Think of all the people in your life.
Between family, friends, co-workers and acquaintances, I can guarantee that within this large circle of people, almost all of them own a credit card. This comes as no surprise considering credit card networks such as VISA and Mastercard make it incredibly easy to apply, and often entice consumers with incentives, such as cash back or loyalty points. However, these perks, albeit attractive to shoppers, can pose issues for merchants, steadily increasing their credit card processing costs. This has also added further complexity to the relationships between credit card processors and merchants due to an increasing reduction in transparency.
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If you own a small to mid-sized business, you may be especially impacted by the rise of credit card processing fees. Owning your own business leaves less time to home in on these details, especially since processors appear to make their cost structures and monthly statements deliberately ambiguous. Most small businesses simply don’t have the time to closely analyze their credit card statements each month, and therefore can unknowingly be working with a processor who is charging them a range of difficult to understand fees just to accept credit cards. This will certainly lead to issues down the road, especially if the business grows; more credit card transactions means higher processing fees.
Although processors typically fail to reveal the full nature of their fee structure (many of which could be considered “hidden fees”) during the sales process, there are steps merchants can take to ensure they don’t get blindsided by the system.
Take the time to find the right credit card processor
A quick Google search will reveal the most popular processors and for some, they may very well be the best choice. But often times, the most popular processors are the fastest and easiest ones to set up. While these are attractive attributes that may seem ideal for an eager business owner, in the long run, they can end up costing a lot of money, as a fast application process with few questions usually leads to higher fees. Another reason to shop around is that most sales agents only represent one processor, which may also indicate a limited set of products and services and a small number of sponsoring banks. They attempt to fit their solution into every business mold, which rarely works, as each merchant is different and unique in their processing needs. Especially for online businesses, this can lead to getting hit with an abundant amount of unnecessary fees.
Give as much information as possible…and then some
As mentioned earlier, many processors market their services to be “quick and easy”. Though this seems like a benefit, it can often come with a risk. Typically, the less information required by the processor, the higher the processing fees. While it may feel tedious to assemble an abundance of paperwork, press the processor on the ways your business is unique, and provide them any necessary information pertaining to your business to obtain an accurate and fair rate.
If they mention flat rate fee structures – RUN
Processing costs are composed of Interchange rates, processing fees that are tied to each transaction and fees that are not tied to transactions. There are over 700 Interchange rates – based upon what credit card company it is, who the issuing bank is, and how many card perks are given to the card holder. In reality, the actual fees change depending on which card a merchant processes. If they try and sell you on a flat rate fee structure, this usually indicates that they are using one of the higher Interchange rates and you will most likely be charged more, on average, than you should be.
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Don’t accept every fee, especially termination fees
Some processors will charge “extra” fees that aren’t tied to transactions. Statement fees, monthly fees, and PCI compliance fees are a few common ones that processors try and get by during the sales process. Be sure to review exactly what you’re being charged for and challenge any fee that is merely benefitting the processor. Most times, these extra fees can be either eliminated completely or significantly reduced by contesting them with the sales agent. In addition, merchants should not be tied into long-term contracts where the processor has free reign to increase rates but forbids the merchant from terminating the contract early without penalties. Early termination fees should be, at most, $500 with absolutely no liquidated damages.
Do not accept a reserve – EVER
If the processor is looking to place a reserve on your account, it means they are concerned about your finances, your business model, or perhaps even the industry you support. This reserve can be as high as 15-20 percent of the monthly transaction volume of an account and can have a cap that is equal to or higher than the monthly processing volume. In short, you’ll have a significant portion of your revenue stream held by your processor – without a clear timeframe for when it will be released. If there are concerns on the processor’s end, do whatever you can to ease their mind by supplying financial and business information. Even a conversation with the underwriter can help them understand the business better. If the requirement for a reserve still stands, there are other strategies that can eliminate this including the obtainment of a cross corporate guarantee from another related business or putting up a Letter of Credit.
Understand how to utilize your merchant portal
The processor you ultimately decide to work with will provide you access to all your account activity through an online portal. This online portal is your magical lifeline to all of the data you can access to closely monitor all transactions and fees associated with your account. As most often it benefits processors and their sales agents to reduce transparency and keep merchants in the dark, you should request a thorough run-through of their portal, along with detail instructions on accessing your account.
Communication is key
Stay in touch with your processor regularly. Check in with them regarding fees, statements, and above all, inform them of any spikes and changes in business activity – this can include increases in average order value, increases in high order value, or anything other fluctuations that may cause the processor to reject future transactions or hold funds. They will immediately flag any activity that is unusual for the business (yes, that includes an increase in revenue), and it could result in a long and messy problem for your company.
Now more than ever, accepting credit cards for your customer transactions has become a vital business practice. Business owners shouldn’t be turned off at the idea of working with a credit card processor, they just need to determine which one will provide the right solution for their unique needs. A little up-front research will go a long way – finding the right one may take some time, but in the long run, you’ll save a tremendous amount of money in fees, and discover the world of credit card processing isn’t so scary after all.
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