Last Updated: Apr 2026
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Merchant Services for Small Businesses: What You Need to Know
Merchant services, also recognized as credit card processors, are crucial for enabling small businesses to accept a variety of payments, including credit cards like Visa, Mastercard, American Express, Discover, and contactless options such as Apple Pay, Android Pay, and PayPal. These services are pivotal for small businesses operating across diverse environments—be it a brick-and-mortar store, mobile setting, online platform, telephone, or mail order. Providers of merchant services equip small businesses with the necessary hardware and software to facilitate card payments, typically including a credit card terminal or mobile card reader and software for transaction processing, sales tracking, and inventory management.
How the Right Credit Card Processor Can Help Your Small Business
Selecting an appropriate credit card processor is a significant decision for small businesses, encompassing factors like:
- Cost: Ensuring the service is budget-friendly for small businesses.
- Customer Support: Access to responsive and helpful support.
- Fraud Prevention: Technologies built into the service to minimize fraud risks.
It’s important to note that not all merchant services companies limit their services to merely processing credit card transactions; many provide additional services and technologies to help your small business grow.
The best merchant services companies offer point-of-sale (POS) systems, advanced all-in-one software that can do a bunch of things related to your business’s sales and inventory. The best POS systems allow you to track and manage inventory, print or send receipts, and view detailed sales, product, and employee performance analytics.
Some credit card processors include extra functionality for businesses in niche industries. For example, for businesses in the hospitality industry, there are POS systems that enable customers to split a group bill or to place orders through their smartphone.
Other incentives for small businesses include integration with third-party software such as QuickBooks, digital gift cards, and digital loyalty programs. Some merchant services firms even offer merchant cash advances.
There’s a credit card processor out there for almost every business need and budget. Therefore, finding the right one for your business requires knowing what it is you need and how much you’d be willing to spend in order to achieve that.
Merchant Services Fees and Rates for Small Businesses
Merchant services billing can be confusing, with providers often charging separate fees for each service. The one constant is the transaction fee. Whether your business accepts $1,000 or $1 million worth of credit card payments each month, your merchant services provider will charge you a fee for every transaction processed. Transaction fees typically comprise 2 components: a percentage, which can vary from as high as 3% when only a transaction fee is involved to as low as 0.2% when you’re being charged for all those extras; and a flat $0.10 to $0.30 fee. You may also be subject to a foreign exchange fee if multiple currencies are involved.
Before comparing credit card processors, it’s worth becoming familiar with these common fees and rates:
Annual or monthly subscription fee: some providers also charge a minimum fee each month if you don’t make enough sales to reach the minimum threshold on your own.
PCI compliance fee: some providers charge a fee in exchange for providing encryption and fraud-prevention technology, while others offer it for free.
Equipment rental or purchase: if you need a physical card reader such as a POS system, card terminal, or mobile card reader, then your provider may charge you for it. Some providers require their customers to purchase equipment while others lease equipment on a monthly or yearly basis.
Termination fee: some merchant services companies require customers to sign on for 12, 24, or 36 months—although this is gradually becoming a thing of the past. If you do sign a contract, read the fine print for any signs of an early termination fee.
Setup or application fee: some merchant services companies charge a one-time fee for installing equipment or helping with software setup.
PCI non-compliance fee: a fine your business must pay if it somehow fails to comply with credit card security regulations or standards.
Statement fee: a small monthly fee for sending you invoices or other billing-related information.
Gateway fee: monthly charge for using your provider’s payment gateway.
Chargebacks: Visa, Mastercard and other credit card companies have the power to refund your customers for disputed or fraudulent transactions. In the rare event when this occurs, your credit card processor will pass the cost on to your business (and may also charge an additional fee).
1099-K fee: businesses processing more than $20,000 in gross payments in a given year must submit form 1099-K to the IRS. This form can only be obtained from your credit card processor—and most of them charge for providing it.
Is Your Small Business Considered High Risk?
In the credit card processing industry, some businesses are considered to be at high risk of chargebacks and may therefore be rejected or charged higher fees by merchant services providers. These are some of the industries commonly flagged as high risk:
- import/export
- credit repair
- e-cigarettes
- online dating
- pornography
- nutritional supplements
- telemarketing
- tech support
- payday loans
Having said that, each credit card processor defines high risk differently, so if you suspect you might fall under that definition, it’s worth shopping around and finding a processor that can cater to your business model.
What is a Payment Gateway?
A payment gateway is the technology underpinning all credit card transactions. It reads the customer’s credit card, then transmits that information to the merchant’s bank to be processed and to the customer’s bank to be approved or declined. Although merchant services companies are commonly referred to as credit card processors, what they actually do is provide the payment gateway. In effect, they are really facilitating rather than processing your payments. The job of processing the credit card transaction is left to the merchant acquiring bank.
