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Which Credit Card Processing Is Cheapest For Small Business?

Conal Yarwood-Frost
17 May 2024

Small business owners must take credit cards to stay competitive. With nearly 50% of the population carrying less than $20 in their wallets, businesses cannot afford to run on cash-only models. 

However, accept credit cards has always been a major financial challenge for small businesses. Since processing fees can be quite high, owners can actually lose money on each transaction. 

If you’ve found yourself struggling to accept card payments while still remaining profitable, we’re here to help. Keep reading to see how to get the cheapest credit card processing for your small business. 

Not all credit card companies are the same

In the United States, the largest credit card companies include American Express, Discover, Mastercard, and Visa. In return for allowing cardholders, banks, and businesses to use the card network, these companies charge fees. Cardholders pay annual fees and interest, and businesses pay processing fees. 

Here are the processing fees charged by each credit card network:

  • American Express: 2.5% to 3.5%
  • Discover: 1.56% to 2.3%
  • Mastercard: 1.55% to 2.6%
  • Visa: 1.43% to 2.4%

As you can see, American Express charges more than the other major companies. For this reason, small businesses that want the cheapest credit card processing rates typically do not accept Amex cards.  

While you can certainly follow this model, it is not always the best choice. Unless your customer has another form of payment, declining to accept Amex could cut off a revenue stream. 

Let’s look at the other factors that affect credit card processing fees.

Choosing a credit card processing company

Your small business cannot accept debit and credit payments without partnering with a credit card processor. These companies provide you with the hardware to accept card and contactless payments, as well as facilitate the transaction. 

You can learn more about this in our credit card processing article.

While many processing companies will seem similar, they offer varying services and fee structures. If you are wondering which credit card processing is cheapest for small businesses, it all comes down to the following factors. 

Payment structure

Comparing processors starts by looking at their transaction fee structure. In most situations, the company charges you a fee each time you accept a credit or debit card payment. These fees are used to pay for a variety of services, including facilitating the transaction, paying dues, and hedging some money in case of fraud or financial loss.

Typically, you will compare the following pricing models:

  • Flat rate
  • Interchange plus
  • Tiered
  • Membership

Flat rate pricing is exactly how it sounds. No matter how much a customer spends or what they buy, you pay a fixed rate to process their credit card. For example, whether a customer spends $1 or $100, you will pay 2.5% on the transaction. 

Interchange plus pricing is somewhat more transparent in that it charges you the actual cost charged by banks and credit card companies (called interchange fees) plus an additional fee from the processor. For example, Discover might charge 2%, and the credit card processor will tack on a small amount. 

Tiered pricing charges fees based on a tier, often labeled qualified, mid-qualified, and non-qualified. Each tier has its own fees, but it can be confusing to understand which transactions fall under which tiers. 

Membership pricing requires businesses to pay an annual fee to access member’s only credit card processing rates. In return, the processing company does not charge additional fees on each transaction.

Forms of credit card processing

On top of the pricing structure, credit card processing companies charge various rates depending on how customers pay. If you want the cheapest processing rates, you may want to avoid providing these payment options. 

In most cases, your customers will use card present payments, meaning they will swipe, tap, or insert a credit or debit card. The card terminal verifies the physical presence of the guard, reducing the risk of fraud. Under these cases, payment processors will charge you based on the structures mentioned above. 

If you sell online or accept phone orders, you will need to accept card not present (CNP) payments. In these cases, a customer enters their card details into an online form or calls the business and reads you their card details. 

Since online and phone payments allow for a higher level of fraud, payment processing companies charge more to execute these transactions. For this reason, you may want to avoid accepting CNP payments if you want cheap payment processing. 

Hardware fees

Here is where many companies differ in service and price. Some payment processors offer free card terminals, while others charge one-time or recurring fees. On average, you can expect to pay anywhere from $200 to $1,000 for your payment processing hardware.

However, these prices do not always reflect the reality of the total cost. 

Many companies will offer these devices but then require the business to sign a long-term contract requiring them to use the processor for many years. If you want to terminate this relationship, you will likely need to pay expensive cancellation fees. In these scenarios, you might spend more by choosing a free card terminal than by paying for one. 

On top of this, some devices are more valuable than others. For example, you might pay $200 for a traditional credit card reader, but it might not accept contactless payments. In this case, paying less could reduce your potential revenue. 

Bottom line: One size does not fit all

As you can see, it isn’t easy to answer which credit card processing is cheapest for small businesses. Each business has to weigh its options and determine which processor offers the most cost-effective solution for their situation. 

You will want to consider the fees, pricing structure, hardware costs, and recurring charges to find the best option. 

What’s more, you want to make sure the payment processor integrates with your point of sale system. These devices are meant to log sales, manage inventory, and simplify recordkeeping. But if your credit card terminal does not work with your POS system, what use does it have?

Luckily, Epos Now integrates with several payment processors throughout the world. Whether you’re selling in the United States, Australia, Europe, or elsewhere, we have payment processing partners who will support your POS. 

Whether you have a retail store or hospitality business, you will enjoy these features from Epos Now:

  • Real-time inventory management
  • Custom, powerful reporting tools
  • 24/7 remote access
  • Secure cloud storage
  • Extensive app store, including Mailchimp and QuickBooks

Contact Epos Now today to learn more about our technology and payment processing partners.