Everything You Need To Know About Merchant Processing And How To Choose The Right Solution For Your Needs

Whether you run a small online store or a major brand, accepting electronic payments is a must for all businesses. According to Onbe, 73% of consumers prefer using digital payments like cards and payment apps. 

But to seamlessly receive these payments as a merchant, you’ll need merchant processing services. These are solutions that help you authenticate and accept payments according to your business requirements. They will also help you stay compliant with certain rules and regulations, including the various fees applicable to online payment processing. 

In this article, we’ll learn about the different types of merchant processing and how they work, and also look at a list of the top merchant processing companies.


  • Merchant processing ensures that all entities, such as the issuing bank, the acquiring bank, and the card company, work cohesively to facilitate payments between a customer and a business.
  • In order to receive card-based payments, businesses need to have a merchant account. This account temporarily holds the transaction funds until the bank verifies the payment.
  • Payment processing attracts certain fees like the interchange rate and processing charges for each transaction. Businesses can take steps to minimize these charges in order to maximize their revenue.
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How Merchant Processing Works

When a customer pays through a card, digital wallet, or other electronic payment method, the payment goes through several entities before reaching the merchant. These entities include the issuing bank, the acquiring bank, the card or digital payment company, and the payment processor.

Merchant service providers ensure that all these entities work cohesively and make the end-to-end payment process hassle-free through the following steps. Let’s assume the customer’s preferred payment method is a credit card:

  1. The customer makes a purchase and presents their credit card to the merchant. In case of an online purchase, they enter the card details on the merchant’s website.
  2. The merchant sends this payment information to the acquiring bank, i.e., the bank where the merchant wants to receive the payment. 
  3. The bank forwards this information to the relevant credit card company. The card company further sends the details to the issuing bank, i.e., the bank from which the customer wishes to make the transaction. This information transfer is facilitated through a payment processor.
  4. The issuing bank verifies the payment using key details like the credit card number, CVV, and expiry date. 
  5. If the details are verified and there are enough funds in the customer’s account, the issuing bank will send an authorization code to the card company through the payment processor. Otherwise, they can also decline the payment.
  6. This authorization code is forwarded to the card company and then to the acquiring bank. At this point, any charges, such as the transaction fees and surcharge, are added to the transaction.
  7. The customer receives a receipt as a form of confirmation of payment. The amount is deducted from the customer’s account and transferred to the merchant’s bank account. 

While you receive the payments in your business account, you’ll need another type of bank account called the merchant account to receive electronic payments.

Role of merchant account

A merchant account is an account owned by the merchant. However, unlike the usual business account, the merchant has no direct access to it. 

This account is used by banks to temporarily hold funds from credit or debit card payments or other electronic transactions. Once the bank verifies and approves the payment, the funds are transferred from the merchant account to your business account. 

Creating a merchant account allows you to receive credit and debit card payments, which are crucial for businesses today. In addition, they also ensure the privacy of business data and compliance with laws and regulations.

Types of Merchant Processing Solutions

Most businesses accept multiple payment methods. They can accept traditional payment methods like cash or checks or opt for digital methods like credit cards and online wallets. They may also accept payments in person or online. 

While cash and checks don’t require processing, digital payment methods require different types of solutions to process payments. 

For example, if you are purchasing a shirt in-store, you’ll complete your card transactions using a physical card terminal. This machine collects credit card information and processes payments. However, if you’re buying the shirt online, then the payment can be processed by simply entering the card details into the device used for purchase.

Depending on the business type, merchant processing solutions are of two types:

Point-of-sale (POS) systems

POS systems are a popular payment collection system, with more than 93,300 companies using them in the US alone. 

They consist of the hardware and software components required to process an in-person payment. This includes hardware such as a display monitor, card terminal, and receipt printer.

Customers can swipe or tap their cards using the terminal to start a payment. These machines are connected to the merchant processing systems that verify the transactions and push the payment through to your business account.

Many POS systems are also equipped with software that helps with other business processes like inventory and staff management, in addition to payment processing.

Mobile processing solutions

Mobile processing solutions don’t require additional equipment to initiate a card payment. These systems enable a smartphone or tablet to function as a card terminal. The device can collect payment details, send requests through a payment processor, and complete transactions. 

Businesses that move frequently or don’t have a fixed location rely on mobile processing solutions. In comparison, POS systems are ideal for businesses that operate from one single location. 

While merchant processing is crucial for accepting card payments, choosing the right merchant processing company is also equally important for hassle-free transactions. We’ve compiled a list of companies that are well-known for their top-notch merchant processing services.

Top Merchant Processing Companies

Merchant processing companies provide businesses with the equipment and software required to accept electronic payments. Here’s a list of reliable merchant processing companies based on their services, features, and pricing:

1. Stax

Stax Pay Net New Merchant Processing Stax

Stax is a payments processing service that caters to all types of businesses, large or small. It provides an all-in-one solution that allows you to accept various types of payments in person and online. 

Unlike other card processing companies, Stax doesn’t add any extra fees to the interchange. Instead, it passes on the low wholesale interchange fees charged by credit card companies directly to merchants for a small recurring fee.

