Rich McIver, Founder, Merchant Guide LLC
Credit card processing has become essential for businesses to thrive, but choosing the right company can feel like an overwhelming process. There are several aspects merchants must consider, including the costs and credibility of the company.
Finding a company that can provide the services needed for your business at an affordable rate can be simple if you know what to look for in a credit card processor. Here are four important things to remember when signing up for credit card processing for your business:
1. Compare more than just the qualified rate
When searching for a credit card processor, you want to compare multiple companies to ensure you find the best price for your business. Processors typically use three-tiered pricing models that divide transactions into three categories: qualified, mid-qualified and non-qualified. The rate associated with each tier should be considered before selecting a processing company.
Qualified transactions generally are processed at the lowest rate of the pricing tier. Because of this, some companies boast a low qualified processing rate. This does not necessarily mean it is the best credit card processor for your business. Although the rate is low, the company could have high rates for the mid-qualified and non-qualified transactions.
For instance, one company may advertise a qualified rate of 1.5 percent, while another company lists its qualified rate as 1.9 percent. The choice may not be as obvious as you think. The first company still could have higher rates in the other tiers, making the overall rate more than the second company. Additionally, the company could limit which transactions are considered “qualified.”
2. Transaction tiers can vary per processor
Knowing how transactions are qualified is critical in selecting a credit card processor. Transactions can be divided into qualified, mid-qualified or non-qualified rates based on the type of credit card used or how the merchant processed the information. Each processing company can decide how transactions will be divided among the tiers, which can make it difficult to compare companies.
Generally, non-reward credit cards and debit cards are classified in the qualified category, although some companies only allow debit card transactions to be considered qualified. This means these are the only types of transactions that will be processed at the lowest rate. Any other type of card could see much higher markups.
For retail merchants, swiped reward and keyed-in consumer and debit card transactions typically are in the mid-qualified tier. Some processors also may consider business credit cards to be in the mid-qualified tier. These transactions will have a slightly higher markup than those in the qualified tier.
Some of the highest rates can be seen for transactions that are considered non-qualified. Processors typically include all commercial and upper-level reward cards in the non-qualified tier. Some processors, however, may include all rewards transactions, which could lead to excessive charging.
Ultimately, it is up to a processor to decide how a transaction is designated. This makes working with a reputable company and reading the fine print of an agreement vital. Merchants should be adamant about knowing how transactions will be tiered and the rates corresponding to each tier.
3. There are alternatives to tiered pricing
A majority of credit card processing companies use tiered pricing, which sometimes can be misleading and costly for merchants. However, interchange plus pricing, or interchange pass through, is an alternative to the tiered pricing. This typically is more competitive and can offer lower fees.
There are two parts to the interchange plus pricing that must be considered: the interchange and the “plus.” The interchange amount is a rate set by the card associations, such as Visa and MasterCard. Every merchant must pay these rates, and processing companies cannot adjust them. However, processing companies can determine the “plus,” which is the amount they charges merchants for the processing service.
With interchange plus pricing, the processor charges a fixed percentage over the actual interchange rates. This allows merchants to know exactly what they are paying each time they accept a credit or debit card.
For example, if a merchant swipes a MasterCard debit card, the interchange rate could be 1.05 percent plus 15 cents. The credit card processor then adds a surcharge to the interchange amount, which is considered the “plus.” If the surcharge is 0.35 percent plus 25 cents, the merchant would be charged a total of 1.4 percent plus 40 cents.
4. Be aware of potentially hidden fees
Some merchants may be surprised by what they actually are paying for credit card processing because they are faced with unforeseen fees. When choosing a credit card processor, be conscious of where companies may tack on extra charges. Some companies may charge an initial set up fee, while others have costly termination or cancellation fees.
Merchants also could be faced with pricey monthly minimums in addition to standard monthly fees. The “monthly minimum” is dependent on the total fees generated from transactions. If a merchant fails to process enough payments, a processing fee still will be charged. Monthly statement fees and administrative fees also can be added.
The key to finding a credit card processor that can work for your business is selecting one that is transparent about what it offers. Attention should be paid to fees and how you will be charged rather than tricky marketing. This can help prevent merchants from being misguided and forced into paying high rates. Knowing about all of the fees the company charges is important so you know what to expect and can budget appropriately.
About the Author
Rich McIver is the founder of Merchant Guide LLC, a company that helps independent business owners with find competitive credit card processing solutions for their business. Follow Rich on Google+ and on Facebook.