If you’re a small business just starting out, your first encounter with taking credit and debit card payments is probably with a third party payment processor. (They’re also known as payment aggregators.) It’s usually easy to sign up with them, and you can take payments basically right away. After you sign up, if you have great customers who don’t demand their money back, you usually won’t think about your payment processor for a long time.
Right now, there are three big third party payment processors that dominate the market: PayPal, Stripe, and Square. We’ll discuss each of their processing fees below. But be aware that there are other online platforms such as Shopify and Etsy that have their own payment aggregation service.
With some platforms like Shopify, you can connect to other payment processors for an additional fee. With other platforms like Etsy, you must use their payment processing service. Even if you’re on a platform where using their service is mandatory, understanding how the big payment aggregators charge will give you an idea if you’re overcharged.
So, let’s dig into the details of how much it typically costs to process payments through a third party payment processor.
- Third Party Payment Processors Usually Include Analytics Software in Their Service
- PayPal is One of the Earliest Third Party Payment Processors
- Square is a Third Party Payment Processor Best for Businesses with Physical Locations
- Stripe is an Online-Focused Third Party Payment Processor
- There are Other Third Party Payment Processors but These Give You a Good Idea on the Range of Charges
Third Party Payment Processors Usually Include Analytics Software in Their Service
One of the big trends in today’s payment processing is that many software services are bundled with the payment processing service. This is especially true for third party payment processors. The software usually come with some free services, but you’ll have to pay for other functionalities.
The software typically runs on a tablet or laptop. One or more credit card readers or terminals are synced to the software. Often, there’s a dashboard where you can look at the sales as well as various sales trends. Some software can help you track your inventory, make appointments, and even track employee time for payroll.
PayPal is One of the Earliest Third Party Payment Processors
PayPal is probably the granddaddy of internet payment processing. Back in the early days of the web, not every online business took credit cards. Instead, they took PayPal.
Of course, PayPal has expanded its services since those early days. Now, you can even buy and sell cryptocurrency or offer your customers a buy-now-pay-later option, all with PayPal.
Eventually, we will have an article covering all of PayPal’s services. But, for this article, we’re going to focus on the more traditional payment processing services PayPal offers.
PayPal works globally, so it can process not only US payments but payments from many countries around the world.
PayPal’s Payment Processing Rates
PayPal charges the following rates for credit and debit card processing:
- Online: 2.59% + $0.40
- In-person: 2.29% + $0.09
PayPal also has something called PayPal Payments. It’s a suite of payment methods including paying through the purchaser’s PayPal account, through Venmo, via PayPal’s buy-now-pay-later service, using PayPal Rewards, or with cryptocurrency.
The PayPal Payments rate is:
- PayPal Payments: 3.40% + $0.49
PayPal also allows customers to pay with a QR code that’s displayed on the merchant’s mobile device or card terminal. Note the QR code method must, by definition, be in-person payments.
The QR code rates are:
- 2.4% + $0.05 for charges of $10.00 or below
- 1.9% + $0.10 for charges of $10.01 or above
PayPal also offers micropayment rates. You’d have to sign up and be approved to take micropayments before you can take advantage of these rates. Micropayments are defined as payments of $10.00 or less.
The micropayment rate is:
- Micropayment rate: 4.99% + $0.09
For more information, go to PayPal’s page on micropayments.
Note all of the rates above are US rates. Rates in other countries or for payments with other currency will vary. And, if you’re in the US but your customer is in another country, additional international charges may apply.
If you’re a charity, then you can get lower processing rates.
Check PayPal’s full price list for details. A word of warning: it’s a little difficult to read and understand.
PayPal’s Refund, Chargeback, and Dispute Fees
When you issue a customer a refund, PayPal doesn’t charge you an additional amount. But you also don’t get back the processing fee for the original transaction. Our research indicates that the card associations do refund the interchange fee when a merchant issues a refund. But PayPal seems to be keeping this fee.
PayPal’s chargeback fee is $20. PayPal lowers this fee to $15 if the customer bought through their PayPal account or if the customer used PayPal Checkout (PayPal’s version of Amazon’s One-Click) to pay for the purchase.
If you have high chargebacks or complaints, PayPal might increase the percentage component of your processing fee to up to 5%.
ACH, eChecks, and Wire Transfers
We couldn’t find PayPal’s pricing for ACH payments or wire transfers, so it seems PayPal does not process these payments. Of course, you can transfer money domestically or internationally from one PayPal account to another PayPal account. They’re just not technically ACH or wire transfers.
We did find what seems to be eCheck pricing.
- eChecks: 3.49% + $0.49 for US transactions, capped at $300
The fee is different if the transfer is made from outside the US.
PayPal Equipment Costs
PayPal used to have a point-of-sale system (software and hardware) called PayPal Here. However, they recently bought a company called Zettle that has a point-of-sale (POS) system. PayPal seems to be moving new sign-ups to Zettle, so we’ll only present the Zettle pricing here.
The Zettle POS software connects to card readers and terminals so you can take in-person card payments. The software can show various sales stats, can perform various analysis, and includes inventory management.
Zettle is a POS system, which by definition means that it processes in-person payments. So, the PayPal in-person and in-person QR code rates apply.
In addition, there is something called a keyed transaction, which is when you enter card information into your computer. This is used, for example, when a customer pays by phone.
- The Zettle keyed rate is: 3.49% + $0.09
Your first Zettle card reader costs $29. If you wish to purchase additional readers, they cost $79 each.
You can buy other equipment (such as a receipt printer) individually or as a kit. The kits start at $249 and goes up to $699. The more expensive kits include more equipment. But, when you start, you can probably make do with just the $29 card reader, your own tablet running the Zettle software, and maybe a printer for $269.
