Home > News and Blog > The Best Payment Processing Options in Canada

Updated on November 14, 2022
Originally posted on March 26, 2021
by David Goodale

The Best Payment Processing Options in Canada

(Based on your business type and processing volume)

No single processor is the best at everything. If you're looking for lower rates, easy approval, specific currencies, or features it's important to know which processors cater to your industry. Some are better at working with startups, others with large businesses, some specialize in e-commerce and others retail. It's a process of elimination until you've found the best few processors for your situation, where you can seek out quotes to get the best offer for your business.

• Compare Providers
• 1. Comparison Chart
• The best payment processors in Canada
• 1. The best payment processors for e-commerce
  2. The best payment processors for retail / POS
• Rates and Approval requirements
• 1. High risk merchants pay higher rates
  2. How can I get lower rates?
  3. Contract duration: longer terms for lower rates
• Additional Notes Based on Your Business Type
• 1. Notes for retail / POS
  2. Notes for e-commerce
• Unique challenges of payment processing in Canada
• 1. Currencies
  2. Payment types
• Canadian interchange
• 1. Canadian Interchange costs
  2. Why interchange matters?

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Rates and Approval Requirements

High risk merchants pay higher rates.

Different payment processors are better than others at supporting certain types of businesses. Let's start by pointing out that payment processors can lose money. In fact, they are exposed to losses each time a transaction is processed. If a merchant commits fraud, or if a cardholder purchases something but never received it, then under the Visa and Mastercard rules they are due to get their money back. If the merchant can't or won't return the money then the processor could possibly be on the hook. At a high level, that is the risk side of the equation for payment processors.

Payment processors that work with very high risk, care-intensive merchants charge high processing fees. They are more likely to take losses, and charge higher rates to offset this. Payment processors that work with very low-risk retail merchants would usually charge lower fees. Without going into too much detail, some payment processors are more receptive (more apt to give lower rates) to certain types of businesses. That is why at Merchant-Accounts.ca we have a strong book of sponsor banks, because we can write our merchant business where it will get better rates. We know which banks tend to like which types of accounts.

How can I get lower rates?

In order to get lower rates you need to convince your payment processor that your business is low risk. Payment processors are concerned about chargeback risk, a chargeback is a dispute between a merchant and a customer about a transaction. Steps you can take to be viewed as a low risk merchant are to develop a plan to minimize chargeback risk or other fraud, and to communicate this plan with your payment processor. Your plan needs to have controls in place to protect both your business, and the payment processor. For example use of 3D Secure or requiring a video call and picture ID for high value transactions. Once you communicate your plan with the payment processor and they are happy, this will smooth the way to negotiating low rates.

Contract duration: longer terms for lower rates

One way to get a lower rate is to commit to a longer contract term. Many processors have locked-in contracts. However, good processors will give you the choice.

The recommended best practice is not to sign onto a multi-year processing agreement unless you've had a chance to evaluate a platform, give it a thorough test, and only then consider signing a longer term contract. In exchange for doing this, the processor should be willing to lower your rate. When seeking quotes you should ask your payment processor the length of your contact term. If it's not a month-to-month agreement you should ask them to change it. If it is a month-to-month agreement you should ask them if they'd be willing to lower the rate if you sign a contract term (but only after several months and you've had a chance to try them out).

Additional Notes Based on Your Business Type

Notes for retail

Point of sale (POS) payments are in-person transactions like those that occur at a restaurant, a grocery store, or a gas station. There are a wide range of solutions and options out there.

The POS landscape is dominated in Canada by the old guard - that is long established payment processors with traditional banking ties. However, the space has been disrupted by Square, which focuses on making point of sale transactions easier for small businesses that do in-person sales. The large traditional processors tend to provide somewhat similar offerings and lower rates, while Square makes it easier to get started and is significantly different from the rest of the pack.

In terms of retail processing, the rates that you get can be quite competitive even if you trade smaller transaction volumes. However, if you do high transaction volumes you should definitely be able to get quite a low rate. If you trade higher transaction volumes it's good to avoid Square and get on an interchange plus pricing model with one of the other processors such as Elavon or Moneris.

Notes for E-commerce

Many e-commerce businesses are young and growing, sometimes with few physical assets and a lot of intangible value.

A processor that is nimble and less traditional will be beneficial. In particular, try to make sure that you avoid having to provide a security reserve where the processor retains a portion of your funds after each transaction is processed.

Each e-commerce transaction is comprised of a merchant account and a payment gateway. You want to ensure that both are included to you for no extra cost. There are several other types of e-commerce transactions that you may wish to process as well, as discussed below.

A virtual terminal is where you use your computer to type in and process a credit card. It's probably the simplest and easiest way of accepting credit cards. There is no hardware to purchase, it can be used by as many staff as you want, it will never break, never become outdated - and with some processors is even free to setup.

A virtual terminal is very similar to an e-commerce transaction. A virtual terminal transaction qualifies at the same interchange cost as e-commerce transactions, and so the list of recommendations for virtual terminal providers is the exact same as for e-commerce payment processors.

Online invoice payments are a hybrid between e-commerce payments and virtual terminal. It's effectively the same as a virtual terminal, except the main difference is that the cardholder is typing in the credit card data. So as opposed to having a customer call you and give you their card details over the phone, instead they are going to a simple online payment page. This is not to be confused with invoicing platforms, which can be very complicated.

