Unfortunately, this mostly unregulated merchant credit card processing service industry is fraught with confusion, deception, loss leaders, bait-and-switch tactics, fraud, and all kinds of other nefarious practices.
In fact, it’s pretty nasty.
So what’s a small business or home-based business owner to do?
Basically, you just need to know a few things to watch out for.
First, and foremost, you need to realize that what most merchant account service providers, their representatives, and their advertising are telling you, while sometimes “technically” correct, is bunk.
For example, have you seen all the banners and ads that say, “Lowest Rates – 1.32%!” or “Only 59 Cents Per Transaction!,” or other unbelievably low rates? While “technically” you might be able to get this rate, it would be for an extremely small percentage of your transactions. And you’d pay through the nose for the other 90%-plus of your transactions.
Why? Without going into too much detail here, it has to do with the “tiers” your transactions fall into (qualifying, mid-qualifying, and non-qualifying are the typical tiers for a small business accountants near me ). And it has to do with how your processing company sets up your account.
At one end of the spectrum, your processing company can set you up where only a small percentage of your transaction falls in your qualifying rate, the lowest rate you can be charged. So, perhaps, less than 10% of your sales fall into your lowest rate – and the other 90% is charged at a significantly higher rate. Of course, they don’t mention this when they sell you the low rate, but, in reality, you will pay the price.
At the other end of the spectrum, if you’re dealing with an ethical processor, they can set up an individualized program where upwards of 80% of your transaction fall into your qualifying, or lowest, rate. This can make a significant difference in what you pay for your processing.
(While the former company tells you your rate is 1.32%, or 1.62%, or whatever, only a small fraction of your sales fall into this rate because this rate is LESS than what Visa and MasterCard even charge. They are LOSING money on these transactions. How can they do this? By making sure your other transactions make them a huge profit. With a properly structured program, your lowest rate actually needs to be a bit higher than what others might tell you … but MOST of your sales will fall into this rate.)
Bottom line, you can save a tremendous amount of money by understanding how your transactions are charged.
There are other costs to watch out for as well.
Credit Card Processing For Local Small Businesses Fees. Most fees are negotiable, and you should not pay them. This includes application fees, monthly fees, monthly minimum fees, and annual fees. Watch out for periodic MasterCard, Visa, or American Express “merchant fees” added to your monthly bill. Most of these are bogus, arbitrarily tacked onto your bill at the whim of your provider.
Cancellation Fee. This needs a section of its own. You see, a cancellation fee does NOT have to be charged. Your processor or even your rep determines if, and how long and how expensive, a cancellation fee will be. My advice? Do not sign a deal with a company that insists on a cancellation fee. Period. Why do they want one? Because their prices and service stink … and they want to lock you in so that the only way you can leave their lousy program is to pay an exorbitant fee.
Price Increases. This is a big one … MasterCard and Visa allow their processors to raise their rates twice a year. The processor doesn’t have to, it is discretionary. Sometimes the big cards to raise their prices, sometimes not. But many processors use these times to increase your rates, whether or not the actual costs increase. What does this mean to you? It means your commissioned salesperson can offer you a low rate to get your business. And then raise your rates to whatever they want in the near future.
Payment Card Industry Data Security Standard Compliance. With personal, and even national, security issues, the credit card industry is going through a rapid security overhaul. Did you know that there are very specific, very intensive security requirements you must meet — even in the smallest of small businesses – or you can be charged humongous fees. Seriously, this is a very relevant issue today and will only get more critical in the future. If your processor is not up to speed, and most are not, it’s you who could pay the significant price.
Easy-To-Understand Statements. This might not seem all that important, but, guess what? Many credit card processing statements are designed to be confusing, just so you can’t figure out how badly you’re being ripped off.
Unfortunately, credit card processing providers that custom design a pricing structure for your business so that most of your transactions are charged at the lowest rate possible, do not charge you any unnecessary fees, don’t raise their rates, provide easy-to-understand statements, and keep you in compliance are far and few in between.