Accepting credit cards is an integral part of doing business today. Whether you’re an online retailer or you have multiple locations, you’ll need a payment processing provider to act as an intermediary between your business and the bank.
Fortunately, businesses have a wide variety of choices—perhaps too many choices. Once you start shopping around, you’ll likely feel overwhelmed by the large number of providers vying for your business. Here are a few things to keep in mind as you obtain bids from multiple payment processors.
As you start shopping, your main concern will likely be cost. You’ll probably find as you start shopping, though, that calculating the rate you’ll pay isn’t easy. Like every other service, the rates you pay may also depend on your business’s credit score, so it’s important to work hard to keep this number high. There are several ways payment processors set their rates. Those are:
- Interchange plus—This rate is the current interchange rate, as set by banks, plus the fee added by the provider (example: 2.9% plus $0.50). Its transparency makes it popular with some merchants but the complexity of this model can make it difficult to read on statements.
- Tiered pricing—Most merchants choose this model, which charges a fixed fee that relates to the type of transaction being processed. Transactions fall into three tiers: qualified, mid-qualified, and non-qualified. Qualified transactions have the lowest fees but apply only to the safest transactions, which primarily are those swiped in person with a same-day batch settlement.
- Monthly charge—Some providers do away with the above pricing models and make it easy for businesses by charging a flat monthly rate for a set number of transactions. The rate increases based on how many transactions come through.
In addition to processing rates, you should also consider other fees that will be charged to your account on a regular basis. Some providers charge monthly fees for administering your account, as well as PCI fees, terminal fees, and payment gateway fees. If you suffer chargebacks, you’ll be charged a fee for those, as well, regardless of whether you’re found at fault in the dispute.
In an increasingly-competitive market, providers have been battling to offer the biggest suite of features to customers. Even brick-and-mortar shops have a need for sophisticated software-based features to process payments. Many processing providers now offer mobile payment options, as well as portals through which businesses can manually enter payments made by phone.
Before you start your search, make a list of the features you need in a payment processing provider. Those can include some or all of the following:
- Free terminal.
- Real-time processing of website orders.
- Shopping cart setup.
- Gift and loyalty card acceptance.
- Secure card information storage.
- Card swiper for tablets and smartphones.
- Fraud prevention and detection (often provided in partnership with Authorize.net).
- Rapid transfer of funds to merchant’s bank account.
- No contract required.
- 24/7 customer service.
Before signing a multi-year contract for processing services, be sure you fully understand all the terms. Often you’ll find a hefty fee is associated with canceling the contract before the end of the term. If this is a new relationship, you have no idea whether the processor will live up to its promises. Having the flexibility to cancel without a huge penalty also gives you the freedom to learn more about the many services available and change your mind if applicable.
Early termination fees come in several forms, from a flat-rate cost that ranges in the hundreds of dollars to a “liquidated damages” fee that can range in the thousands. If you find a processor that offers everything you want but has a hefty cancellation fee, express your concern to the provider. They may be willing to waive it in order to get your business.
Your service should be able to grow as your business grows, especially if you plan to sign a contract that locks you in for a specified term. Consider not only how the rates impact you today, but what they’ll be five or ten years down the road, when your transaction rate is higher and your risk of chargebacks will increase.
If your business is new, it’s especially important that you decline providers that require a long-term contract. You’ll likely have no idea what you’ll need on a daily basis, so any choices you make today won’t apply a year or two from now. Month-to-month processing may be best for a startup.
If you’ve narrowed it down to a few choices and can’t decide, the extras may make a big difference. Comprehensive billing services that include reporting can help you determine how much you’re bringing in each month. Check to make sure those who handle your accounting and tax preparation can use the files in the format the provider offers before making a final decision.
With all other things being equal, it can be a huge benefit if your billing and reporting is offered through an online portal with mobile access. This will let you oversee your accounts while on the road, eliminating the need to be on a laptop or desktop to manage your business’s finances.
The choice of a payment processing provider can be a difficult one. With so many options available, however, businesses can easily find one that meets all of its needs while still fitting within its monthly budget.