Stax’s smart terminals and mobile payment solutions are fully customizable to cater to unique business needs. Whether you need an on-the-go payment solution or a contactless one, Stax can meet your requirements.


  • Faster, reliable, and secure payments through smart terminals.
  • Digital invoicing and payment collection links to simplify smartphone payments.
  • Easy switch between POS and mobile payments using the Stax app.
  • Highest level of PCI security compliance that keeps payment data secure.


Stax starts at $99 for their basic, small business package.

2. Payment Depot

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Payment Depot is a merchant service provider that offers a transparent interchange-plus model. Unlike traditional flat-rate pricing interchange-plus pricing breaks down the various cost components of payment processing so businesses clearly understand the reasons behind their fees.


  • Contactless membership models for hassle-free payment processing.
  • Quick fund transfers as early as 24 hours.
  • Easy integration with existing POS and other payment software.


Payment Depot offers variable rates as low as 0.2% – 1.95% as well as 0$ setup fee and no cancellation fees

3. Square

Stax Pay Net New Merchant Processing Square E1713481044624

Square’s payment processing tools make it easier for merchants to accept all forms of payment. It has dedicated solutions for in-person, online, remote, and pay-later transactions, so merchants get consistent support regardless of the payment method.

Square also connects you with analytics, reporting, and banking to meet your business’s financial requirements.


  • Single, integrated system for hardware, software, and payment processing.
  • No lease or hidden fees for acquiring hardware.
  • Compliant with PCI standards.


Square works on a per-transaction pricing model and starts at 2.6% + 10 cents for in-person and 2.9%+30 cents for online transactions.

4. PayPal

Stax Pay Net New Merchant Processing Paypal E1713481070956

PayPal is a well-known online payment system that simplifies international money transfers. The trusted company has a simple interface that makes both sending and receiving money easier. 

It’s also simple to integrate PayPal with your existing website. By creating a merchant account with PayPal and adding it to your checkout page, you can start accepting credit and debit card payments from around the world.


  • Payment processing for all channels, including email and social media.
  • Extensive library of support articles and self-help guides to simplify setup.
  • Highly scalable with tools for small, large, and enterprise-level businesses.


PayPal charges 2.99% + fixed fee for all credit and debit card transactions.

5. Stripe

Stax Pay Net New Merchant Processing Stripe E1713481095844

Stripe is an end-to-end payment processing solution that offers a suite of financial products for various business requirements. The platform supports more than 100 payment methods and provides a unified payment process for online and in-person transactions.

Stripe also focuses on the safety of the business and its customers. It uses AI and machine learning to identify fraudulent behavior and reduce the risk of scams, protecting your overall revenue.


  • Checkout optimization to increase customer conversions.
  • Easy payment page setup through the Stripe dashboard.
  • Global payments with multiple currency support.


Stripe starts at 2.9% + 30 cents for each successful domestic card transaction.

6. Helcim 

Stax Pay Net New Merchant Processing Helcim E1713481124231

Helcim is a low-cost payment processor dedicated to small and medium businesses. The platform provides in-person and online payment solutions to simplify transaction processing. 

With Helcim, you’ll get access to their POS system, invoicing software, and other tools required to process payments. There are no monthly fees or contracts involved, so you’re free to scale up or down according to your requirements.


  • Accept card payments through any internet-connected device using Virtual Terminal.
  • Transform mobile devices into point-of-sale systems.
  • Create and manage invoices within the payments processing platform.


Helcim works on a per-transaction model that starts from 0.40% + 8 cents for in-person and 0.50% + 25 cents for online transactions.

Key Players in Merchant Processing

While payment processors play a key role in transferring information among financial entities, there are other players required to complete the entire transaction. These include merchant account providers, payment gateways, credit card networks, and issuing banks.

Merchant account providers

Merchant account providers are financial entities that provide a dedicated merchant account to clients in exchange for a cut or a fee. They manage all aspects of the merchant account, including the account setup, transaction management, and the required hardware and software. 

Payment gateways

Payment gateways verify the credit card or payment information to approve a transaction. It is often confused with the payment processor, but there’s a slight difference. 

Payment processors are responsible for communicating the details among various entities, whereas payment gateways deal with verification and approval.

Credit card networks

Credit card networks are the connecting systems between banks, merchants, customers, and the card issuing company. These networks authorize transactions from a particular card, which is crucial for a payment to go through. 

Issuing banks

The issuing bank is the financial institute that actually issues a card against a customer’s bank account. The issuing bank provides cards branded and managed by the credit card networks American Express, Discover, Visa, and Mastercard. 

Fees and Costs Associated with Merchant Processing

Since payment processing involves multiple entities, the fees associated with merchant processing can be confusing. Each entity issues its fees either to the customer or to the merchant.

Here’s a detailed list of the common costs associated with merchant processing:

  • Interchange rate: Charges applied by the credit card network to approve a transaction.
  • Payment processing fees: Charges applied by the payment processing service to the merchant.
  • Chargeback fee: If a customer requests a chargeback, the merchant may have to incur a chargeback fee to compensate for additional processing.
  • Monthly fee: Depending on the payment processor, you may need to pay a monthly or annual fee.