This is an area where Merchant-Accounts.ca has a unique solution. The online invoice payment page is free to setup, it's free to host, and it doesn't force you to change the way you operate. Just keep invoicing however you already do it, and send people the link to your payment page so that they can submit payments.

Unique challenges of payment processing in Canada

Currencies

Canadian businesses that sell online frequently take payments in U.S dollars because it reduces shopper friction (American or international customers may not be familiar with the CAD exchange rate).

Taking payment in USD is only half the battle. You need that money deposited into your bank account. But in what currency? This is a vastly overlooked consideration, and probably one of the most costly mistakes that Canadian businesses make when setting up payment processing.

Ensuring that your deposits are made in U.S dollars will save about 3% on each transaction. (Yes, that is not a typo, and that is why it's one of the most overlooked costs by Canadian businesses). This one planning step can save 50% or more in processing costs because it's such a significant expense. Settlement currencies should be one of, if not the most important topic, if your business will be processing transactions in U.S dollars. Learn how to process and receive funds in US dollars.

Payment Types

Visa, Mastercard and American Express Credit

In Canada Visa and Mastercard are the dominant payment methods, followed by AMEX. Visa and Mastercard credit cards have an interchange cost in Canada from about 1.4% to 2% on average. Highly exclusive / premium cards will cost more. American Express tends to have slightly higher costs on average when compared to Visa and Mastercard.

Interac

Interac (Canada's debit card platform) is one of the most popular payment types for in-person / retail POS transactions. The benefit of Interac for merchants is it's the least expensive way to collect a payment, other than cash. However, Interac cards cannot be used online in the same way as credit cards. There is a system called Interac Online which requires the user to login to their online banking that allows for an online purchase, but it has a very low adoption rate for e-commerce purchases.

Visa and Mastercard Debit

Visa and Mastercard debit cards have an interchange rate of 1.15% in Canada. This makes them significantly less expensive to process than credit cards, although functionally they operate the same as credit cards for merchants. There is no downside to accepting Visa or Mastercard debit cards.

Canadian Interchange

Canadian Interchange costs

When a payment is processed a cost is incurred. This cost is not predicable because the type of card used, and how it's submitted (online, in-person, etc) will impact the cost from Visa and Mastercard.

This underlying cost structure is called interchange . Knowing interchange will empower you to get the best rate when selecting a processor. Worded more simply: if you understand the interchange costs you can spot bad quotes, focus on the good ones, and negotiate aggressively and effectively to receive a better rate.

• Visa Canada Interchange Rates
• Mastercard Canada Interchange Rates

What you need to know about interchange:

• Each time a payment is processed an "interchange" fee is incurred.
• Interchange fees are not charged to merchants. They are charged by Visa and Mastercard to payment processors.
• A large portion of the fees that you pay to your processor go to Visa and Mastercard to cover the interchange fees for your transactions.
• Interchange fees are set nationally across Canada. All Canadian payment processors incur the same interchange costs. (It is a fair and even playing field - your choice of processor does not impact interchange costs in Canada).
• Although the interchange fees incurred by processors in Canada are the same, the rates charged to merchants are certainly not. Processors can charge you whatever they want. You want to pay a rate that is as minimally above interchange as is possible. This is where doing your research and getting a good quote from a reputable processor is important to controlling your costs.
• We won't go too much further into interchange for now, but there are some other considerations. Type of card used impacts interchange costs. A basic credit card has a less expensive interchange cost. (For example, a college students credit card). A fancy rewards credit card has a higher interchange costs (For example, Elon Musk's credit card).
• The way the card is used will also impact the interchange cost. For example, a retail in-person transaction at a grocery store incurs a lower interchange fee than an e-commerce transaction. This is called the "presentation type" and it will impact the interchange cost for your payments.
• There are several other tiers of interchange such as recurring billing, interchange for charities, etc.

Why interchange matters?

You must know about interchange because you don't want to get a misleading quotation and end up paying more than you need to. Understanding interchange will help you evaluate which quotes are great, so-so, or too good to be true.

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From a pricing perspective, what matters is how much your payment processor will mark up your processing fees above interchange. Having an understanding of interchange is critical if you hope to accomplish anything other than throwing a dart at a dartboard and hoping you hit a bullseye.

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It's not actually the interchange that matters, since it's unavoidable. What matters is how much your payment processor will charge you above interchange. All processors must charge a rate above interchange or they wouldn't make money. You want to control that markup. Not all processors even mention interchange. Some charged fixed discount rates, or fluctuating rates that aren't tied to interchange. It's often hard to know what you'll actually be paying. If you understand what the underlying interchange costs are, it will help you to spot when something looks too good to be true. It's the only way to control your costs. When seeking quotes, this will help you determine which are the best ones. Otherwise you are simply throwing a dart at a dartboard and hoping you hit a bullseye.

Want to know more about interchange? Get a free interchange consultation.

If you want to better understand interchange costs this is a good time to point out that we offer a free consultation on interchange and pricing. We'll can also discuss any other questions you have, such as tips for approval, how to reduce collateral or holdbacks, etc. Request your consultation.

Summary

There are a wide range of processing options in Canada. In order to pick the best one for your business you need to consider how you take payments (retail, online, etc), your trading volumes, and then seek out a processor that is good at supporting that type of business. Makes sure your costs are tied to interchange, and that you are not stuck in a long-term agreement. With these steps, you should be able to find an excellent solution for your business.

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