Published January 13th, 2016
If you’re a startup or you’ve made the decision to begin accepting credit and debit cards, read on to learn more about merchant processing. We’ll demystify key terms and you can find out what to expect with credit card processing.
How your business benefits from processing credit card payments
When any discussion opens up merchant processing, we always like to note how your company can benefit from the move to accept credit and debit cards for purchases. According to data presented in the Nilson Report, shoppers will have doubled the use of credit cards between the years of 2007 and 2017. Studies consistently show that businesses who don’t make the switch to processing credit cards for their customers lose on a considerable number of sales every year.
That’s why with more credit cards being processed now more than ever, it is a smart business move to offer your customers more ways to pay. Most customers just aren’t walking around with cash – and the use of checks has also dramatically decreased in the last decade. When you don’t offer credit card processing, the next thing that happens with a customer that doesn’t have the cash on hand is that they leave. Even if they do leave with good intentions to come back – we all know that it isn’t convenient and that some customers just don’t come back.
Whether you do business right from your storefront shop or you sell you wares online, your business is likely to benefit from providing more payment options to your customers.
Even a one-person shop that does business from home can find ways to process credit cards securely with merchant processing solutions. You may be currently relying on eBay or Etsy to sell your items, but you could be missing out on branding and marketing opportunities by not venturing out on your own.
In fact, Forrester Research reports that at the end of 2017, US mobile shoppers will spend 47% more with credit or debit than only a few years ago. The payment trend is getting further away from paper, so it pays to make sure you are meeting the current needs of your customers. Most customers simply expect businesses to be able to process their credit or debit card – and when you find the right merchant processor, you can benefit as well.
Getting started with a merchant account
The merchant account that you establish to begin processing credit cards is a bank account that’s established via a contract between you and a payment processor or bank to settle your debit and credit card transactions. Your merchant processing company will transfer money from your customer during the purchase right into your business checking account.
Typically, you will not need to establish an additional checking account – the one you have will suffice. Even if you are a one-man shop, you can also likely use your personal checking account for your merchant processing. However, if you are an LLC or a corporation, you’ll most likely need to use a business checking account to get started.
So who is involved in merchant processing?
Most commonly, the participants in merchant processing are:
- Acquiring banks
- Agent banks
- Third-party organizations
The acquiring bank is the back that is contracted with the merchant to settle the card transactions. They contract directly with you as the merchant, or they contract with agent banks or the 3rd
Agent banks are usually community banks that don’t offer merchant processing services directly, but the merchant’s account is at the bank.
The third-party organization refers to any outside company that the acquiring bank contracts to provide the merchant processing services.
What are the costs of merchant processing?
Costs can vary depending on the merchant processing company, so it definitely pays to call around to get the best quote. However, it is important to understand a little bit more about how your fees are determined. Learning more about key terms will help you navigate merchant processing.
First, your rates can differ depending if you’re a retail business, online business, or you plan to use a mobile credit card processor. You also may use a combination of methods in your business. For instance, you may process both Internet and storefront payments.
If you are quoted a tiered pricing model for credit card processing
, the transactions that you process will fall under these rate structures:
- Non-Qualified Rate
- Mid-Qualified Rate
- Qualified Rate
Most of the charges that you’ll process will fall under the qualified rate, and that’s also the figure you’re likely to be quoted when you call merchant processing companies.
The mid-qualified and non-qualified rates will be higher. They can apply to some business cards, rewards cards, and card-not-present sales. Additionally, processing credit cards by manually entering vs. swiping can end up costing you more as well and make for a more expensive rate. That’s why it pays to always make sure you use the card reader to complete the transaction via the “swiper”.
You can also find out more about the following fees that can apply to your merchant processing account.
– The network fee is the cost that the card networks charge to the processor, and those costs are passed to the merchant. They are non-negotiable fees.
– PCI compliance is critical for any business that accepts credit card payments. What you’ll want to do is make sure that your equipment and retrieval methods are following the latest PCI guidelines. Your processing company can assist you to make sure you have all of your bases covered. You will have some costs associated with PCI compliance to ensure the security and safety of payment information.
– The statement fee is typically around $10 and covers the mailing and printing of statements or the administrative costs associated with creating your monthly statement.
Payment Gateway Fee
– The gateway fee is the fee required to begin processing payments, and is associated with e-commerce business.
Flat Monthly Fees
– You may see different fees here depending on the merchant processor. These fees may be negotiable, so when you’re speaking to a merchant processing company, let the person know you’re calling around for quotes. Hopefully you can snag the best deal possible.
Interchange Reimbursement Fee
– This is the rate of each transaction and any flat fees.
There are some other fees that you will want to ask about including:
- Setup Fees
- Installation Fees
- Customer Support Fees
- Application Fees
- Early Termination and Cancellation Fees
As an astute business owner, you’ll want to have a good understanding of how the rates are structured and any other fees that will be tacked on every month. That’s why billing transparency and clearly defined statements are a must-have in merchant processing.
When you begin accepting cards, you open up new opportunities for growth in your business. The storefront shop, for instance, can now think about expanding to an ecommerce shop as well. Your merchant processor should be flexible enough to provide you with the options you need.
Flexibility is an important factor in considering a merchant processor, and so it is worth asking the person on the other end of the line about the options you’ll have upgrading – or downgrading – if needed.
Many merchant processing companies can also help you with additional services including:
What you need to know about the liability shift in counterfeit transactions
- Credit card processing
- Check processing
- Online credit card processing
- Payment gateway
- Retail processing
- Mobile processing
- Point-of-sale systems
- Learning more about EMV and other security upgrades
As of October 1, 2015, there has been a liability shift in regards to domestic and cross-border counterfeit transactions. The shift has to do with EMV cards. EMV cards are also known as smart cards or chip cards. The card holds sensitive cardholder information that’s embedded in the chip as opposed to the magnetic stripe that’s on the back.
These new smart cards typically can be swiped as well as being processed by an EMV chip-reader. When processed by the reader, the card offers an almost impenetrable security layer that makes it almost impossible to successfully counterfeit.
To boost the adoption of this technology, the major credit card companies – MasterCard, Visa, Discover, and American Express implemented the liability shift. The shift basically means that the merchant who hasn’t yet switched to chip-enabled processing is liable for any in-store fraud that was preventable with the chip card.
You’ll want to make sure that any reader you purchase is chip enabled, and that your POS system and software can interface with it properly.
Your merchant processing company should be able to assist you in implementing this very important new adaptation to credit card processing.
The good news is that these cards protect you and your customers in deeper ways, making fraudulent charges – and the chargebacks that follow – less of a threat.
If you’re ready to learn more about how a merchant processing company can help you do business with more customers, visit our page of Top 30 Merchant Processing Companies
So how do we find the best merchant processing companies? Our team is focused on vetting out industry leaders and we do that by analyzing services, reviewing client testimonials, and by identifying those who are most engaged in the industry for which they provide services.
- Daily, “Businesses Miss Out on Sales,” 23 May 2012. [Online].
Forrester Research: https://www.forrester.com/home/
Merchant Processing: http://www.occ.treas.gov