What Is the Best Payment Processor?
February 11, 2020 | Merchants | Dustin
Credit card debt in the U.S. has topped $1 trillion in the United States, according to the Federal Reserve. On top of that, only 24% of the U.S. population uses cash for payments. While that number differs in other parts of the world, it’s clear that the use of credit cards for payment is here to stay.
What does that mean for business? To remain competitive, today’s businesses must be able to take credit cards and must understand which is the best payment processor for them. Read on to learn how to choose the best payment processors for your company so that you can best serve your customers, protect your company, and keep fees as low as possible.
State of Credit Card Processing in 2020
There are a few changes to expect in 2020. First, we live in a land where consumers rule. They are looking for a fast and easy purchasing experience. They are also using different methods of purchasing. Today’s consumer wants the ease of use when they use their credit cards as well as the assumption of safety. They want their personal information protected and their credit card processing secure.
They are considering things like voice payments and payments through social media channels. This makes it important to stay on top of changing technology and choose a credit card processing company that is able to adapt to the changing landscape.
In 2020, in addition to mobile credit card processing that allows you to accept payments wherever your customer is, you’ll also need to be able to accept payments in multiple ways.
You need to have an online presence and it needs to be mobile-friendly. A whopping $9.4 billion in sales were made on Cyber Monday in 2019, and more than 32% of purchases were made using smartphones, according to Adobe Analytics.
The Impact of Contactless Cards
Brick and mortar stores should also keep up with the times. Your Point of Sale (POS) system must not only accept swipe and chip cards but they should also accept contactless payments. It has taken a while for most Americans to adopt mobile wallets (Apple Pay and contactless cards).
According to Mobile Payments Today, presently approximately 1/3 of adults are using these to make payments or transfer money. For contactless cards – which use the same near-field communication technology as mobile wallets – adoption may happen faster. In 2019, Visa met its goal to get 100 million contactless cards into the market. In 2020, it aims to get 300 million contactless cards out. Additionally, it has taken steps to encourage consumers to use them. Some have estimated that contactless cards will surpass cash by 2021.
In New York, Visa partnered with Chase and the Metropolitan Transport Authority, so that by the end of 2020, consumers will be able to use contactless cards on all rail lines and buses. As for new mobile payment technology, the Payment Card Industry (PCI) released its new standards for contactless payments, and it indicates that soon card readers may not be needed for mobile credit card processing. Merchants may be able to accept payments using just a mobile device and a payments app. In a press release, PCI SSC Senior Vice President Troy Leach said the new PCI standards and program for contactless payments “now provide merchants the option to use validated solutions that require no additional hardware to accept contactless transactions.”
Importance of Fraud Prevention
The demand for secure transactions is important to the modern consumer. In addition to a “fast, frictionless experience,” consumers expect their data to be secure. Though EMV adoption has been extremely effective in reducing incidents of card-present fraud, card-not-present fraud is rampant. Over a five-year period – from 2018 to 2023 – retailers will lose $130 billion to CNP fraud, according to Juniper Research.
Payment processing companies are projected to spend close to $10 billion by 2023 to detect and prevent fraud. In a TSYS blog, Scott Talbott, SVP of government affairs at the Electronic Transactions Association, explains the technologies that processors are investing in to prevent fraud, writing. “These tools are powered by technological advancements like machine learning, biometrics, geolocation tools, and artificial intelligence. They are critically important in the fight against increasingly sophisticated criminals.”
How to Choose the Best Credit Card Processing Company
Choosing the right credit card processing company is not simple. However, following a few simple rules makes the process a little easier. There are also a few key players that you must know and understand the ins and out of how they work so you can choose the right processor for you.
The first is the customer. You must know your customers in order to be able to ensure you are giving them the methods of payment they prefer. The second is you; how is your internal system set up and how you prefer to be paid by your credit card processor. Are you willing to pay an additional fee to get your funds immediately or can you wait a day or two to get free processing?
Finally, as you will see, you need to know more about the payment processor, payment gateway, credit card companies, and the banks that are processing, sending and receiving funds.
Rule 1 – Know All of The Fees Up Front
What makes comparing credit card processing hard is that each company has a slightly different way to calculate their fee. Some use a flat rate and some use a rate based on the volume of money you process. Others use a processing fee and a per-transaction charge.
Credit card processing fees are the fees you pay to the bank and the credit card processor to process the credit card and transfer the money to your back. Credit card fees can vary from 1.7% to 10% depending on the nature of your company, its risk status, and the volume of business that you process.
Below are the types of fees that go into calculating your credit card processing fees.
