with your stored cards?
  3. Negotiate reserves → Start high, push for reduction timeline

Already have a processor?

  1. Audit your current effective rate → Are you paying what you expected?
  2. Review your contract terms → When does it renew? ETF clause?
  3. Check processor management → Ongoing optimization