What is the Best Payment Processor to Use?

When business owners are looking to create on online web store, the first question they often ask, is “What is the best payment processor to use?” Unfortunately, this is the wrong question. This is like asking “What fuel should I use for my new car?” If you limit your car selection based on fuel type, you will likely not end up with a car that has all the features you want. Think of it this way: A petroleum company recommends that you use diesel. They made this recommendation to you because diesel is a by-product of making higher grade gasolines, but they can charge more for it and thus they make more money. So you choose diesel as your fuel – now you must go find a car that runs on diesel. Of course not all cars run on diesel, so you are severely limited by what car you can by.

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This is often what happens with payment processors. Your bank tells you to sign up for a certain payment processor because that is the one they make money on. Sometimes, the business owner is simply shopping for the one with the cheapest rate (which as we will see is not always the cheapest in the long run). So you select that payment processor and now you want to find an ecommerce solution that uses that payment processor. Most ecommerce shopping softwares work with a limited number of payment processors because programming each one is an expensive undertaking. So you are limited to shopping carts that work with that payment processor, even though those shopping carts may not have all the features you want or need.

Always select the shopping cart software first! Find the features that your business needs and wants. Select a shopping cart based on those features, the number of installations (popularity) of the cart, and your webmaster’s experience in working with that software. Only after you have selected your shopping cart software should you begin looking to see what payment processors that cart supports. Most shopping cart software supports PayPal and Authorize.net. Beyond that each shopping cart platform may support a number of payment processors, which may or may not be the one recommended by your bank. If you chose a payment processor first, and now you want your shopping cart to provide support for that processor, it could run thousands of dollars for a custom programming fee.

Payment processors often provide an API (application programming interface) that allows shopping cart software to hook into their payment system. I would like to see this role reversed – the shopping cart software should provide an API, and force the financial institution to use their resources to program their payment processors to match the shopping cart. Alas, that is not currently the way it works, so as a business owner, your best bet is to select the shopping cart first, then pick a payment processor that works with that ecommerce platform.

The rate you pay is not the most important criteria when selecting a payment processor – ease of use is a much more important criteria. For most business owners, Stripe.com is an ideal solution. The reason is that credit card information is not taken on your site – it is entered on the Stripe site, meaning that your site does not have to worry about security concerns or being PCI compliant. To the customer, it looks like they are simply entering a credit card on your site to pay for their purchase. After the transaction is completed, money is transferred to your bank account (yes it works with ANY bank). There isn’t a monthly fee, just a transaction fee of 2.9% plus 30 cents. Yes, you may find something cheaper and you may find something that your bank recommends, but for ease of use and security, you won’t find a better way to accept credit cards on your ecommerce web store.

Here’s a comparison of Stripe and PayPal’s service fees:

Service PayPal Stripe
Charge cards from your website $30 / month Free
Chargeback $20 $15
American Express 3.5% Same flat rate
Refund Transaction fee Free
International cards 1% Free
Authorize card 30¢ Free
Transaction Fee 2.9% + 0.30 2.9% + 0.30
Transfer to bank account Manual request; 3-4 days Money received is transferred into your bank on a two-day rolling basis – no manual withdrawals required.