For more information on the Zettle system, see this page. For more information about the hardware costs, see this page.
Square is a Third Party Payment Processor Best for Businesses with Physical Locations
Square pioneered mobile payment processing with its magstripe reader that can be connected to smartphones and tablets. The company has grown and changed a lot since its early days, but they still give away that magstripe reader for free when you sign up.
Today’s Square continues to focus on in-person payment processing. But of course you can take online payments through Square too. Square’s POS software is quite well-developed, and they’ve made special versions for various industries.
For example, there are versions of Square’s POS software for restaurants, bars, beauty professionals, coffee shops, and home and repair services. The processing rates for these businesses are the same, but depending on the business, the software can include appointment making services, restaurant order managers, and inventory management. You might have to pay extra to get these additional features.
Although you can accept many credit and debit cards worldwide with Square, our impression is that Square is more US-centered and does not have the global payment processing capabilities of PayPal.
Square’s Payment Processing Rates
Square’s processing rates are fairly simple:
- In person: 2.6% + $0.10
- Keyed: 3.5% + $0.15
- Online: 2.9% + $0.30
Unlike many third-party processors, Square takes CBD merchants. But, because CBD falls into what is traditionally considered high-risk, the rates are higher than Square’s standard rates:
- In Person: 3.5% + $0.10
- Keyed & card on file: 4.4% + $0.15
- Online: 3.8% + $0.30
Square’s parent company, Block, owns a buy-now-pay-later company called Afterpay. If a customer uses Afterpay, each transaction costs:
- Afterpay BNPL: 2.9% + $0.30
If you have a Square Online subscription for their webstore building services, you can get a break in processing costs at 2.6% + $0.30 for the $72/month plan.
If your business processes more than $250k per year and have average ticket size of $15 or less, you can get custom rates from Square.
For more details, see the Square pricing page.
Refunds and Chargebacks
Square doesn’t charge a fee for chargebacks or refunds. They do hold the disputed amount until the chargeback is decided. If you win the dispute, you get the money back, but if you do not win, then of course you do not get the money back.
For more details on Square’s chargeback process, see this page.
ACH, eChecks, and Wire Transfers
Square can’t help you with taking eChecks or wire transfers, but it can help you with ACH payments.
Here are some details on taking ACH payments through Square:
- Costs 1% of total transaction, $1 minimum charge
- Transactions capped at $50k
- 3-5 days for money to arrive in account
For more information, visit Square’s ACH page.
Square’s Equipment Costs
Square still offers its free magstripe reader for mobile devices. But, because of various liability issues, we recommend you buy a chip/NFC reader too.
Square’s chip/NFC card reader starts at $49. If you wish to buy a full POS kit, they start at $625 and go up to $1,439.
For more details on all of Square’s equipment, see this page.
Stripe is an Online-Focused Third Party Payment Processor
Stripe focuses more on online payments. You’ll find Stripe as the behind-the-scenes preferred processor for a lot of online selling platforms. While Stripe does offer payment processing hardware, the selection is rather pitiful when compared with Square and PayPal.
Stripe’s Payment Processing Fees
Stripe’s payment processing rates are:
- In person: 2.7% + $0.05
- Online: 2.9% + $0.30; for international payments and currency conversions, add 1% each
Like Square, Stripe offers customized rates for large businesses with large processing volumes. You can get interchange pricing at Stripe.
Stripe won’t take merchants in many high-risk industries but does seem to be open to other high-risk industries on a case-by-case basis. For more information on which types of business they will allow, see this page.
You can find Stripe’s processing prices here. This page includes the processing prices as well as other pricing.
Refunds and Chargebacks
Stripe charges a merchant $15 per chargeback claim, but they refund this money if you win the dispute.
If you give a customer a refund, there’s no charge, but Stripe keeps the processing fee you paid for the original purchase. Our understanding is that the card networks do refund the interchange fee if you refund a customer their money. So, Stripe seems to be keeping this refunded interchange fee.
ACH, eChecks, and Wire Transfers
Unlike PayPal and Square, Stripe can process ACH, eChecks, and wire transfers. The fees are:
- ACH Credit/Push: $1 per payment
- ACH Debit/Pull:
- 0.8% for 3-5 day transfers, capped at $5
- 1.2% for next day ACH
- $4 for insufficient funds and $15 for disputes
- Wire Transfer: $8 per payment; can only receive funds as a part of an outgoing invoice; some coding knowledge might be required
- eChecks: $5 per check, $15 fee for bounced checks
Stripe’s Equipment Costs
We mentioned earlier that Stripe seems more focused on online payments than in-person payments. In fact, they currently only have two card readers/terminals for US merchants. These are:
- Stripe Reader M2 for $59
- BBPOS WISEPOS E for $249
You can find additional information about Stripe’s hardware offerings here.
There are Other Third Party Payment Processors but These Give You a Good Idea on the Range of Charges
PayPal, Square, and Stripe are probably the most well-known and the biggest independent third party processors right now. (Amazon has its own payment processing service and it uses the third party payment processing model.) It is fairly safe to assume that they know what the others charge and make their own processing fees competitive.
If you must pick between the three, it’s probably better if you pick between PayPal and Stripe if you run a purely or mostly online business. If you have physical locations, Square might be the processor that makes the most sense. And, if you’re located outside of the US, PayPal might be your only choice.
If you’re offered another third party processor, you can always check this article for a quick summary of pricing, so you can compare before you sign up.
Lastly, if you process more than $10k per month, you should definitely look into a traditional merchant account provider to see if you can get lower processing rates. We’ll look into some example merchant account providers next.
But if you’re already signed up with Square or Stripe, be sure to contact them for a price check as well to see if you can get close to merchant account provider rates if you stay with them.
Questions? Comments?
