Credit Card Processing Blog

Reducing credit card processing fees has long been a challenge for merchants trying to save money.  The benefits of accepting credit cards as a method of payment are obvious in a society that relies heavily on credit.  Businesses that make this option available to their customers almost always see an increase in sales as a result.  This boost in sales does not come without a price for merchants.  With the privilege of accepting credit cards comes with credit card processing fees which can quickly add up.

Asking for minimum purchase with a credit card in the past

In the past, many small business merchants have tried to reduce these fees by requiring a minimum credit card purchase.  Most consumers are familiar with the practice.  Often appearing in hand written signs at gas stations or grocery stores, “$10 minimum purchase required for credit cards” policies are not uncommon.  What many consumers and in some cases even the vendor themselves do not realize is until recently this practice was actually in violation of the vendor’s merchant agreement.

New new rules for minimum purchases

As a result of the credit card reform, several aspects of credit card processing have changed.  One of which is the minimum purchase requirements set forth by businesses.  The major credit card companies no longer prohibit merchants from enforcing a minimum credit card purchase as long as they follow certain rules.

Visa has already changed their policy to allow merchants to require a minimum purchase amount for credit cards.  This minimum amount cannot exceed $10 and may not be applied toward transactions made with a debit card.  MasterCard has not yet officially changed their policy on minimum credit card requirements, however they plan to in the future.  American Express is also permitting minimum credit card purchase requirements as long as the merchant has the same minimum requirement for all credit cards.

This change in policy will impact both merchants and their consumers.  For the merchant, minimum purchase requirements help reduce credit card processing fees.  Merchants have to pay a fee for each transaction.  If a small business such as a gas station has many “micro” payments, for example using a credit card to pay for a soda or snacks, they end up paying more in credit card processing fees.

The effect of the new law to consumers

Consumers will be affected in another way.  Many people choose to not carry cash and make all or most of their purchases with a credit card.  This offers convenience and in some cases an easy way to track expenses for individuals who use their credit card for day-to-day purchases and reconcile their balance every month.  For these consumers, the minimum purchase requirement means they either have to buy more than they intended to meet the minimum or carry cash.  While this may not seem like a big deal, it does in fact limit options for consumers which may result in a loss of business for merchants who require a minimum payment for credit card purchases.

Merchants should carefully consider whether the money saved on credit card processing fees is worth the potential loss of sales if credit card consumers opt to take their business elsewhere.

Your business already accepts credit cards but for any number of reasons you may be interested in switching credit card processing services.  Considering the importance of this decision, you must take the time to ensure your next credit card processor is the right fit for your business.  Making the switch must be seamless to guarantee your business is not losing sales during the process.  Here we look at several tips to make the change as smooth and efficient as possible.

Pinpoint why you are changing credit card processors

What is it about your current processor that you do not like?  By getting to the root of your current issue, you can make it a point to look for a new credit card processing service that addresses this concern.  Perhaps you are satisfied with the service but are looking for more affordable fees.  Or, you may be satisfied with the cost but experience other problems.  Whatever the reason, you want to make sure you pick a company that is able to provide the services you need at a price you can afford.

Do your homework

Before you jump ship from your current processor, find out if there are any fees or penalties for terminating services before a specific period of time has passed.  If this is the case, you will have to carefully consider if the cost of switching processors before that time period has passed is worth any savings or benefits gained.  Keep in mind also that there are many companies out there offering credit card processing services.  Avoid picking the first company that looks appealing without first researching several of their competitors.  Switching credit card processors is not something you want to do every year, therefore finding the perfect match for your company and business needs is vital.

What you’ll need

If you have been following the tips listed here, you will already have some of the information needed when the time comes to make the switch.  You will need the terms of your current credit card processing provider, current processing statements and the type of equipment including model numbers that you are using.  Your new provider will also need general information about your business and processing needs.

What you should look for in your new provider

Since you are already dealing with a credit card processor and have made the decision to change, you probably already know what not to look for in a new provider.  It is helpful to remember what benefits can be gained with the right credit card processor.  Look for a provider that customizes a service plan for your business based on your unique needs.  They should provide accurate transaction processing that is safe, fast and reliable.  Make sure the new processor is capable of processing all of the credit cards you accept and back up any services provided with round the clock customer service.  Finally, carefully read the terms and conditions of your service agreement to ensure you are teaming up with the best possible credit card processing service provider.

Photo via matthewSBOC

Your customers expect a certain level of convenience and ease when they shop, therefore accepting credit cards is a pretty good idea to give them additional options.  Credit card processing and merchant accounts go hand-in-hand with accepting credit cards and without a merchant account you could find yourself in a difficult position.  There are several reasons why a provider might decide to close or terminate your merchant account and it is important to understand these reasons to ensure your credit card processing goes smoothly.  If you fail to abide by your merchant account agreement you could lose that account which most likely will result in a loss of customers and sales.  Here we look at what you can do if your merchant account has been closed.

Root of the problem

Before you can move forward reopening a merchant account or seeking a new merchant account, you must first determine what caused the termination in the first place.  In some cases this may be the result of an accidental breach of contract or cases of fraud.  Regardless of the cause, without finding out where you went wrong you will be unable to rectify the problem.

TMF

Find out if you have landed your business on the TMF (terminated merchant file or the MATCH file).  This is the equivalent of a black list for merchants who have had their merchant account negatively closed.  If this is the case, you can anticipate a much more difficult process obtaining a new merchant account.