When selecting a merchant services company, it’s important to be sure their payment gateway is compliant with the strongest levels of fraud prevention and authentication technology. Ideally, your payment gateway should be compliant with both the EMV and PCI protocols, 2 separate standards overseen by Visa, Mastercard, and other credit card companies in compliance with American and international laws.
How to Choose the Right Credit Card Processor
If you own or operate a business, choosing the right credit card processor could be one of the most important decisions you face. Here are 5 of the top things to do when shopping around for a provider:
Compare. There are dozens of top credit card processors catering to every need and budget. Make sure to compare between at least 3-5 processing companies before settling on one. Read online reviews, search for customer feedback, and speak directly to each company—a short phone call can be very revealing and leave you feeling more confident about one provider than another.
Understand your business model. Do you run a traditional brick-and-mortar business or an Ecommerce business? Perhaps you operate from a physical location but are looking to branch into online? Before deciding on the right credit card processor, you should have a good understanding of what type of equipment and technology you need from your processor—and the answer to that depends on what type of business you’re operating.
Study the fees. Does your chosen provider charge a simple per-transaction fee for an all-inclusive service or does it charge a super-low transaction fee with the caveat that it can also charge you for a dozen additional services? There is no correct model; it all depends on your budget and your monthly transaction volume. Always go over the fine print for any additional costs and fees.
Look for additional incentives. When we talk about credit card processors, we really mean merchant services providers. So what other merchant services can your chosen provider offer? Do they offer branded digital gift cards? How detailed is the sales analytics? Can they offer something specific to your business or industry that can help you grow?
Check the level of customer support. Whether this is your first time or tenth time using a credit card processing service, customer service is very important. Before choosing a provider, ask about their communications channels and hours of availability. If your processor values you as a customer, it should assign you a dedicated account manager. And don’t forget, this is an industry with a lot of competition, which means some of the terms and fees are open to negotiation. Don’t be afraid to discuss your needs and concerns with your provider before committing to anything.
Our Top 3 Picks
- 1
Fast, dependable, affordable mobile processing- Best for - Mobile payment processing, lightning-fast
- Rates - 2.6%+15¢
- Contract Length - No contract
Fast, dependable, affordable mobile processingRead Square ReviewSquare revolutionized the industry when it introduced a POS system that was mobile, convenient, and affordable, even for small businesses. Since then, the company continues to make additions and improvements, and the latest one has earned Square a reputation for being the best mobile credit card processing option out there. With a credit card processor that can process all types of payments, including EMV chip cards and contactless payments like NFC and e-wallets like Apple Pay and Google Pay, Square does it one better by packaging this handy reader into a pocket-sized and surprisingly powerful piece of hardware.
The Square credit card processor comes with a flat rate for both dip and tap transactions, zero additional fees, wireless connection, and the ability to process payments in just 2 seconds. The dock allows you to keep the Square reader on your countertop, and it’s also designed to easily come with you wherever you go. Plus, you get a free magstripe reader just in case.
Square Pros & Cons
PROS
Extremely compact, mobile designFlat rate fees and no additional feesFast processingCONS
Not a good fit for high-risk industriesMerchant services are limited - 2
A versatile all-in-one payment processing solution- Best for - Small businesses, freelancers, and entrepreneurs
- Rates - From 2.5%
- Contract Length - Monthly
A versatile all-in-one payment processing solutionRead GoDaddy ReviewGoDaddy Payments is an all-in-one payment processing solution designed for small businesses and entrepreneurs. It integrates seamlessly with GoDaddy’s website builders and e-commerce tools, offering competitive transaction rates and fast payouts. Businesses can accept online, in-person, and remote payments, making it a versatile choice for merchants in the U.S.
GoDaddy Pros & Cons
PROS
Seamless integration with GoDaddy’s ecosystemCompetitive transaction fees, especially for in-person paymentsFast payouts, often within the next business dayCONS
Reports of unexpected account holds and closuresLimited international support - 3
Payment processing + Clover POS apps- Best for - Restaurants, retailers
- Rates - 2.3% - 2.7% + $0.10
- Contract Length - Starts from 1 year
Payment processing + Clover POS appsRead Clover ReviewMany top credit card processing companies sell Clover’s point-of-sale systems. But did you know that Clover itself offers credit card processing through parent company Fiserv? That’s right. While Clover is primarily known for its POS hardware, it also offers a range of other services including payment processing, gift cards, invoicing and payroll solution, and working capital financing.
That said, if you’re looking for a payment processor that offers Clover devices, you should compare Clover to the many other payment processing companies that are authorized to resell Clover products. Clover’s flat-rate processing may seem convenient, but it looks less attractive when you consider the hundreds of poor reviews it has received from small business owners that have used its service.
Clover Pros & Cons
PROS
Predictable, flat-rate processingAccess to all Clover hardwareLarge app storeCONS
Poor customer service reputationMonthly fees
