What Businesses Need To Know About Credit Card Processing

Accepting credit cards is a part of business today. If you don’t accept them, you’ll lose a large portion of your target audience, but if you do it wrong, you’ll lose a large part of your earnings.
Many companies have their hand in the pot when they provide credit card processing. There are many channels the transaction goes through to ensure it’s legitimate, safe, and the funds exist. This doesn’t mean you have to overspend for merchant card services.

When you shop around for the right credit card processor, consider the following factors.

Who’s Involved?

It helps to know who your credit card processing fees go to and/or what services it covers. Here’s how a traditional credit card transaction works:

• Credit card network – Visa, MasterCard, Discover, and American Express are the credit card networks. They charge an assessment fee and the interchange fee, which is what allows banks to use them as the network for processing credit card transactions.
• Issuer – The issuer isn’t Visa or MasterCard – it’s the bank. You can get a card from any issuer, such as your local bank or any other company sponsoring the credit cards. The issuer collects the fees and disburses them as appropriate, such as sending the assessment fee and interchange fee to the network.
• Acquirer – This is your bank or the bank trying to obtain the funds to pay for the transaction. You send the transaction through your system which goes to your bank that runs the process through the issuing bank and credit card network to get an answer and/or funds.
• Merchant account provider – This is who makes the entire process possible. All information goes through the provider and to the appropriate parties. The transaction goes to the credit card network that determines the legitimacy of the transaction and communicates with the issuing bank to see if there are enough funds. If so, the network sends communication back through the account provider and back to you (the merchant) to approve or decline the transaction.

This process happens in a matter of a few seconds, as long as you have a valid internet connection. If you don’t have an internet connection, and your process payments offline, know that you take a risk. You won’t have immediate approval of the transaction and may find that the transaction doesn’t go through, so exercise caution when your connection is down and/or find out the credit card processing company’s policy for these situations.

What are the Fees?

This is the most obvious. Know how a credit card processor charges fees. There are three main ways:

• Interchange-plus – You’ll see a clear separation of the interchange fees (these are non-negotiable) and the markup the credit card processor charges. You’ll see it as the interchange fee plus 0.2% + $0.10 per transaction, for example.
• Tiered – This pricing method combines all fees into one percentage, but there are different tiers or each type of card. For example, preferred cards, reward cards, and basic cards all fall in different categories. You may not know the tiers (charges) until you receive your statement.
• Flat-rate – Many payment service providers charge a flat fee, no matter the type of card or amount. For example, some companies charge 2.75% of each transaction. This often leads to the highest credit card processing costs.

Find out what other fees companies charge too. A few to watch out for include:

• Early termination fees
• Application fees
• Setup fees
• Gateway access fees
• Minimum amount fees
• Virtual terminal fees
• PCI fees

What Services and Equipment are Included?

Make sure you know what a credit card processing company includes in their fees. A few key areas to consider include:

• Hardware – Is the hardware/equipment included if you’ll collect payments in-person? Do you need countertop equipment or mobile equipment? Know the terms of the agreement. Do you need to keep the service for a specific period to have the equipment included? Do you need to buy equipment separately? Is there a specific type of equipment that works with the processor?
• Virtual terminal – Do you accept phone or online orders that may occasionally require you to key-in the transactions? Find out if it’s included in the cost and what the processing charges are because they typically cost more than card-present (swiped) transactions.
• PCI compliance – If you don’t want the responsibility of handling PCI compliance, make sure it’s included in your fees and/or services. Some companies include it in your regular fees while others charge a separate fee. If you want to handle it on your own, you can obtain a pci checklist to ensure you are doing everything properly.
• Payment gateway – Will you accept online payments? You need a payment gateway to send the payment information to the appropriate parties. Some processors include it in their fees, while others charge a separate fee.

Shop Around

It’s important to know what credit card processing will cost you. If you don’t choose the right plan, it could mean the difference between a successful company and one that doesn’t make it. Credit cards are an important part of your business, but they shouldn’t eat up your profits.

The amount you owe and pay depends on the structure you choose. Know the pricing model and the markup, plus any extra fees charged for other situations, including offline transactions and hardware rental or purchase. Know if there’s a contract or if you can cancel at any time and know the minimum purchase requirements so you know how your company stacks up. If you only accept the occasional credit card payment, you don’t want to be tied into a contract with high minimum transaction fees and/or penalties if you don’t reach them.

Ask a lot of questions, know the ins and outs of credit card processing and negotiate your fees to make sure you get the contract that suits your business the most.

About the Author

Lou Honick is the CEO of Host Merchant Services. Prior to founding Host Merchant Services in 2010, Lou was the founder of HostMySite.com and received numerous awards including SBA Young Entrepreneur of the Year, Inc Magazine 30 under 30, and multiple listings on the Inc 500. As a serial entrepreneur, all of his companies have operated on a singular devotion to outstanding customer service and support. Lou is a respected expert on the topics of customer service, payments and fintech, Internet technology, and entrepreneurship.