If you plan to accept debit cards or credit cards in your business, you’ll need a company to process those bank card payments. Unfortunately, many cut-throat merchant service providers have given this service a bad name. When I talk to business owners about credit card processing, I inevitably hear groans of confusion and frustration. However, you don’t have to leave your business at the mercy of a few greedy processors. Let me give you a crash course on credit card processing.
Special thanks to Harold Freedman of Merchant Services Consultants LLC for his contributions to this article. Call 865-567-6637 or email: firstname.lastname@example.org
When you sign up for merchants services associated with credit card processing it is easy to lock yourself into fees that are not the best they could be out of sheer ignorance. Is it clear whether you’re paying normal or egregious fees? How much does it really cost you to swipe a customer’s credit card?
To decipher bankcard processing fees, you need to understand the difference between types of processing.
If you process less than $7,000 or so in credit or debit cards each month for your business, then you might want to choose a merchant service provider that offers a flat rate and set fee. Companies like Square, PayPal, and Stripe charge a preset percentage rate plus a 15 – 30 cent processing fee for each successful transaction. They do not charge different fees for swiped cards, keyed cards, rewards cards, corporate cards, or the like. All transactions incur the same rate and fee.
Although the set fee may be higher than conventional processing fees, flat rate processing companies don’t charge miscellaneous fees, setup fees, or monthly fees. Business owners don’t have to guess what they’ll owe at the end of each month. Thus, many small business owners prefer the ease and simplicity of flat rate processing.
If you process more than $7,000 in credit or debit cards each month, the “high” standard processing rates of flat rate companies could jeopardize your profit margins. Therefore, many small business owners who process a high volume of bankcard transactions prefer the discounted, sliding scale rates they can get through conventional processing.
Many conventional processing companies group transactions into tiers, or buckets, where there’s a qualified rate, a mid-qualified rate, and a non-qualified rate. Other times, they have a qualified rate, a mid-qualified rate, a key-entered rate, and a non-qualified rate. In other words, the types of transactions processed and the types of benefits the cards offer affect the rates merchants pay. These tiers can vary as to what cards go into each bucket. And many times, processing companies will add basis point mark-ups to the set-in-stone interchange fees. Yet, the rates tend to be lower than the flat rates offered by companies like Square, PayPal, and Stripe. Therefore, many business owners prefer conventional processing in spite of miscellaneous fees, monthly fees, equipment fees, and other fees processors add on to merchants’ bills.
So, what’s included in the flat rate and conventional processing rates and fees? Obviously, if you’re paying a “flat rate,” you can’t negotiate terms or fees. But are rates and fees negotiable in conventional processing? What services does your money cover?
Believe it or not, you don’t need an advanced financial degree to understand the basics of merchant services. However, you do need to dispel some common misconceptions you may have about credit card processing.
So in this complicated world of credit card processing and merchant services, how do you know you’re getting the lowest rates possible? Well, that due diligence falls on the business owner. I recommend doing the following things:
So there are the ins and outs of bank card processing. Now you know what your money covers and how to choose a trustworthy and reliable provider. Take control of your merchant services so processors don’t take advantage of you.