There are still many businesses in the U.S. that still aren’t set up to take credit card payments – some business owners feel that their business is doing fine without adding credit card processing into the mix. Still other business owners feel that they would rather not worry about special POS equipment or extra costs involve with processing.
Whether you’re an established business or you’re just getting started, it makes sense the credit card processing could be intimidating. We’re here to say that it doesn’t have to be. From mobile processing solutions that require no added equipment, to user-friendly point-of-service options that can make your life easier, there are many smart choices that make good business sense.
This post will help you make sense of some of the terms you need to understand when you call credit card processing providers.
Don’t miss out on sales
But first, did you know that if you’re a business that only accepts cash, you could be missing out on sales every day? Investor’s Business Daily posted some very sobering statistics when it comes to small businesses and payment processing. The study they shared found that businesses who only take cash and checks lose an average of $7,000 in sales every year. That’s a collective loss of almost $100B in sales for all small businesses that don’t process credit cards here in the U.S.
From the other end of the counter, things may be looking like they are going well, but more customers today simply expect businesses to take credit cards. The reason for this is partly habit – the majority of businesses are taking credit cards now and so customers are just accustomed to taking out their cards. Customers have gotten used to the convenience of credit or debit, and they just aren’t carrying around the cash anymore – and many people leave their checkbooks at home.
Choosing to process credit cards and offering mobile payment solutions keeps you are on the right side of the growing trend. When you start accepting credit cards, you can begin to explore even more ways to offer payment solutions to your customers.
For instance, gift cards and loyalty programs are proven to boost sales and improve customer loyalty. With the right processing company, you can find affordable POS equipment that enables you to take advantage of these effective options.
Find out about who is involved in credit card processing
To help you understand a little bit about credit card processing, here are a few things to know about the organizations involved in the process:
The Credit Card Association – Visa, MasterCard, Discover, and American Express are the big players – the companies that create the credit cards. Note: They also set some of the security “rules” via PCI compliance.
The Issuing Bank – This is the financial institution that issues the credit cards i.e. Capital One, Chase, and Citi. There are some cards that act as both the bank and the credit card association – American Express and Discover are the two examples of this.
The Acquiring Bank – The acquiring bank is known as the processor and this institution acts as the messenger between the credit card association and the merchant. They relay batch information as well as authorization requests so that the merchant can successfully complete the transaction and get paid.
The Merchant Account Provider – The company that manages credit card processing including issues such as sales and support. This is typically completed through the support of an acquirer. The merchant account provider could be a financial institution, an independent sales organization, or the merchant account provider could also act as the acquiring bank as well.
What is the Pricing Model?
There are a few ways that a credit card processor could charge your business for processing credit cards, but the most common by far is the tiered pricing plan. In this plan, your transactions rate is broken into three separate prices:
The qualified rate is the lowest of the three, and it will most likely be the one that is quoted to you when you’re calling credit card processing providers. This is because it is also the most common type of transaction you will likely process at your shop.
A qualified transaction has to meet the processor’s criteria – and that’s important for you to understand to ensure your rates are the lowest possible rates.
Here are two examples to help ensure most of your transactions will be qualified transactions:
- Swiping in-person sales instead of manually entering the credit card information
- Ensuring that you batch out your settlement every day
They are far less common, but some types of business cards and certain rewards cards may also get dinged to a mid-qualified or non-qualified rate, but the most important thing to focus on is ensuring that your team batches out each day, and swipes all cards when possible.
Tiered pricing plans aren’t necessarily more costly, but be sure to understand what makes a qualified transaction when you sign an agreement with a processor. There are some companies that make things purposely complicated on their pricing plan – and you get stuck with those excess fees.
That’s why it’s a good thing to look around and do some background checking on any company before you sign on the dotted line. Take a look at the company’s client feedback and retention rate, as well as any BBB ratings to make sure you find the most reputable company – our credit card processing company list helps you do just that.
In addition to transaction fees that are based on what the credit card associations publish plus the processor’s fee, you will also need to understand some of the other, lesser costs involved in credit card processing.
Flat Fees for Processing – Flat fees are potentially negotiable and can have various names, applicability, and costs depending on the company. As an astute business owner, it’s important that you understand a bit about these fees and negotiate to get the best deal possible. The best thing to do when you call a credit card processing provider is to just ask what their specific flat fees are so you know what to expect.
Network Fees – These are non-negotiable fees that are charged by the major card networks (Visa, MasterCard, and Discover) and they are passed to you as the merchant.
Statement Fees – Typically, you can expect around $10 for the administrative and / or printing costs involved in creating credit card statements.
Minimum Fees – There are some processing companies that charge minimum fees if you do not hit a certain dollar amount for the month or the year.
Early Termination Fees – This fee is charged if you decide that you want to change companies, so make sure you understand if this fee applies to you. Many credit card processing companies out there do not make it necessary to sign a long contract, so you want to look out for termination fees when you’re calling around.
Annual Fees – Many processing companies do not charge various annual fees, but some will – that’s why it is important to call around and ask if annual fees are applicable.
PCI Fees – As mentioned briefly, the major credit card brands collaborated to create security standards known as PCI. It is incredibly important for you to ensure you are PCI compliant. You’ll not only protecting your customer’s information with PCI compliance; you gain protection yourself as well.
In a nutshell, serious fines and public relations issues could follow if you’re not PCI compliant. Your processing company can help you ensure that all of your ducks are in a row as far as PCI compliance.
Payment Gateway Fees – If you have an e-commerce business, you may have payment gateway fees associated with doing business online.
Terminal fees – These fees apply to a storefront who decides to lease point-of-service equipment. There are pros and cons to buying or leasing. Keep in mind that there are many options that help you avoid bulky in-store terminals entirely, such as mobile credit card processing solutions.
Keep in mind that when you’re calling a credit card processing provider, there are different ways that transaction rates can be calculated, so it’s important to understand how they determine your rate structure. You’ll want to find a company that has a fair pricing plan and is also transparent in billing. What our team does is works to vet the best companies out who we feel outshine the rest.
That’s why checking out our Top 50 Credit Card Processing Companies is a great place to start on your search. Our team works to find companies that consistently offer top-tier customer service and have a solid reputation of being fully engaged in the credit card processing industry.
It’s more important now more than ever to take advantage of the open doors credit card processing can open for your business. Studies show that shoppers are purchasing more with credit cards, over the Internet, and with mobile processing solutions. It’s up to you to make sure you’re keeping up with demand and reaping the benefits of satisfied customers.