What Should I Look For When Choosing A Credit Card Processor
March 12, 2023 | Merchants | Dustin
For 83% of Americans between the ages of 30 to 49, a credit card is a must-have.
As a business, revenue is your lifeblood. How easy you make it for your customers to pay for their goods and services has an impact on the overall sales you generate. In today’s tech-enabled world, that means making credit card and digital payments seamless for your clients.
When looking to empower your customers to go cashless and use their credit cards, a reliable card processing partner is critical. Keep reading for some essential factors to consider when comparing merchant services.
What Is a Payment Processor?
A payment processor (also known as an acquirer) is a business that helps you as a merchant accept credit card payments.
A processor provides you with the necessary hardware (terminals) to accept credit cards and even digital payments. In doing so, they become the middleman between your customer, you, the credit card network service, and the card-issuing bank.
A credit card processor is a critical part of the payment ecosystem because they assume the risk of every transaction. Anytime your customers use a credit card to pay you, it’s the payment processor that takes on the potential risk in case of any fraud.
In exchange for assuming such risk and providing you with the hardware and software to facilitate payments, a processor will charge you a fee.
How Payment Processors Set Rates
Before a processor gives you a custom rate, they consider several factors. They will analyze your type of industry, your credit history, business track record, and your sales record (whether it’s established or a projection).
There are three types of fees that a payment processor will charge you:
1. Flat Fees
Some of the flat fees you can expect to receive from a payment processor include:
- Monthly fee
- Batch fee
- Annual fee
- Terminal fee
- Online reporting fee
- Statement fee
- Network access fee
- Payment gateway fee
A critical point to note about flat fees is that you should review them before you sign a contract with a processor. If you fail to do so, you might end up with a substantial financial hit when your merchant statement comes in.
2. Processing Fees
Processing fees are calculated per transaction and make up the bulk of what you will pay the processor.
3. Situational Fees
A credit card processor will, at times, charge you a fee when a specific action takes place. Examples of such event-related payments include:
- Cancellation fees
- International fees (which are non-negotiable)
- Monthly minimum fees
- Chargeback fees (which are also non-negotiable)
- Set-up fees
- Liquidated damages fees
- NSF fees (non-negotiable as well)
To get the most out of a processor, you can seek discounts on negotiable situational fees while limiting the number of events that happen per month to trigger them.
Things to Consider When Comparing Merchant Services
Selecting the right credit card processor can be a tricky affair if you don’t know how to benchmark the vendors. Let’s take a closer look at the sticking points against which you must weigh each potential processor.
1.The Risk Level
Credit card processors classify merchants they serve according to their risk level. As such, some processors serve high and low-risk segments with little overlap between them.
When determining a merchant’s risk profile, a processor tends to look at:
- How well management runs the business
- The prevailing rates of customer fraud
- The frequency of customer chargebacks
- A merchant’s regulatory risk
A retail business that accepts most of its customer purchases in person will experience fewer instances of fraud. It will be hard for a malicious actor to use stolen credit cards, for example, if they have to pay at the till in person.
Such a business will be categorized as low risk unless the average sale is of a high amount. If you run a furniture store where each sale goes for over $500, for example, a chargeback will be for a significant amount. Consequently, a processor has to designate such a firm as high risk.
If your business exists in a highly regulated industry, a processor will also place you in a high-risk class. That’s because in case you do not fully comply with all the rules and regulations of your industry, the process stands to face some liability exposure.
Furthermore, when you apply for a merchant account as a new business, card processors tend to be wary of you. The fear that you may not have the chops to survive in your sector means that whoever handles your credit card processing faces high risk.
Identifying your risk level helps you zero in on only the card processors that serve your kind of operation. You want to avoid wasting time and money negotiating with various low-risk processors if your business is high-risk and vice versa.
2. Map the Payment Needs of Your Firm
Matching your payment needs to a processor that can most meet them sounds basic. But you’d be astounded by how many firms use processors with mismatched services from their objectives.
Do you plan to accept all of your customer payments in person using a countertop chip or swipe machine? Then you are in luck as all credit card processors can support such a system.
In contrast, any business that has to rely on an industry-specific system may face limitations. On top of that, any additional payment services you run, such as recurring billing, narrow down the potential processors you can partner with.
Understanding how you want your payment system to run enables you to eliminate processors that can’t deliver optimal value. In the end, any efficiency in your payment processes will trickle down to your customers and bolster your brand.
As a business, managing your costs is right up there with growing your overall revenue. Credit card processing costs are one area where you can prune the outgoing cash and increase efficiency.
However, the only way you can pull this off is if you first understand the pricing models each type of processor uses. The more in-depth your knowledge of these models, the better your chances of partnering with the right processor. You can then increase your cost-efficiency.
