Processor Selection
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Before shopping for processors:
- Know your monthly volume and transaction mix
- Understand your MCC and risk profile
- Have your documentation ready
Choosing the right processor isn't about finding the lowest rate. It's about finding the right fit for your volume, risk profile, and growth trajectory.
If you're selling online/e-commerce → Choose Stripe
- Better API, subscription billing, scales globally
- Rate: 2.9% + $0.30
If you're card-present retail/restaurant → Choose Square
- Simpler hardware, better POS, 15-minute setup
- Rate: 2.6% + $0.10 in-person
If you don't know your model yet → Choose Stripe
- More flexible as you figure things out
- Both are fine under $100K/month - don't overthink this
If you're on Shopify → Use Shopify Payments
- Avoid the 2% third-party transaction fee
- Rate: 2.9% + $0.30 (Basic plan)
See full Processor Profiles for detailed comparisons.
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:
- Request pricing from your top 3 candidates
- Get everything in writing. Verbal quotes mean nothing.
- Compare all-in cost, not just interchange-plus rate
- 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.
What to Include in Your Request
When requesting quotes, provide:
- Monthly volume and transaction count
- Average transaction size
- Card-present vs card-not-present split
- Chargeback ratio (if you have processing history)
- Current processor and rates (optional, but helps)
The more context you give, the more accurate the quote.
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)
Under $100k/mo: Don't spend time optimizing payments. The savings aren't worth the effort. Use an aggregator and focus on growing revenue.
$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?"
$100k-$1M/mo: Shop for rates, negotiate reserves, and consider a direct merchant account. You should be paying under 2.5% all-in for most US e-commerce.
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
Over $1M/mo: Custom pricing, processor redundancy, and token portability are non-negotiable. A payments consultant may pay for themselves in savings.
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 Integration & Exit)
PayFac vs Direct Comparison
| Factor | PayFac/Aggregator | Direct Merchant Account |
|---|---|---|
| Setup time | Minutes to hours | 2-4 weeks |
| Underwriting | Minimal | Full review |
| Pricing | Fixed (2.9% + $0.30) | Interchange-plus negotiable |
| Account stability | Lower tolerance for risk | More flexibility |
| Support | Self-service / email | Dedicated account manager |
| Token portability | Usually supported | Varies by processor |
| Best for | Under $50k/mo | Over $50k/mo |
Processor Comparison Factors
When comparing processors, weight these factors based on your needs:
| Factor | Under $100k/mo | $100k-$1M/mo | Over $1M/mo |
|---|---|---|---|
| All-in rate | Less important | Important | Critical |
| Setup speed | Critical | Moderate | Less important |
| Underwriting friction | Critical | Moderate | Expected |
| Token portability | Nice to have | Important | Critical |
| Redundancy support | Not needed | Nice to have | Critical |
| International | Rarely needed | Sometimes | Often critical |
| Support quality | Email is fine | Important | Critical |
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
- "What's your fee structure?" Avoid percentage-of-savings for simple work.
- "Can you show me comparable deals you've negotiated?"
- "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.
Test to Run
2-week exercise:
- Pull your last 3 months of statements
- Calculate your true all-in rate: (Total fees / Total volume)
- Get one competitive bid
- Compare
Success criteria: You either confirm you're well-priced, or you find savings worth pursuing.
Next Steps
- Know your volume tier → Match your approach to your scale
- Use the 3-bid method → Get competitive quotes in writing
- Review contracts and underwriting → Understand what you're signing
- Consider integration requirements → Plan your technical approach
See Also
- Contracts & Underwriting - What to negotiate beyond rates
- Integration & Exit - Technical and exit considerations
- Payment Provider Types - Gateway vs processor vs ISO vs PayFac
- Processor Management - Ongoing relationship management
- Reading Statements - Understanding your current costs