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First, there are transaction fees. This fee is made up of the interchange rate, the assessment fee, and the payment processor markup. This is a cost per transaction and is the highest fee.
Every time your customers use a card to swipe, dip, or tap, either on-line or in-store, you are charged a transaction fee. This is also how these companies make their money. This includes the issuing bank, receiving bank, the credit card network, and, finally, the payment processor. The first two are pretty straight forward.
The issuing bank is the bank that provided your customer’s credit card. The receiving bank is the bank that receives the funds and deposits it into your account. In some cases, this is the same bank, and fees are then lower.
The 4 major credit card networks are Visa, Mastercard, Discover, and American Express. If you are doing sales outside the United States, then you may be working with other credit card networks.
The payment processor is the middle man between the issuing bank and the receiving bank. Your payment processor can be a merchant service provider or a payment gateway. The processor handles issues such as cardholder verification and transaction disputes.
The interchange rate is how the issuing bank and receiving bank make their money. This is charged every time a card is processed. You can be charged part or all of this fee depending on multiple factors.
Interchange rates or reimbursements are typically calculated as a percentage of the total sale amount. Each card determines its own rates based on the following factors:
- The card’s brand
- The type of card (like rewards, debit, or business credit card)
- How risky the card network considers the merchant’s business and industry
- How the merchant accepts payment (like a swipe, insertion into the terminal, typing into the terminal, or online) as each carries a different level of exposure for the network
The Assessment Fee
This fee is how the credit card network (Visa, Mastercard, Discover, American Express) makes its money. They charge a fixed fee on top of the interchange rate for every transaction.
The assessment fee + the interchange rate = the interchange fee which is charged for each transaction. Each network sets its interchange fees (almost 300 different ones) and they’re updated twice per year. The models used to calculate these fees are complex and vary widely.
This fee is non-negotiable and is fixed regardless of your payment processor.
Other Types of Fees
The next type of fee is flat fees. Merchant service providers charge this for using their service. These are monthly fees charged to your account.
Incidental fees are just like some of the additional fees charged by your personal bank. This can be charged by your payment processor or merchant account provider. Typically these are the result of chargebacks and non-sufficient funds.
Rule 2 – You Get What You Pay For
Sometimes new companies look for the least expensive option in an effort to save money. But the old adage that “You get what you pay for” is true. Cheaper processing companies only give you basic service but you save significantly on fees. Others charge a little more but you get better services and better software to support sales. You need to balance these two competing forces to find the right card for your needs. This is where merchant provider companies can help you find the best solution for your unique needs.
Rule 3 – Know Your Risk Status
Credit card fraud is on the rise. According to the Federal Trade Commission, there were over 535,000 cases of imposter use of credit cards in the United States in 2018. So what does that mean for credit card processing?
Sellers are rated as low, medium, or high-risk for card processing. High-risk processing is most common with 100% eCommerce companies. However, solutions like Authorize.net specialize in helping high-risk businesses accept payments. Other high-risk industries include travel, CBD companies, and pawn shops. If you are not sure if you fall into a high-risk category, here is more information to help you determine your company’s status.
Rule 4 – Find a Company that Gets to the Bottom of Issues
Regardless of your risk factors, issues arise as criminals get smarter and consumers want increased ease. You need to find a credit card processing company that can help you get the bottom of an issue so that you don’t have to deal with it in the future.
We learn from the experience of our wide variety of customers and share that knowledge with you. This includes identifying your risk status and helping you change that if possible.
New companies can often be misclassified as high risk because they are unknown. We can help you periodically assess your risk status (fraud, returned purchases, customer complaints, etc). With this knowledge, we can sometimes lower your risk status and thus your processing fees.
We are committed to providing you the best possible support to see that your company continues to grow in our plastic economy.
Rule 5 – No Pressure Sales
We do not believe in high-pressure sales or long term contracts. Companies change and evolve and we are committed to a long-term relationship with you and your company. If you have questions, your personal representative can help you resolve and evolve your plan.
Do You Need Help with Your Payment Processors?
We understand that it isn’t easy to identify the right payment processors for your company and that is where we come in. We specialize in Low to High-Risk eCommerce merchant accounts in almost any industry.
Our qualified team has been recognized by Inc 5000 for our ability to provide comprehensive solutions to our customers. We can help you find the right processor for your company regardless of volume or risk.
We also offer several other partnership and agent opportunities for you and your company. With our Partnership Program, you can refer your B2B clients to us and receive 15-50% of net to your account.
Our Agent Program is designed to support those in the field that are looking to find credit card processors for their clients. You do the referrals and we find the right solution for your customers.
Contact us for all your merchant service needs.
February 11, 2020 | Merchants | Dustin