The world of payment processing is huge and growing continually as new technologies and payment avenues expand. No longer are customers confined to just paying cash or credit. From using debit cards to mobile pay apps, customers are defining their purchasing preferences not only by the products that your store sells, but also the type of payments you accept. That's why selecting the right credit card processor can have a significant impact on the amount of sales you make and long-term customers you win over.
Credit and debit card networks don't interact directly with businesses of any size - they hire third-party credit card processing services through merchant account providers. The merchant account providers (also known as aggregators) then work with payment processors to handle transactions.
The actual credit card process can be confusing, especially for new business owners who are taking online payments. Here are a few terms to understand:
This process allows for all types of credit cards, debit cards, gift cards, and EBT (electronic benefit transfers) to be accomplished through a single merchant account provider. Once the payment processor receives confirmation from the issuing bank, then payments are transferred to the merchant account provider through the payment gateway and into your business accounts.
Unlike comparison shopping for the best price on a favorite product, comparing the services, fees and extras that credit card processors provide can be a difficult endeavor. Sometimes you really have to dig through the contract red tape and put the sales representative on the spot to get the right information to make the best decision. The four main factors to consider and to ask the credit card processor before selecting them:
It is the fees that can bring the most hassles to your business. Some of the typical fees you will encounter include:
While many processors will work with universal software, you still need to ensure that your ecommerce shopping cart can work with this software. You also want to look for a processor that offers options to take digital wallet payments as more people use their smartphones to make payments.
Interchange-plus pricing is the transparency offered in regards to what credit card companies charge in interchange fees. It also gives details on how much you are paying the payment processor in fees. This type of pricing allows you to keep track of expenses so you are not overcharged.
Early contract termination fees can vary widely. They may charge from a couple hundred dollars to a couple thousand dollars. Look for contracts that charge anything lower than $400 for termination.
A liquidated damages termination fee is a early contract termination process where your business may be charged the full contract's estimated amount. So if you cancel within the first few weeks or months, you may be charged for a breach of the contract and the loss of fees that the merchant account processor would have obtained.
Another red flag to watch out for are the nonqualified rates. Nonqualified rates are fees charged for certain types of transactions -- such as credit card payments a customer makes over the phone. These charges can range anywhere from 5% to 8% and can apply to a wide range of transactions. Ask the credit card processor for a sample monthly statement so you can see what itemized charges there are for transactions and can ask the right questions for greater clarity of their services.