Online commerce, electronic payments, and credit card processing have become fundamental aspects of today’s economy. As a result, almost all startup companies need to decide, how they are going to process payments for themselves or on behalf of their clients.

People often tend to ask questions like: “What are the best payment processors?” (sometimes “What are the best online payment processors?”), “What is the best payment processor for accepting micropayments?”, “What is the best processor for honest pricing?”, “With regards to fees, what is the best payment processing service for a SaaS company with a low monthly price ($5 per user per month)?”, “What is the best Payment gateway for Java which can only validate cards without posting any charge on the card?”, “What’s the best payment gateway for an online factoring invoices marketplace?” etc. In fact, there are no universal answers to these questions, as the situation is a bit more complex and context-dependant. In our article we are going to explain why, and provide some guidelines, which startup businesses can follow to find optimal solutions for themselves.

As we wrote in “Payment Gateways” series, when you are choosing a potential solution to implement, before you look at credit card processing costs, associated with a particular gateway, you need to understand, whether it supports all the functionality you need.

Let us list the fundamental questions, which are relevant for you as a startup company.

Fundamental questions regarding credit card processing

Do you need to process payments for yourself only, or do you need to process payments on behalf of your clients (i.e. do you need to function as a payment facilitator)?

Do you need only card-not-present (CNP) solution for online recurring payments, or is card-present solution (EMV) also necessary?

Do you need to support multiple currencies or not?

In many cases before thinking about your pricing options, you need to verify, whether the listed functions are supported, and whether the gateway supports your MCC code. Beside that, if you are trying to get a merchant account abroad, you need to check, whether you can get it with the gateway you are planning to partner with.

For example, if you are an Indian merchant, trying to get a merchant account in the US, you need to check, that you have all the necessary documents to be underwritten in the US. In the very least you must have a tax ID in the US.

Then (as we’ve mentioned), you need to verify the MCC code and check, if the logic you need is available within the gateway.

As a result of this analysis, it may turn out, that your choice of payment gateways/processors can be reduced to one or two payment platforms.

Reality check

Before addressing a particular payment gateway or processor, you can also perform a “reality check”. Keep in mind that a processor’s revenue amounts approximately to 1% of your processing volume. So, if your processing volume is $ 5000, the processor gets $50. For such a modest reward processors will not offer you complex or customized solutions.

True, Stripe and PayPal may seem to be costly solutions for your business. However, if your processing volume is not very high yet, they may be the only solutions available in your case, because they have a well-developed infrastructure, allowing them to work with the so-called micro-merchants. Larger processing companies may not have such an infrastructure.

Card-present solution

If you need a card-present solution, it is important to analyze the technology you are planning to implement, the upcoming integration, and the cost of devices you are going to use. You should also verify, whether you have all the necessary EMV certifications.

PayFac model

If you need to function as a payment facilitator and issue merchant accounts, then you should pay attention to merchant onboarding and underwriting rules, adopted by your potential processing partner. You should also check, whether your potential partner has some API in place, which allows to simplify onboarding of new merchants.

Availability of starting capital

Being a startup, you may have the funds, allowing you to rent a payment platform for your business needs. If you have both money and time, you can even develop a processing platform using your in-house development team. Finally, you can license an existing white-label payment gateway solution, as we explained in our previous articles.

In these latter cases you can expect lower processing costs, but you will have to pay for support of the necessary infrastructure.

Conclusion

If you have neither the starting capital, nor processing volume, you should not try to find the “cheapest” credit card processing solution, because you are getting what you pay for. If the profit the processor gets from your transactions is low, you are going to be treated accordingly.

In these cases it might be more secure to pay slightly higher processing fees, but partner with a company, which offers robust technologies and has no funding delays. If you save 25 cents on a transaction, but then find that your account is suddenly frozen or closed, it is not a preferable option.