What is a third-party payment processor?

When you run a small business, it’s important to have the flexibility to accept customer payments via multiple payment methods at any time. Third-party payment processors are outsourced payment processing solutions that enable businesses to accept electronic payment types, including card-based payments from debit and credit cards.

Beyond payment-type flexibility, working with third-party payment processors can provide a number of other benefits to businesses. Read on for a closer look at how third-party payment processors work and how to choose a third-party payment processor for your small business.

Featured credit card processing offers

Stax

Learn More

Via Stax’s website

Monthly fee

$99

Swiped transaction fee

7¢ to 10¢ + interchange rate

Merchant One

Learn More

Via Merchant One’s website

Monthly fee

$13.95

Swiped transaction fee

0.29% to 1.55% per transaction

Payment Depot

Learn More

Via Payment Depot’s webiste

Free Trial

No

Offers

$0 Setup & No Cancellation Fees

Pricing

Customized Interchange+ Pricing – Rates as low as 0.2% – 1.95%

Clover

Learn More

Via Clover’s website

Monthly fee

$14.95

Swiped transaction fee

2.6% + 10¢

What is a third-party payment processor?

Third-party payment processors are vendors that provide services and resources to assist other businesses in accepting payments from their customers. Processing credit and debit card payments can be complex, but third-party processors simplify the logistics of accepting payments and depositing funds into the seller’s bank account through their aggregated merchant accounts and supportive services. The resources and expertise they provide streamline the overall process for both the buyer and the seller.

Dedicated payment processing companies, such as PayPal, offer third-party payment processing services so small businesses don’t have to go through the complicated and expensive steps of setting up a payment processing system and merchant account independently.

To accept payments without a third-party processor, businesses need their own merchant accounts, payment gateways, software or hardware integrations and they also take on the responsibility for security rules related to Payment Card Industry Data Security Standard (PCI DSS) compliance. In contrast, third-party processors can handle many of these features and security rules for your business so you can quickly get up and running with card-based payments without jumping through too many hoops.

How does a third-party payment processor work?

Third-party payment processors are responsible for managing merchant accounts and PCI-compliance-driven data security on behalf of their customers. To get started with a third-party payment processor, you can use the third-party payment processor’s software, hardware, application programming interface (API) or payment gateway to connect your financial accounts to the third-party’s merchant accounts where your customers’ payments will temporarily be stored after a sale.

When customers pay you in person, online or over the phone through a third-party processor’s gateway or API, the transaction will need to be verified. Funds may sit in the third party’s merchant account for a couple of days while they verify and process the transaction. From there, the funds are automatically deposited into your account as described in the processor’s customer agreement.

Third-party payment processors help you set up and take payments quickly. For this service, you’ll pay a fee to the third-party payment processor for each charge that comes through. Some use flat-rate pricing, which can be more affordable for small businesses with lower payment volumes looking to avoid monthly subscription fees. Some third-party processors also operate without requiring long-term contracts or early termination fees, whereas those fees are somewhat common with merchant accounts.

Third-party payment processor vs. merchant account providers 

With third-party payment processing providers, you know what you’ll pay upfront for each transaction. Merchant providers, on the other hand, often don’t disclose pricing until you’ve gone through a sales process and provided an estimate of your monthly sales volume.

If you’re deciding between a third-party payment processor and a merchant account provider to manage your electronic business transactions, consider these important differences in your decision-making process:

	THIRD-PARTY PAYMENT PROCESSOR	MERCHANT ACCOUNT PROVIDER
Transaction pricing	Flat rate per payment	Typically, a tiered pricing model which can be complex
Monthly fees	No monthly fees, except for specialized services provided by outside vendors	Monthly fee included
Software/hardware requirements	Choose from the third party’s proprietary systems or other limited options; in many cases, no additional hardware or software is required	Choose from most payment terminals and POS equipment; typically offered by a credit card processing partner or payment service provider
Long-term contract, startup fees and cancellation fees	Typically no	Some require long-term contracts and various fees, though many merchant account providers do not have cancellation fees
Best for	Smaller businesses and new businesses	Large and midsize businesses with high card payment volumes

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When should you use a third-party payment processor? 

Small businesses looking to get up and running quickly should consider using a third-party payment processor. While you may have to invest in the processor’s hardware or integrate your online systems, there is usually no long-term contract and you can change processing methods in the future without penalty.

Small businesses and nonprofits processing around $5,000 or less in monthly payments typically prefer third-party processors with flat-rate pricing. However, switching to a merchant account provider could be a more cost-effective option as your business grows and transactions increase.

If you’re unsure if a third-party payment processor or a merchant account provider is the best fit for your business, do the math to approximate how many credit card charges you process per month and consider what you would pay with a third-party processor compared to the quote you received from a merchant account provider. These numbers can help you find the best and most cost-effective solution for your business.

How to pick a third-party payment processor

With several popular payment processors available, choosing the right one can feel like an overwhelming process. To simplify your selection to a few criteria, focus on cost, customer experience and how your chosen solution integrates with your existing e-commerce and other business tools. These are the main areas that will differentiate providers when you’re picking a third-party payment processor:

Pricing

Many third-party processors charge a predictable, flat fee per transaction. Charges are often either a percentage of the payment amount or a small fee plus a percentage of the payment amount. Pricing should be your main focus if your primary concern is keeping costs low to maximize business profits. Depending on the volume and frequency of your business’s electronic transactions, any combination of percentages and fees could be most advantageous.

