Consumerism is an increasingly competitive marketplace. Studies show that over 133 million people own at least one credit card and these days customers prefer the convenience of using credit/debit cards over cash. Many small business owners want to just continue with ease of only accepting cash. They believe that shopping for merchant services is just too time consuming. In addition, they may feel like it’s too expensive to implement the equipment and take on the expense of the fees involved thereafter. If you want to keep up with the competition and stay relevant to your customers you have to keep up with the times. If you are unable to accept credit cards you may be costing yourself more money than it costs to be able to take them. You could easily lose a complete sale if a customer isn’t carrying cash and simply can’t pay. With credit a customer may feel like they have more buying power and may be prone to impulse buys. In this day and age accepting credit cards is a must so here are some things to consider to make the process a smooth one.
Understanding Fees-Merchant Account Fees-
These are the fees that are NOT associated with the actual processing of a payment from a credit card. Keep in mind that not all fees are created equal. Some fees are actually negotiable and others are not. These will be fees set by your Merchant Service Provider (MSP) for handling your account. Companies may charge a start up fee or an annual maintenance fee for your account. There will also generally be a cancellation fee if you have signed a contract. They may also charge statement fees for providing you a paper or online version of your statement. These types of fees are different from the fees associated with actually processing the credit card transactions. Make sure your processor is transparent about their fees. Ask questions to be sure you completely understand what you are paying for so you won’t be surprised when your first statement arrives.
These are the fees that will be associated with actually processing a payment and I know it can sometimes feel like these fees are sucking the lifeblood out of your account. Visa®, MasterCard® and Discover® set what is called Interchange or the Discount rate which refers to the Base Credit Card Processing Rate. This is the fee that pertains to each type of card that is accepted by you, the merchant. This fee is passed on to the merchant and will vary for each card that exists. Transaction fees are the fee you will pay for each transaction that you complete. Next you may have an Authorization fee- if the cardholder and card are not present and you must input the card number manually you will need to enter the address verification in order to make sure that you qualify for the correct rate for that card. This is a flat fee that is the same for every processor. You want to make sure that you do not skip this step or you will end up paying a lot more for those transactions. And you may occasionally have to endure Chargeback fees.
Understanding your pricing structure will ultimately help you understand exactly how much credit card processing is going to cost you. MSPs will, for the most part, offer either tiered pricing or interchange plus pricing. This refers to the amount of markup applied above the interchange fees set by the card issuing banks. Interchange plus is a pricing model where a fixed markup is applied directly to interchange fees published by Visa®, MasterCard® and Discover®. Interchange plus is a much more transparent pricing model and often leads to lower costs when compared with other forms of pricing such as tiered or bundled. In tiered pricing the markup will be different for each card type resulting in the merchant paying more for certain cards than others and ultimately costing much more than you thought depending on what percentage of certain cards you may end up processing.
Credit Card Types
While it is difficult to know exactly what percentage of each card type you will receive over the course of doing businesses it is important to know that different cards have higher costs. Many cards cost more than others. For example corporate cards, airline miles cards or cards that provide cash back will have a higher rate than say an ATM card. Again, these base rates are set by Visa/MasterCard and passed on to the merchant.
Purchasing or Leasing Credit Card Processing Equipment
If you are operating your business in a physical location and intend to accept credit/debit cards you will need to have a point of sale system or terminal in order to process your payments.
If you are online only you will need to get setup with a shopping cart and will pay a gateway fee. Many business owners get talked into leasing a terminal or equipment because it seems easier to make a small monthly payment then it is to come up with the full cost of the item up front. However, you can end up paying up to 1000% mark up by leasing your terminal. It is much better to pay a few hundred dollars for the item up front than lease it for $30 a month for the life of your contract, often at least 3 years. Do the math.
6. Access to Funds-Where is your money!
Make sure you understand how quickly you will have access to your funds. Many processors offer next day funds but not all and it depends on the type of business. American Express can take between 3 -5 days to process your funds. Unfortunately, many important business models fall into the High Risk Category, if you happen to find yourself there it is important to find a processor who can offer you the quickest funding. Many High Risk accounts can run up to 30 days in arrears. You want to make sure that processing times will work for your business so you don’t find yourself cash poor waiting for a deposit.
7. Security-PCI Compliance
When you are dealing with other people’s sensitive information, you want to make sure you can keep it secure from data breaches. The main goal here is to keep your customers information safe as well as not put your business at risk. The Payment Card Industry (PCI) has created a Data Security Standard that must be adhered to strictly. This security standard is called PCI Compliance and every business that accepts credit cards must take the time to do their compliance requirements. Just do it! Other security measures include utilizing three-digit Card Verification Value (CVV2), Secure Sockets Layer (SSL) protocol and End-to-End Encryption (E2EE) will be measures provided by your MSP.
Partner- Your Merchant Service Provider
It isn’t always a good idea to just go with whoever is promising you the lowest rate. You want to make sure your credit card processing partner can offer you education as well as deliver security and compliance. Customer service is paramount. You want to partner with a merchant service provider who supports your business. You are, after all, their customer. It is their job to “service” you and your business. You want to make sure you partner with someone who looks at you and your business as a valued customer. When you need help with your terminal, a transaction or a dispute you want a customer service you can get a hold of that is there to offer prompt service and support as well as valuable tools and features.
Remember your Merchant Service Provider is offering you a service that is intended to help you build your business, stay relevant in the marketplace and satisfy your customer’s needs. Think of your MSP as an integral part of creating a successful business model. Call Bankcard Brokers today to find out how we can support you in your business endeavors.