Some processors rely on a flat monthly fee for all transactions they handle. While such a cost structure is simple to understand, it tends to be more expensive in the overall scheme of things.
A more sophisticated pricing model that a processor might use is an interchange plus. Here, the processor pays the card-issuing provider a fee for each transaction (known as the interchange). The plus is the markup the processor will add on top of the cost that then becomes their revenue.
Such a pricing model is easy to understand, and therefore offers greater transparency on costs. The downside of such a model, though, is that you can receive various rates over a month. Keeping track of a wide variety of rates tends to make your accounting harder and more expensive.
The most popular pricing model that credit card processors use is the tiered model. Under this pricing approach, all transactions will be charged under one of up to four different flat rates.
As a result, you better understand how much you pay. You will also be able to predict your costs better, thus easing your accounting burden.
Card processors that work with high-risk merchants only offer tiered pricing. On the other hand, processors serving low-risk merchants are free to support all the three structures.
4. Look out for Deceptive Marketing
As with any other sector, there are underhanded marketing tactics that an unsuspecting buyer can fall for. You need to be on the sharp lookout for such signs to avoid getting into a problematic contract.
Whenever you see any abnormally low rates (like less than 2% for all transactions, for example) know that that is not good news. It is highly likely that the fine print holds significant hidden fees that make for a bad contract.
Another marketing tactic to steer clear of is when you get seemingly attractive rates for leasing payment terminals. That’s because the upfront, one-time cost for buying a terminal is often cheaper than what you pay for a lease in the long run.
Ensure that you do the math on assessing the total leasing cost versus buying the unit to make the right decision.
5. Speak to at Least Three Processors
As a rule of thumb, never sign the frost contract offer you get for credit card processing. You need to dig deeper and see what the market has to offer. Such a survey will help you identify an acceptable standard of service and terms.
Even if the first processor you call offers you what sounds like a great offer, it’s prudent to find other proposals for comparisons. Talk to at least three card processors and ask for their contracts to compare and contrast them to arrive at a confident choice.
6. Fraud Prevention and Detection Capabilities
Credit card fraud is widespread and nowhere more so than the United States, which accounts for 46% of the world’s cases. With financial losses from credit card fraud expected to hit $35 billion by 2020, you need to make finding a processor that can help you avoid fraud a priority.
For in-store transactions, an EMV chip-card is the most secure way for your customers to make payments.
As an enhanced security measure, an EMV card stores the cardholder’s information on a chip. As a result, it becomes much harder for a malicious actor to access the data to forge it compared to when using magnetic stripes.
However, you should also look at the level of security on the point of sale (POS) unit the processor will provide you. If there is a vulnerability in the software, a malicious actor can deploy malware to access the cardholder’s information and commit fraud.
A critical factor to consider when selecting payment processors is their compliance with the Payment Card Industry Data Security Standard (PCI-DSS). PCI-DSS regulations require you as a merchant to have your payment ecosystem documented, inventoried, and made secure.
Look for a payment processor that has experience working with your type of business and specific industry. It is tough to go back later and try to redesign your systems, processes, and networks to comply with the PCI-DSS standard.
You want to work with a credit card processor that knows your industry and how to set up systems for compliance.
On top of fraud detection and prevention capacity, a sound processor should also make it easy to resolve any cases that arise. Check to find out if the processor you are considering working with offers seller protection and support in case of any fraud.
7. Customer Support
At some point, your payment system will break down. It is a given. Therefore, you want to get into a contract with a payment processor who can offer you the support you need when it matters most.
When shopping for a card processor, look for one that offers support services 24 hours a day, seven days a week.
Additionally, ensure you also ask for a live representative who can offer support services directly whenever you need them. While an automated customer support service is efficient in dealing with routine matters, it can frustrate you when you need to resolve more complex issues.
Reach out to several of the potential credit card processing you are considering to see how they deal with customer inquiries. How they treat you as a potential lead can give you an indication of the level of attention you can expect to receive if you become their customer.
In case you know of other businesses that use a payment processor you want to go with, talk to them. First-hand experience from an existing or past client on customer support is valuable when assessing its effectiveness.
What Credit Card Processor Is Best for Your Business?
Choosing the right type of credit card processor for your business can seem like a mundane task on the surface of it. However, comparing merchant services to select the most suitable partner for your business not only impacts your top line but also how customers perceive your brand.
PayKings is a merchant service company dedicated to offering excellent services minus unnecessary charges and fees. Apply for a merchant account today for secure, seamless, and cost-effective credit card processing.
You’ve probably wondered what is merchant service and why your business needs it. Find out here how to choose a merchant service.
March 12, 2023 | Merchants | Dustin