You’ll likely discover several third-party processors that could potentially suit your business needs. When that’s the case, startup and long-term processing costs should also be top-of-mind as you zero in on the best fit.

Customer experience

Choosing a payment processor that supports the different payment types your customers use is particularly critical to creating a seamless customer experience. Understanding how your customers want to pay can guide you to a solution that offers flexible, customer-friendly options.

For example, some third-party processors support online payments only, while others can handle a mix of in-person and online payments. Additionally, some providers focus on specific types of terminals, while others are more flexible and offer a suite of payment hardware to choose from. Some processors even support nontraditional transactions, such as cryptocurrency transactions. 

Compatibility with existing business tools

Third-party payment processors often integrate with popular e-commerce platforms, CRMs and other tools your business may use to manage transactions and customer relationships.

For example, PayPal offers integrations with e-commerce platforms and web hosting providers like Shopify, GoDaddy, Wix and WooCommerce.

These kinds of native integrations and partnerships make it easier to create clean workflows between online storefronts and the rest of the transaction processing lifecycle. Especially if your business handles a variety of different transaction types online, it’s worth looking for a third-party payment processor that will easily interface with your existing tools.

Best third-party payment processors list 

We reviewed top third-party payment processors to save you time shopping around. Here are our picks for the best third-party payment processors:

1. Square: Square is our top-ranked third-party payment processor for 2023. Square is noteworthy for facilitating mobile, in-person and online payments with additional tools available to support your business needs. Plans with no monthly fee come with processing fees of 2.6% plus $0.10 for each in-person transaction or 2.9% plus $0.30 for online transactions.
2. Stripe: Stripe is a standout choice for online payments, with many sales software suites offering simple connections to Stripe. You can also use your own sales system and integrate with Stripe via a secure API. Stripe’s Standard plan has processing fees of 2.9% plus $0.30 per successful transaction.
3. PayPal: PayPal is an industry veteran, supporting online payments for more than 20 years. This vendor offers multiple integration options, which include well-recognized PayPal checkout buttons. It also supports in-person and mobile business payments. For online transactions completed through PayPal, fees are 3.49% plus $0.49 per transaction. Lower fees are available for payments processed without running through the PayPal Checkout system.
4. Helcim: Helcim supports point of sale (POS), online checkout and ACH payments. There are no monthly fees or long-term contract requirements. Average processing fees are 1.94% plus $0.08 for in-person payments and 2.51% plus $0.25 for online and card-not-present transactions.
5. Paysafe: Paysafe is an international payment processor with diverse payment acceptance options, including for online and digital wallet transactions. Pricing is more complicated for this vendor, as costs are broken out to include interchange fees levied by payment networks like Visa, Mastercard and American Express. For the Paysafe Interchange Plus payment program, interchange is marked up by 0.30%, and you’ll pay an additional $0.10 per transaction and $0.10 per payment batch. There’s also a monthly $9.95 PCI fee and a monthly minimum charge of $25.
6. Elavon: Elavon offers merchant services and third-party payment processing. It supports online, mobile and in-person transactions. Pricing is only shared by custom quote.
7. Clover: Clover is a payment processing brand owned by the financial services company Fiserv. Among its suite of online and in-person payment systems, it offers robust payment processing capabilities that are ideal for restaurants and similar businesses. Pricing varies by industry and payment needs; users can pay monthly or in full.
8. ProMerchant: ProMerchant supports point-of-sale payments, retail and restaurant terminals, mobile payments and virtual terminals. Users can select between two pricing plan formats: an interchange plus a fixed-rate plan or a monthly fee with no flat fee per transaction cost.
9. QuickBooks Payments: QuickBooks Payments is a convenient solution for users of QuickBooks accounting software, as both solutions benefit from Intuit’s product ecosystem and services. QuickBooks Payments supports major credit cards, ACH, PayPal and Venmo. You can use its card reader or add integrated buttons to invoices for customers to pay invoices with a few clicks. In-person and digital wallet payments come with processing fees of 2.4% plus $0.25 per transaction, and invoiced payments include fees of 2.9% plus $0.25 per transaction.
10. National Processing: Merchant services from National Processing are optimized for restaurants, retail, e-commerce, nonprofits and other specialized industries. You can use free terminals when working with National Processing. Most types of businesses will need to pay a $9.95 monthly fee and around 0.12% to 0.29% plus $0.06 to $0.15 per transaction. For high-volume businesses, these costs are very competitive.

Featured credit card processing offers

Stax

Learn More

Via Stax’s website

Monthly fee

$99

Swiped transaction fee

7¢ to 10¢ + interchange rate

Merchant One

Learn More

Via Merchant One’s website

Monthly fee

$13.95

Swiped transaction fee

0.29% to 1.55% per transaction

Payment Depot

Learn More

Via Payment Depot’s webiste

Free Trial

No

Offers

$0 Setup & No Cancellation Fees

Pricing

Customized Interchange+ Pricing – Rates as low as 0.2% – 1.95%

Clover

Learn More

Via Clover’s website

Monthly fee

$14.95

Swiped transaction fee

2.6% + 10¢

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