What a payment processor actually does
A payment processor sits between your checkout and the card networks/banks, authorizing and settling each transaction, handling fraud screening, and depositing your net proceeds to your bank account. This is a distinct decision from your ecommerce platform (Shopify, WooCommerce, BigCommerce, etc.), though some platforms have a native processor (e.g., Shopify Payments) that's tightly integrated and worth defaulting to unless you have a specific reason not to.
The main categories of options
- Platform-native processors (Shopify Payments, and similar built-in options on other platforms) — the path of least resistance, generally the simplest setup, and often with a fee discount or the only way to avoid an extra "third-party processor" surcharge some platforms apply if you use a non-native processor instead.
- Standalone processors (Stripe, and similar) — highly flexible, strong developer tooling, widely integrated across ecommerce platforms and custom builds, generally a strong default if you need more customization than a platform-native option provides or you're building a custom checkout.
- Wallet/alternative payment methods (PayPal, and similar) — often added alongside a primary processor rather than instead of one, because a meaningful share of shoppers prefer to check out with a familiar wallet rather than entering card details, and offering the option can measurably reduce cart abandonment for those shoppers even if it's not your primary rail.
- Buy-now-pay-later providers — typically layered on top of your primary processor as a payment option at checkout, not a replacement, and evaluated separately (see marketing/checkout-conversion content) for their effect on average order value and conversion versus their fee structure.
What to compare
| Factor | What to look at |
|---|---|
| Transaction fees | Percentage + fixed fee per transaction; this varies by processor, card type, and sometimes country — get current, specific rates for your situation rather than assuming a number. |
| Payout speed | How quickly funds settle to your bank account — varies by processor and account standing. |
| Chargeback handling | Fees for a chargeback, and the quality of the tools/evidence process for disputing one. |
| International cards/currencies | Whether the processor handles international customers well, and what currency conversion fees apply. |
| Checkout experience | Whether checkout stays on your site (generally better for conversion and brand trust) or redirects to an external page. |
| Fraud/risk tools | Built-in fraud screening quality, and how aggressively it blocks legitimate orders versus lets fraud through. |
| Support for your business model | Subscriptions, invoicing, in-person/POS if relevant, multi-currency if you sell internationally. |
Why "just use the cheapest one" is the wrong frame
The percentage difference between processors is usually small relative to the impact of checkout conversion rate, dispute-handling quality, and payout reliability. A processor that's a fraction of a percent cheaper but redirects customers off your site for checkout, or has a clunkier dispute process that causes you to lose more chargebacks by default, can cost you far more than the fee savings. Evaluate the full picture, not just the headline rate.
Chargebacks and how processors differ on handling them
A chargeback happens when a customer disputes a charge with their card issuer rather than requesting a refund through you directly. Processors differ meaningfully in:
- How much evidence-submission tooling they provide to contest an illegitimate chargeback (delivery confirmation, communication records, etc.).
- Whether they offer any chargeback protection/guarantee product that can absorb losses from fraud-related chargebacks under certain conditions, usually for an added fee.
- How chargeback fees stack — most processors charge a fee per chargeback regardless of outcome, on top of losing the disputed amount if you lose the dispute.
A business with a meaningfully higher-than-typical chargeback rate can also face increased processing rates or, in serious cases, account review or termination — so chargeback rate is worth monitoring as an operational metric, not just handling reactively case by case.
Multiple payment options at checkout
Offering more than one payment method (e.g., a primary processor plus PayPal as a wallet option, plus a BNPL option) is common and can improve conversion, but each additional option adds a small amount of checkout complexity and, in some cases, an additional fee relationship to manage and reconcile. Add options deliberately based on evidence they help your specific customer base, not by default.
Common mistakes
- Choosing a processor purely on the headline percentage fee without weighing checkout experience and dispute handling.
- Not enabling a wallet/alternative payment option and losing conversion from shoppers who prefer it.
- Ignoring chargeback rate until it triggers a rate increase or account review.
- Adding too many payment options at checkout, adding friction and reconciliation complexity without clear conversion benefit.
Best practices
- Default to your ecommerce platform's native processor unless you have a specific reason (a custom build, a specific feature need) to choose a standalone one.
- Add at least one wallet option (PayPal or similar) alongside your primary processor if your audience skews toward it.
- Monitor your chargeback rate as an ongoing metric, and respond to disputes promptly with strong evidence rather than letting them default to a loss.
- Revisit your processor choice periodically as your business model changes (adding subscriptions, going international, adding in-person sales).
FAQs
Should I use my platform's native processor or a third-party one like Stripe? The native option is usually simplest and sometimes cheaper (avoiding a third-party processor surcharge some platforms apply). A standalone processor makes more sense if you need specific flexibility the native option doesn't offer, or you're building outside a standard platform.
Does adding PayPal alongside my main processor cost me anything if no one uses it? Typically there's no cost to simply offering it beyond normal per-transaction fees when it's actually used — the main cost is checkout complexity, not a standing fee for having it available.
What's a normal chargeback rate to worry about? Card networks and processors set specific thresholds above which a business faces additional scrutiny or fees; these thresholds and their exact figures are set by the networks/processors and change, so check your processor's current chargeback-monitoring program guidance rather than assuming a fixed number.