Credit Card Payments for Small Business

Payment Service Providers or PSPs

The popularity of payment service providers (PSPs) like PayPal and Square is trending upwards. While there are plenty of bells and whistles associated with PSP payments, there are also important factors to consider for your bottom line.

Track Record

One of the first PSP payment services, PayPal, started in 1998 when it became the in-house payment processor for eBay. Today, it’s the fifth most-used payment method of all online retailers after Visa, Mastercard, American Express, and Discover. PSPs have been around since the 90s, making them less of a trend and more of an exciting alternative to traditional payment solutions.


While traditional merchant processors spend time vetting your business before taking you on, PSP do not. PSPs are generally easy to set up and run. You typically fill out a secure online form, wait for two small bank deposits into your bank account, verify those amounts, and you are ready to start taking payments in your store and online. No lengthy application process or credit checks are involved. In addition, there are zero setup fees, no monthly fees for using their primary service, and no minimum processing requirements, you also cancel anytime without paying an early termination fee.

Adding invoice payment functionality through your website is a breeze with a simple drag-and-drop widget. No coding is required, but what about security? PSPs utilize end-to-end encryption, developed in Silicon Valley, which is more secure than traditional financial credit cards that use a security chip.

Figure 1 PayPal Online Card Payment Services (2.59% +.49) Vs. Dharma Merchant Services (2.00% +.10)

Interchange Plus vs. Flat-Rate

As we discussed in the first installment about traditional merchant services, we need to consider the difference between using an interchange plus or flat-rate pricing model. Interchange plus is cheaper in the long run—charging a different fee for every card—while The flat-rate method, which the vast majority of PSPs follow, charges the same for each transaction, allowing the business owner to count on consistent and easier-to-understand statements.

Figure 2

Money Ball Analytics

Along with contactless payments integrated into terminals come a host of tools to use with PSPs. For example, built-in digital invoicing, quick button installation on websites, recurring payments, and robust financial reporting through the PayPal app, to name a few.

Drawbacks to PSP

There are three significant downsides to PSP payments that a business must consider. First, because PayPal does not heavily vet enterprises, it has a sensitive security sensor that, if triggered, can freeze funds (sometimes up to months) or, if severe enough, may choose to terminate your account. Secondly, chargeback fees—refunding someone’s money—can become more expensive with PSPs if they occur frequently. Thirdly, some people get nervous when routed to another website for payment transactions, and the experience of using a PSP widget payment button may alienate some older-generation clients or those with trust issues with new technologies.

Home Run

In the end, PSP payments offer a lot of flexibility for small to mid-sized businesses. So, while the fees are slightly higher with PSP, many users feel the ease of use and added flexibility is worth the cost, and with security, PSP technology is as safe as it gets.

In the final installment, we cover peer-to-peer (P2P) payments that allow you to take payments on the go, anywhere, anytime, without swiping a card or setting up an account for the win.

Click here for the first installment of this series: Traditional Merchant Services.


Credit Donkey. (2022). Retrieved from

Dharma Merchant Services. (2022). Retrieved from

PayPal Fees. (2022). Retrieved from

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