Although you may have heard credit card processing fee horror stories from other small business owners, you may regret not offering these payment options and taking a cash-only approach. By not accepting plastic, you risk losing sales. According to Intuit, the average small business loses $7,000 per year in sales if they don’t accept payment cards. Not accepting cards may also result in negative reviews from unhappy customers who may be taking their business elsewhere.
Credit Card Processing 101
Before you make a decision on whether or not to accept payment cards, you need to understand how the process works.
There are five entities at play every time a payment card transaction takes place:
- Cardholder/customer
- Issuing bank
- Card networks, i.e., Visa, Mastercard
- Merchant, in this case, aka you, the small business owner
- Acquiring bank (processor)
When the consumer swipes or dips a card to make a payment, the process begins. You, the merchant, accept the payment information, and then the processor collects that data and routes it across other stages, facilitating the communication between you, the card networks and the issuing bank. The card network receives the payment info and passes it along to the customer’s issuing bank, who will then establish that the consumer has the funds for the transaction.
Understanding Credit Card Processing Fees
In the simplest form, processing fees are payment for the service detailed above. It’s important to understand these fees and how you’re charged in order to make the most informed decision on accepting card payments.
Transaction fees are credit card processing fees that are assessed every time you run a credit card transaction. They may also be referred to as interchange or interchange rate. These fees are determined by both the credit card associations and the issuing bank. They remain constant, regardless of the provider, so you can’t “shop around” for these rates.
However, merchant service providers (MSPs) or independent sales organizations (ISOs), which help acquiring banks sell and facilitate merchant services, may have “interchange plus” fees. This is a tiered structure for credit card processing fees based on a variety of influencers, like payment volume, business type, or average transaction amount. These credit card processing fees are negotiable and you can shop around for the best rates. They typically include a percentage of the transaction plus a flat fee.
Selecting a Merchant Service Provider
Before deciding on a merchant service provider, you should do some research on the following:
Hidden fees– Make sure that the provider gives you a transparent look into the credit card processing fee structure. You’ll need to understand the cost per transaction as well as any additional service fees.
Fraud Protection– Whichever provider you select should offer fraud protection as part of your agreement to help reduce your risk against fraudulent transactions.
Rate of Access to Funds– Different processors may offer varying speeds for your funds to hit your account. Typically speaking, it ranges between 24 and 48 hours, but the faster the money gets to your account, the better your cash flow will be.
Other fees may include:
- POS software fees
- Payment gateway fees
- Terminal fees
- Flat fees
- PCI fees
- Statement fees
- Online reporting
- Incidental fees
- Chargeback fees
Is Accepting Credit Cards Right for Your Business?
Research by First Data, found that credit cards have become the most preferred method of payment in the United States. If you aren’t ready yet to expand payment options beyond cash only, as your business scales, it may become unavoidable or you may start losing business. Keep in mind that credit card processing fees are tax deductible, so while the upfront costs may seem high, the deduction, as well as the sales you can make because you accept payment cards, can result in ROI.
If you need advice, Touch Dynamic team members specializing in solutions for small businesses are ready to help or provide you with resources. Don’t delay and let sales go to your competitors that accept payment cards.
