Payment Processing Guide
Everything small businesses need to know about accepting payments.
Payment Processing: Stop Overpaying for Every Transaction
Payment processing is one of the largest ongoing costs for small businesses, yet most owners don't understand what they're paying or why. This hub demystifies interchange fees, compares pricing models, and helps you choose the right processor.
Key Decisions
- Flat-rate vs interchange-plus: Simple pricing vs. transparent pricing
- PayFac vs traditional: Fast setup vs. dedicated account control
- In-person vs online: Different fee structures and hardware needs
The Bottom Line
Most businesses overpay by 0.3-0.5% per transaction. On $100K/year in sales, that's $300-500 in unnecessary fees.
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Common Questions
Payment processor vs payment gateway - what's the difference?
A gateway securely transmits card data. A processor handles the actual money movement between banks. Many modern solutions like Stripe and Square combine both.
How much do payment processing fees cost?
Standard rates are 2.6-2.9% + $0.10-$0.30 per transaction. Volume discounts and interchange-plus pricing can reduce costs. We compare effective rates across providers.
Which POS system is best for small businesses?
Square is great for retail with its free tier. Shopify POS excels for omnichannel. Clover offers hardware flexibility. Toast specializes in food service.
Can I switch payment processors easily?
Yes, most switches take 1-3 business days. Set up the new processor, update your website/POS, and keep the old account briefly for refunds.
Key Terms
Payment Gateway
Software that securely transmits payment data between the customer, merchant, and payment processor. Encrypts card details and handles authorization. Examples: Stripe, Braintree, Authorize.net. Essential for any online or card-not-present transaction.
Payment Processor
The entity that facilitates the movement of funds from the customer's bank to the merchant's account. Handles authorization, capture, settlement, and chargebacks. Examples: First Data (Fiserv), TSYS, Worldpay. Many modern providers (Stripe, Square) combine gateway and processor.
Interchange Fee
The fee charged by the card-issuing bank for each transaction, set by card networks (Visa, Mastercard). Typically 1.5-3.5% of the transaction amount. The largest component of payment processing costs. Rates vary by card type (debit vs. credit, rewards vs. basic).
PCI DSS (Payment Card Industry Data Security Standard)
A security standard required for all businesses that handle credit card data. Compliance levels depend on transaction volume. Using hosted payment forms (Stripe Checkout, Square) handles most requirements. Non-compliance can result in fines of $5K-100K per month.