Credit Card Processing
Accepting your customers credit cards is more complicated then it looks. With so many different banks and third party merchant providers offering credit card processing solutions it helps to have a concise overview of the various transaction fees, discount rates and technologies to consider.
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Credit Card Processing - Info
Whether you conduct business online, offline or both you will at some point consider accepting credit card payments from your customers. The decision to allow credit card payments may be a simple one; however, selecting a merchant account provider is complicated and can have a real impact on your business not to mention your bottom line. Unfortunately, not all merchant accounts are alike. You’ll soon learn that providers have different approaches to rates, fees, limits, not to mention customer service – and finding the right match for your business is critical. The remainder of this guide will break down the process and key considerations to enable you to find the right solution.
How Credit Card Processing Works
Without getting too detailed and caught up in all the possible exceptions, here’s what happens when a credit card is processed:
1. Merchant processes card with a point of sale unit or via software if online.
2. Data is transmitted (card info, sales amount) to the “acquiring” bank.
3. Acquiring bank requests authorization from the “card-issuing” bank.
4. If accepted, acquiring bank processes the transaction and sends approval back to the merchant.
5. The merchant reviews the transactions and transmits confirmation to acquiring bank for deposit.
6. Acquiring bank then requests and receives funds from the card-issuing bank.
7. Acquiring bank then deposits funds into the merchant’s account.
Basic Fees
Needless to say, all parties involved in this process benefit (take a cut). Here are the primary fees to consider:
Set-up fee – one time fee for getting started
Transaction fee – merchant pays a fee for every transaction
Discount rate – flat % charged to merchant for every transaction
Chargeback rate – rate of monthly sales “held” in reserve to offset any fraudulent transactions
Chargeback fee – there is often a fee for charge-backs
What To Ask Merchant Service Providers When Evaluating Them
In order to get the best deal from a merchant service provider it is important to understand the different ways they can make money.
New client set-up and application fees
Sale of processing software and equipment
By participating in the transaction fee that occurs with every customer transaction
With this in mind, when evaluating providers, make sure to consider how they make their money and how reasonable their products and services are. In addition, be careful to inquire about the following:
Am I required to contribute to a reserve? What % of sales?
How will my credit rating affect my cash reserve requirement?
Will my credit rating affect any of my fees?
What is my monthly minimum processing fee?
How could the rates you’re quoting me change following the application process?
Can my equipment fee change at all as a result of the application process?
What happens if I process a foreigner’s card?
What happens if I’m unable to process/batch my daily transaction (miss a day)?
What happens if I exceed my daily (revenue transacted) limit?
What happens if I have an unusually large number of charge backs?
What To Look For From Your Merchant Solution Provider
First, you have to make sure that you have competitive rates and fees. For example:
If you sell high volumes of products, low transaction fees are critical
How will your discount rate change for offline (card present) transactions vs. online?
Does your business expect to receive chargeback’s? What are the policies associated with these?
Etc.
Next, make sure you understand the level of customer service you will receive. Hours spent trying to resolve technical issues, etc. can be extremely time consuming and costly.
Finally, consider whether you will require additional services such as integrated ecommerce processing and order management as not all merchant providers offer these capabilities.
Requirements For Receiving a Merchant Account
Banks and third party merchant providers have established a variety of requirements in order to mitigate the risks associated with processing credit cards including credit, fraud and contingent liability risks. Basic requirements include:
A business checking account with a US bank.
A US postal mailing address (same address as business checking account).
Online - server must be located within the US
Depending on the nature of your business, credit rating etc. additional requirements can include:
above normal setup and transaction fees
above normal reserve requirements
Credit Card Processing Equipment Overview
While not as complicated as selecting a merchant solution provider, selecting the right equipment, and getting a good deal on items such as credit card terminals is important.
Things to consider when purchasing credit card terminals:
Fees on transactions that our “swiped” are often lower than if keyed in
The cost of leasing equipment usually far exceeds purchasing it within a year
Not all terminals accept debit cards which require the customer to key in a pin number
Similarly, if you plan on accepting gift cards you will need to purchase terminals capable of handling them
Businesses whose transactions are entirely online should not buy terminals – their software should handle the authorization
Make sure that AVS (address verification system) comes standard with your equipment to cut down on fraud
Note: you don’t require new equipment when switching merchant account providers – you simple need to have the existing equipment re-programmed
Receipt Printers:
Choices include thermal, dot-matrix and ink-jet and are often built into the credit card terminals. Be realistic about your needs and priorities… is color really a necessity (the main reason for ink-jet)? Is wireless truly a requirement for your business?
How To Compare Merchant Solution Providers
When comparing providers it is extremely important to remember that the type of business you have and the needs that come with it will determine what you’re looking for from your merchant account. Once you’ve identified the key attributes that you’re looking for (low transaction fee vs low discount rate), you’re ready to compare solutions.
First make your best estimate of the following:
Average number of transactions per month; and
Average size ($$) per transaction
Next gather the following costs from each provider:
Set-up fee(s)
Transaction fee(s)
Discount rate
Chargeback fee (s)
Gateway fee(s)
Use your transaction assumptions and fee research to calculate the resulting monthly fees for each of the merchant providers you are considering.
Where To Go For Merchant Account Providers
In addition to the advertisers featured on this page, here is a sample list of current providers:
Landmark Merchant Solutions
Merchant Warehouse
Charge.com
Merchant Account Express
Chase Merchant Services
ACS Merchant Services, Inc.
Citicorp Payment Services, Inc
BA Merchant Services, Inc.
First Data Merchant Services
NOVA Information Systems, Inc.
Bank One Merchant Services
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