Small business owners have to make numerous decisions on a daily basis. We felt having Five Tips on Credit Card Processing at their fingertips would save them time and keep them better informed when it came to having to make a decision. If you’re running any kind of business, more than likely you have to make decisions regarding how you accept and process payments both in-store and on-line.
1. Ask for Interchange Plus Pricing
The easiest pricing to understand and in most cases the lowest rates come from Interchange Plus pricing. “Interchange Fees” make up the majority of monthly credit card processing fees. And are set by the major card brands such as Visa®, MasterCard®, Discover® as well as other card brands that represent the various payment networks. Interchange fees are paid by the merchant’s bank to the cardholder’s bank, also known as the issuing bank, to pay that issuing bank for the value and benefits that merchants receive when they agree to accept credit card payments. Interchange fees are used by card issuing banks to cover costs involved in providing services to their customers.
“Processing fees” on the other hand are the fees charged by the acquiring bank or merchant’s processing bank. There are basically three different fees that can be charged for processing the transaction, although some sales agents in the industry like myself only charge an authorization fee and discount fee on each sale. Authorization fees should only be a few cents on each sale. PayPal charges $.30 per transaction which is considered by many to be quite high, especially on transaction of less than $50.00.
Discount fees should be stated as basis points, which are fractions of a percent. Example: 50 basis points equals .005 or one-half of a percent. Most agents will quote you an authorization fee and discount fee based on the type of business you are in, your monthly credit card volume and your average ticket sale.
If your agent or bank is also charging you a “transaction fee” you would then have to add the authorization fee and transaction fee together to see how many cents you are paying on each sale. Some sales agents may try to hide the fact that there are those two fees, and if you see those two fees on your application before your sign, you are very likely overpaying. There is usually no reason to be paying an authorization fee and transaction fee, unless both are very low. Online transactions are an exception. A typical online transaction could have an online transaction fee and an authorization fee, but in either case it should still be less than the $.30 per transaction that PayPal charges.
You also want to understand the monthly amounts you are paying for things like a statement fee, PCI compliance fee, debit enablement fee (if you will be taking debit payments) and next day funding fee (an optional fee). Also, ask if there are any monthly fees, setup fees, monthly minimums or activation fees.
Try to get the application in advance of signing, or at least a written quote so you can review the quote and ask any questions after a good review. If you are a restaurant owner or manager you can also refer to our Five Tips on Credit Card Processing for Restaurants for some additional information specially prepared for restaurants.
2. Analyze the Cost Savings of your Quote
Many small merchants don’t know how to analyze the cost savings when a sales agent or banker offers to save them money on their credit card processing. Here is a really simple way to understand how to calculate your savings.
Example Based on Your Current Pricing: Let’s say you process $50,000 per month, 1,000 transactions and your current Interchange Plus pricing is $.25 per authorization and a discount fee of 75 basis points (.0075%). That means you are paying $250 for authorizations (1,000 x $.25) and $375 for the discount fee ($50,000 x .0075) for a total of $625.00
Example of Savings from New Pricing: If your new pricing is Interchange Plus pricing of $.20 per authorization and a discount fee of 55 basis points (.0055). That means you are paying $200 for authorizations (1,000 x $.20) and $275 for the discount fee ($50,000 x .0055) for a total of $475.00, meaning you are saving $150 per month with the new pricing.
You also need to understand exactly what your monthly fees are for such things as statement fee, PCI compliance fee, next day funding fee and debit enablement fee if you take debit cards that require the customer to put in their PIN.
Don’t be fooled by bank employees promising you low rates. Banks are simply using their name to charge higher processing rates and lock up the merchant for 3 years. Another thing to be careful about is that some credit card processing contracts automatically renew for 1 year periods and in some cases even 2 years, if the merchant does not cancel the contract at least 60 days before the end of the automatic renewal period. You may want to write on the application before you sign that there is no yearly contract and no early termination fee. If the banker or sales agent says they can’t give you that preferred pricing without a three year contract or termination fee, then DON’T SIGN. Following these five tips on credit card processing can save you a significant amount of money.
3. Try to Incorporate Online Credit Card Processing
If you are a busy retail store or restaurant, you should carefully think about working with a processor that can accommodate your online credit card processing needs, and I am not talking about accepting PayPal payments at 2.9% and $.30 per transaction. Online payments are becoming more and more common. They save time, they expand your customer base, they reduce your costs by freeing up time and employees and they can even increase your gross revenues.
Online ordering software for restaurants is now big business and Takeout Rocket specializes in delivering and easy to use app to restaurants and their customers. With two simple pricing plans Takeout Rocket reduces your online takeout ordering costs and helps increase your orders through social media posts on Instagram, Facebook, Pinterest and Twitter. If you are paying more than $50 per month or 5% per order to an online ordering company, you are over paying and need to cut your costs. Contact Takeout Rocket to see how we can cut your costs and improve your gross and net profits.
Tradesmen have also started to see the usefulness of using online credit card processing as well. Online payment means they don’t have to keep rebilling customers who are slow to pay and online credit card payment systems have a recurring billing function for credit card payments as well as ACH. Electricians, plumbers, roofers, carpenters, landscapers and even refuse collection companies can truly benefit from having an online payment system.
4. Make Sure Your Terminal and POS System are Secure
If you are one of the many businesses that has updated your credit card terminal or POS system to accept chip cards, well congratulations, and you have certainly made a step in the right direction in preventing credit card fraud. You may or may not know this, but that is only half the battle.
Your business is still at risk regarding the way it accepts electronic payments and you need to take additional steps. Here are a few steps you can take to make sure your business is safe and you are reducing your risk of small or large losses.
- Make sure your terminal has a password to allow refunds to customers, but only allow managers o employees you trust access to that password;
- If possible, talk to your processor and change the password for refunds periodically, especially if you had to let go of managers that were less than trustworthy;
- Do not use a POS to swipe credit cards since that data is stored in the POS and if you have a data breach, or the POS company you use has a data breach, you will need to notify all those customers affected, the card brands will fine you thousands of dollars and you will have to pay the cost of reissuing new cards to the customers that are in your POS system. Rosen Hotels found this out the hard way when they were fined $2.4 Million and their insurance carrier claimed the data breach and any ensuing losses were outside the scope of the commercial general liability policy;
- Make sure you understand the PCI compliance requirements of your processor and what happens if you are non-compliant; and
- Talk your insurance carrier about getting cyber insurance coverage, what it costs and what it covers.
Following these five tips on credit card processing can significantly reduce your risk and give you piece of mind when it comes to security risks and being covered by the proper insurance.
5. Switch to the American Express Opt Blue Program if you are getting a Separate Bill
American Express recently began a new program for small business doing under $1 Million per year in American Express. It is now a combined statement from your credit card processor so Visa, Master Card, Discover and American Express are all on one statement and the rates for American Express are reduced significantly. If you are paying more for American Express processing than you are for other cards, you may want to give us a call.
We hope these Five Tips on Credit Card Processing have shed some light on an often confusing subject and will better prepare you when it comes to reviewing or changing your current credit card processing situation. Of course we would really like to help you with your online takeout ordering if you are a restaurant, but we are always available for free consultations and analysis of your recent processing statements no matter what business. We enjoy leveling the playing field for small business owners when it comes to electronic payment solutions.