Contact your provider

Clearly, to discover the how’s and why’s of the termination requires a call to the merchant account provider.  Understand that when you call the provider you may end up talking to several people in different departments.  Be prepared to take notes and ask the right questions to determine what went wrong and what your options are moving forward.

Be prepared to take action

Perhaps your merchant account was closed due to insufficient funds to pay fees.  Or maybe you have a high number of chargebacks or have exceeded certain limits.  Suspicion of fraud is another major reason merchant accounts are closed.  When you find out where the problem lies you must be ready and able to remedy the situation if you ever want to have a merchant account again in the future.

Legal action

If you are unable to come up with a resolution that the merchant account provider agrees with, you may be required to take legal action.  This generally results in arbitration where both parties agree to discuss the issue outside of the legal system to avoid or reduce legal expenses.

Prevention

The best way to avoid having your merchant account terminated is by first understanding the terms and conditions to which you are bound.  By conducting business within these terms and conditions you can avoid any danger of having your merchant account closed.  Since you are not always there to run your business 24/7 it is important that all relevant employees are educated and trained on the proper credit card processing procedures.

The world of credit card processing is confusing when it comes to the cost structure of various merchant accounts.  Unfortunately, paying for the ability to process credit card payments from your customers is not as easy as paying the cable bill – you may not even understand what all the various fees are.  Just to give you an idea, Visa has over 120 rate categories used to charge merchants based on how they accept payment and the card type while MasterCard has over almost 290 different rate categories!  These rate categories among both credit card processing giants are called the “Interchange”.

Interchange Plus Pricing

The most common method credit card processing companies use is the Interchange Plus pricing model.  If this is the credit card processing fee you accept, you’ll agree to pay a fixed rate on top of the interchange rate for each credit card you process for payment.  For example, if your rate category with Visa or MasterCard is .2%, and your “plus” rate, the rate above the interchange, is .5%, you’d be paying .7% on every credit card transaction.

3 Tier System

The second most commonly used credit card processing fee structure is the 3 tier system.  The first tier is the qualified rate, which is when an individual swipes their credit card in your retail location in person.  This is the best rate, and is usually the one advertised by merchant providers to small businesses to show off their best rates.

With a 3 tier system, if a customer is using a rewards credit card or if the card is keyed into your cash register or computer instead of being swiped, then you get charged at the second tier, or the Mid Qualified Rate.  In this situation, you would be charged the regular qualified rate, PLUS the mid qualified rate.

If your customers give you a corporate credit card, or their address and zip code don’t match what’s on file, or your sales aren’t sent through the terminal within 24 hours – you are likely to be charged the third tier pricing, which is the Non Qualified Rate.  Again, you add your Non-Qualified Rate to the first tier rate (Qualified Rate) in order to get the full cost of processing cards that fall in this category.

Which Merchant Account Bill Structure Do You Want?

Now you know the two primary billing structures for credit card processing, which one is best for your business?  Will you save money with the Interchange Plus Pricing or the 3 Tier Pricing methods?

One way to decide is to show your recent merchant account statement to a new provider to see if their pricing structure would have cost less to process the credit cards on the statement.  In fact, this is the only real way to decide if another credit card processing company can save you money; or to decide whether the Interchange Plus pricing schedule or the 3 Tier pricing schedule would work best for your business.  Quotes given over the phone are meaningless because it matters what kind of credit cards you process most often within your business, and how those cards would be charged by your credit card processing company.

As more and more consumers realize the benefits of shopping online, it becomes increasingly important to know how to make secure transactions.  Secure credit card processing for online payments relies on both the buyer and the seller understanding how to protect the information that is sent electronically.  Without the physical connection of dealing with an individual face-to-face, vendors must make sure that they are providing their customers with a secure method of paying for products and services.  Consumers can benefit from the following online shopping tips that will ensure their e-commerce experience is a positive one.

  • Check website security-  The first thing to look for before you enter credit card information online is some sign that the website which you are visiting is secure.  This can be done fairly easily and can prevent a lot of headaches down the road.  Look for a closed padlock or unbroken key displayed at the bottom of your screen.  You can also tell if a website is secure by looking at the URL; it should read https:// instead of http://.  The “s” indicates the website is secure.
  • Read all terms, conditions, privacy and security policies-  Once you enter your credit card information and submit an order, it may be too late to reverse your actions.  For this reason you must be sure you understand how the credit card will be processed, who has access to the information you have submitted and what type of terms and conditions you are agreeing to.  By confirming this information prior to entering your credit card number you can rest assured your information will be protected.
  • Credit cards are best for online shopping-  If you are debating between using a credit card, debit card or some other form of payment, understand that credit cards are the safest form of payment.  While many people are leery to use their credit card online, the very act of credit card processing gives customers added protection.  When you use a credit card to make a purchase you have more options available to you should you need to dispute the charge or if you fail to receive the products you have ordered.
  • Avoid giving too much information-  To process your credit card the online merchant will have to have certain information.  This will generally include your full name, address and credit card information.  The merchant does not need your social security number or other personal information to process the order.  Do not offer this information to anyone online either via a website or email.
  • Cancellation, return and complaint policies-  Before you place your online order, learn these policies in the event you have to cancel or return merchandise.  You also want to know who to contact should you have a complaint.  These policies spell out your rights should you need to cancel the order, return the product or are dissatisfied with the product you receive.

Shopping online can be an easy, convenient and cost effective way to buy merchandise.  When you know how to do this safely and how credit card processing works for online transactions you can reap the benefits of online shopping without the associated risks.

Photo via Vidilia