What Startups Need to Know About Credit Card Processors

If revenues are where the rubber meets the road for startups, then the selection of a credit card processor is one of the most important tool decisions a team will make. That’s one of the reasons we ask about the credit card processor in every stacklist interview.
 
The vast majority of startups report using a credit card processor - about 80%. Who’s not using a credit card processor? For starters, pre-revenue startups, as well as many content-based startups and agencies whose transactions tend to be larger in size and lower in volume. There are also some startups out there that only take ACH payments.
 
In the Credit Card Processor section of Stacklist, we’ve provided all of the fantastic feedback that founders have shared in their interviews. Like why a Braintree+PayPal combo might make the most sense in international ecommerce. Or how to improve the reporting capabilities of Stripe through plugins. And how friction can be good in mitigating fraud.ecommerce. Or how to improve the reporting capabilities of Stripe through plugins. And how friction can be good in mitigating fraud.

To choose the best credit card processor for your startup, you should first understand some of the basics. What are the component parts of an ecommerce transaction? And what is the landscape of ecommerce solutions available to startups?

What’s in an ecommerce transaction?
 
Let's be nitty gritty for a moment. What do you need in order to complete a credit card transaction on your site?
  • UX: Your site or POS interface enables friendly agreement between the company and the customer on the specifics of the transaction: cost + product. Think shopping cart, checkout button, confirmation page, etc.
  • BACKEND: Of course you need the code that ships your transaction off to financial institutions But you also need payment features and capabilities that match your business model. For example, the ability to handle situations like subscription/recurring orders or a large and diverse set of products in an online store.
  • MONEY: When your backend ships off the transaction, you’ll want to to know that the customer's payment will land in your account. This part of the process is covered by gateways (which makes it possible to process cc payments) and merchant accounts.
 
What credit card processors are available to startups?

Full-stack providers. 
The majority of Stacklist ecommerce startups report using either Braintree (13%) or Stripe (46%). With full-stack providers, startups do not have to setup a separate merchant account or payment gateway – Stripe and Braintree take care of that. Further, they provide customizable payment options give developers flexibility. Note that many platforms (including PayPal and Chase Paymentech), claim to compete in this segment, but the reviews
 
Ecommerce Platforms.
Think Magento, Shopify, Recurly, Chargebee and Chargify. These companies provide software and mechanics that make it possible for startups to setup and manage a great payment experience for their customers. Some, like Recurly and Shopify, are very turnkey and easy to use without a developer. On other other hand, Magento, the most well-known open-source ecommerce platform, has vast capabilities – but you won’t see them without a Magento (PHP) developer to help. For most of these, the startup needs to set a separate third party gateway and merchant account to make it possible to process credit cards.
 
Just over 10% of stacklist ecommerce startups use one of these platforms – lead by Shopify and Recurly. Why such a low number? Probably because full-stack options, specifically Stripe, have made implementation and customization so easy for developers that the turnkey advantage is minimal. Further, most startups who have submitted their stacklists do have in-house developer talent which would increase the chance of a full-stack selection.
 
Gateways & Merchant account providers.
You’ll need one of these if you’re using one of the aforementioned e-commerce SaaS platforms. PayPal is probably the best known gateway out there and is a valid way to pay (just like Visa, Mastercard, etc) at most checkouts.  
 
Additionally, you’ve probably heard of Authorize.Net and FirstData. Note that traditional gateways like these these are trying to play in the SaaS and API space as well, providing these offerings to the teams that are using them as a gateway. But these services are not in their DNA as companies and they have a ways to go before they compete with companies like Stripe, Shopify, etc.
 
Build.
Sure. If you have a talented developer on board, and a fairly straightforward ecommerce model, that’s an option worth considering. The biggest advantage is that it gives you more pricing flexibility given you’ll have almost any gateway option available to you.
 
Hardware & tablet/phone POS systems.
This is a layer that lives on top of the rest – like Square & ShopKeep. The key feature is that they can read a physical card, making them the primary choices for brick and mortar operations or in-person services. They also include turnkey interfaces for the checkout.