In addition, there are other costs like statement fees, merchant account fees, and verification fees. While the individual costs are small, they accumulate to a much larger amount, which may lead to considerable revenue loss. 

Here are a few tips to minimize these fees to ensure maximum profit:

  • Use address verification systems: Address verification systems help verify customers’ addresses beforehand to prevent chargebacks and fraud.
  • Add a surcharge: Surcharging helps you offset the interchange fees by making the customer bear the costs. However, this isn’t legal in all states, so you need to check the laws before applying a surcharge.
  • Negotiate: Some card processors may be willing to negotiate a lower processing fee, especially if you deal with large transaction processing volumes every day. 

Security and Compliance in Merchant Processing

Any business that accepts credit and debit card payments must be compliant with the Payment Card Industry Data Security Standards (PCI DSS). The PCI DSS contains twelve stringent requirements that protect both the merchant and the customer from data breaches and identity theft.

Not complying with the PCI can attract a fine of up to $500,000 per incident. However, due to the complexities involved in card payment processing, checking for compliance on every transaction is difficult.

That’s why you need to choose a payment processing service like Stax that guarantees PCI compliance from their end while you can focus on other business processes. 

You can also implement fraud prevention methods like implementing multiple authentication steps and using AI to detect suspicious behavior. In addition, using technology like EMV and tokenization for your credit card payments can also increase merchant processing security.

Choosing a Merchant Processing Service

As discussed above, there are several companies that offer reliable merchant processing services. However, one of them might be more suitable for your business depending on the service’s features and your requirements. 

If you’re unsure which merchant service provider to choose, here are some tips on how to choose:

Factors to consider

Before comparing merchant processing services, you need to first assess your business requirements and identify service providers who fit the criteria. Consider these factors when looking for service providers:

  • Contract period: Service providers often have minimum contract requirements before providing merchant processing services. These contracts can vary anywhere from one month to three years in duration. Some companies might not require a contract if they work on a different model.
  • Budget: Look for companies that provide the required features within your budget. Remember to check for hidden fees and discounts to get a precise idea of how much you might spend.
  • Customer support: If you’re newly implementing a merchant processing solution, you’ll require extensive customer support. Look for service providers who provide round-the-clock support and have experts to resolve queries.
  • Security: Customer data privacy and business security are extremely important for financial services. Make sure the service provider has stringent data safety practices in place and is also PSI compliant. 

In addition to these factors, you can ask the below questions to potential providers to further narrow down your options:

  • How much support is included in the plans?
  • In addition to payment processing, what other tools are included in the plan?
  • How do you ensure PCI compliance for client transactions?
  • What are the limitations or exclusions of the chosen plan?

Enjoy Hassle-Free Payment Processing With Stax

As consumers prefer digital transactions, accepting card payments is a must for all businesses. However, you need a trustworthy payment processing service to ensure hassle-free and quick card transactions.

Stax is a complete payment processing solution that’s built for all types of businesses. It has a variety of products in its suite to ensure they meet all your requirements.

Whether you are a small brand or an enterprise-level business, Stax can help you receive card-based payments with ease. Check out the payment processing solution by Stax

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FAQs About Merchant Processing

Q: What is merchant processing?

Merchant processing refers to the services that enable businesses to accept and process credit card, debit card, and other forms of electronic payments. This involves communication between the merchant, the issuing bank, and the acquiring bank to facilitate the authorization, settlement, and management of payment transactions.

Q: How much does a merchant processor make?

The biggest merchant processors make billions of dollars per year. For example, in 2023, PayPal’s revenue was $29.77 billion. That same year, Block (formerly known as Square) reported $21.9 billion in revenue.

All that being said, how much merchant processors make depends on their  business model, the volume of transactions they handle, and the fees they charge. Typically, merchant processors earn money through transaction fees, percentage charges on sales, and additional service fees for things like payment gateway usage and monthly account maintenance.

Q: How long does it take for a merchant to process a payment?

The time it takes for a merchant to process a payment can depend on the type of transaction and the technologies used. Generally, credit and debit card transactions are processed within seconds for authorization. However, the settlement, which is the transfer of funds to the merchant’s account, typically takes 1-3 business days.

Q: What are the risks of merchant processing?

The risks of merchant processing include fraud, chargebacks, data breaches, and compliance risks. Merchants must implement robust security measures to protect sensitive payment information and comply with industry standards like PCI DSS to mitigate these risks.

Q: What is the difference between payment processing and merchant account?

Payment processing refers to the entire process of handling transactions from authorization to settlement. A merchant account is a specific type of bank account that allows businesses to accept and hold funds from credit and debit card transactions.

Q: What is a good merchant processing rate?

A good merchant processing rate depends on the business type, transaction volume, and average transaction amount. Competitive rates typically range from about 1.5% to 3.5% per transaction for credit cards. Rates can be lower for debit cards and might also include a per-transaction fee.