The life of an entrepreneur is a study in contradictions. There’s the freedom of being your own boss contrasted with the responsibility of running a company. There’s the cachet of the term “founder and CEO,” compared with the unglamorous day-to-day tasks required of you as employee number one. And, of course, there’s the sense of limitless creativity you have when brainstorming, which is fundamentally at odds with the startling realization that every new functionality you want your website to have, every new avenue you want to explore won’t just come into being at your command.
5 Questions Every Small Business Owner Should Ask Before Choosing A Payment Processor
This post is from SwipeSum CEO Michael Seaman, a veteran of the credit card processing industry on a mission to give more power to merchants everywhere.
The life of an entrepreneur is a study in contradictions. There’s the freedom of being your own boss contrasted with the responsibility of running a company. There’s the cachet of the term “founder and CEO,” compared with the unglamorous day-to-day tasks required of you as employee number one. And, of course, there’s the sense of limitless creativity you have when brainstorming, which is fundamentally at odds with the startling realization that every new functionality you want your website to have, every new avenue you want to explore won’t just come into being at your command—it takes research, time, and a whole lot of determination to bring your vision to life. And, if that vision is to create a seamless shopping experience for your future clients, the question of payment processing is perhaps the most crucial one you can ask. To the uninitiated, it can appear incredibly daunting—one of the most intimidating steps in the process of getting a business off the ground. But, trust us—a basic understanding of the payment processing landscape is all you need to feel confident selecting the best option for you.
With that in mind, here’s a brief overview of what a payment processor really does, and the five questions you should ask before choosing one for your business.
Though many fledgling business owners don’t realize it at first, getting a seamless, dependable payment processing structure in place can mean the difference between reaching profitability and having to fold. Think about it. To succeed in a market that’s fueled by technology, a business has to be able to process virtual currency—the days of the booming, cash-only storefront are behind us. That’s where payment processing comes in. In order to accept virtual currency like credit cards, a company has to work with a payment processor: their job is basically to get the money from the purchaser’s bank account into yours. And, while you might be tempted to choose the cheapest, most accessible payment processor you come across, you’ll save yourself a lot of headaches (and money) in the long-term if you do your research before committing.
1."How much will I actually be paying, month to month?”
The only rate that matters when it comes to credit card processing is the estimated overall effective rate. Tiered pricing plans will advertise a “qualified” rate, but that’s almost never what you’ll actually pay. The type of credit card your customer uses and the way you process the transaction are just two of the factors that can end up costing you more money. The “qualified rate” generally only applies to certain types of cards which have been physically swiped. Online transactions and transactions made using credit cards that give the customer rewards tend to be non-qualified. So, based on your business model, will you benefit from the pricing structure (tiered pricing, flat rate, or interchange-plus)? The simplest way to find out is by comparing estimated overall effective rates. Keep an eye out for hidden fees related to things like cancellations, withdrawals, and batch processing, too. The only way to ensure you make the best decision for your company is not to make one until you have all the facts.
2.“Does this company give me and my customers what we want/need?”
Do you know how the majority of your customers pay for their online purchases? Do you know how many of them are likely to cancel a transaction because your website doesn’t offer a payment option they feel comfortable with? More people than you might realize still don’t feel safe using their credit cards for online purchases. Offering multiple payment options can make a huge difference in how many customers actually complete transactions on your site. And, what if you specialize in higher-end items that people might love to buy, but can’t pay for in one lump sum? It’s good business sense to offer extended payment plans, but the complexity of engineering and integrating all of those options into your website can be prohibitive. By choosing a payment processing company that has a built-in extended payment plan (like PayPal Credit, which allows users to pay over a six-month period, but pays you the total price immediately) and gives skittish customers the option to pay securely via PayPal rather than with a credit card, the percentage of customers who complete purchase on your site will almost inevitably increase.
3."Is this so affordable because there’s no setup/support assistance?”
If you feel comfortable troubleshooting any technical difficulties that might arise, maybe a “just the basics” payment processor is your best bet. But if you lack the technological savvy (or the patience) to be your own tech support, make sure it’s included in the processing company fee. 24/7 support from a real person, plus help with the setup process are reasonable expectations for your payment processor. It’s a good idea to read reviews of a company’s tech support from real clients before making a commitment.
4.“Is this company charging the industry standard rate for PCI compliance?”
Protecting your customers’ credit card data isn’t just good business—it’s an operational requirement. The PCI Data Security Standard is mandated by credit card brands and administered by the Payment Card Industry Security Standards Council. And, while you have the option to build a PCI-compliant system internally, it’s a time- and labor-intensive process that you can avoid by choosing a payment processor that goes above and beyond PCI Compliance standards. In addition to the cost in time and labor, the financial cost to a business for maintaining PCI compliance is something you should be aware of before signing on the dotted line. Since data security costs vary depending on the size of your business, do your research and make sure the credit card processor you choose isn’t charging more than it should You’ll have more than enough to do, running your own business, and plenty of other overhead costs that need your hard-earned money—where you can delegate to an expert and hold onto more of that capital, do it.
5.“Does this company make me feel like my information (and that of my customers) is safe?”
In the same vein as PCI compliance, installing your own fraud protection system can be a hassle—but data security isn’t something you can skimp on, either. What fraud protection services does this company offer? Do they flag/reject transactions that are risky? Is all data encrypted and securely stored? And what about fraud perpetrated by thieves masquerading as customers? As the merchant, if you've paid using a fraudulent credit card, or a customer claims never to have received merchandise, it’s expected that you’ll reship missing items or refund stolen money, but over time, those expenses add up. Does the processing company you’re researching partner with clients to minimize out-of-pocket expenses related to fraud? This is one area where it’s worth paying more to ensure that you and your customers are totally protected.From data security to PCI compliance, your payment processor can facilitate (or impede) multiple facets of your business. Asking these questions will help you to determine what your business needs and what type of payment processing company can provide it.