When business owners create budgets, there’s one major expense that often isn’t given much thought: credit card processing. In a world where consumers are increasingly reliant on credit and debit cards, few businesses can survive without absorbing the costs of accepting card payments.Of course, where business owners see an unavoidable cost, credit card processing companies see an opportunity.
When business owners create budgets, there’s one major expense that often isn’t given much thought: credit card processing. In a world where consumers are increasingly reliant on credit and debit cards, few businesses can survive without absorbing the costs of accepting card payments.Of course, where business owners see an unavoidable cost, credit card processing companies see an opportunity. For decades, processors have used their power over merchants to build a multi-billion dollar industry, but they haven’t done so by playing nice.It’s so bad, in fact, that many merchants don’t even realize that they’re overpaying for payment processing. Even when business owners come to the realization that they’re paying too much, processors have built in such tremendous switching costs that many feel that a switch is not worth their time.Payment processing is a tough egg to crack, but breaking through that shell becomes much easier when business owners take the time to educate themselves. Here are some of the traps business owners will encounter when assessing their payment processing needs, as well as a few tips about how they can be avoided:
You’ve heard it said before: transparency breeds trust. Unfortunately, the payment processing industry doesn’t really care about either of those things. There are a lot of smoke and mirrors in payments, and every processor utilizes them differently. For some, it’s refusing to publish processing rates (allowing them to charge even similar companies vastly different amounts). For others, it’s neglecting to mention equipment and integration costs until after a contract has been signed. These and similar tactics are commonplace in the payment processing industry.
Do your homework. There are hundreds of processing companies out there and some will treat you better than others. Looking at customer reviews is a helpful place to start. Sites like Merchant Maverick and Capterra are really helpful if you want to know what to expect from a processor. Speak to other business owners in your industry to find out what they are paying.Because payment processors have traditionally had so much power over merchants, they don’t expect many business owners to be actively seeking out this information. Doing some research beforehand can help you know what tactics to watch out for and give you greater negotiating power.
One of the primary issues with payment processing is that most salespeople in the industry operate based purely on commission. For every dollar that’s snuck into a payment processing contract, there’s another dollar in the salesperson’s pocket.As a result, payment processing fees often extend far beyond the rates quoted by salespeople. Many processors will push tiered pricing, which allows them to charge additional fees when specific card types are used. Others might charge excessive security compliance and hardware fees, or add fees for features that don’t cost them a penny.Simply stated: salespeople can add margin almost anywhere, and they gladly will.
First and foremost, know that almost all rates and fees are negotiable (interchange is the one exception).Secondly, take the time to evaluate your processor at least once per year. Compare your effective rate against the rates you were promised, and ask them about any increases or discrepancies.Last, educate yourself on common payment processing pricing structures. There are three big ones: interchange-plus (in which the processor rates are quoted separately from standard interchange rates), pure percentage (in which the processor takes a flat percentage of revenue, regardless of interchange rates), and tiered (which looks similar to interchange-plus, but processor rates increase as interchange rates increase). Of these three, interchange-plus should be your preferred pricing structure while tiered pricing should be avoided at all costs.
Experts estimate that there will be 90.3 million merchant outlets accepting credit cards by 2020. That’s a massive potential customer base. Processors know that losing one customer is not the end of the world; there will always be millions of other businesses they can try to sign to replace you. Because they have so much ground to cover, payment processors often give very little care or attention to individual customers.Once you’ve signed a contract, it’s entirely possible that you’ll never speak to your salesperson again until your contract is up. And if your contract is a bad one, you’re stuck. Processors won’t really make an effort to answer your questions or appease your demands. Why would they? They’ve got 90 million other customers to deal with!
It’s not easy to keep the attention of your processor, so it all comes down to choosing the right processor from the start. Making the right choice is a challenge, but there are a few steps you should take to ensure that your chosen processor fits well with your business. An easy place to start is with your point-of-sale (POS) system. Your POS system will have the greatest impact on the day-to-day operations of your business, so pick one that suits your industry and business model. Most POS systems have a limited number of processors that they integrate with (either directly or through a gateway). If a processor integrates into your chosen POS, it’s likely that they have worked successfully with businesses similar to yours in the past.Next, speak with business owners in your network and listen to their experiences with payment processors. Ask specifically about their interactions with the processor: were they attentive and receptive to questions, or were they unresponsive and difficult to contact? There are processing companies out there with great customer service, but it might take some digging to find them. Finally, don’t be afraid to seek out experts in the payments industry. Whether you have personal conversations with them or just read their blogs, pay attention to trends and changes in payment processing; they’ll give you a leg up when it comes time to negotiate. Payment processing may not be the first thing business owners think of when creating their budget, but it should be. It is the second largest operating cost that business owners face, only behind labor. The industry has been operating in the shadows for a long time, so it’s important for business owners to study it carefully before diving in. The more you prepare, the more you’ll understand when a processor offers you a contract and the better off you’ll be in the long run.
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