If you’re starting a business today, it’s a near certainty that you’ll need to accept credit and debit card payments. Whether it’s a brick and mortar, on the go, or the obvious e-commerce environment, more and more people are going cashless (that’s an entirely different conversation).
These days the options for cashless payment are nearly endless … yet many customers simply default to the first (or second) option presented, which is often the use of a bank credit card. Every bank that is not Wells Fargo, Chase, or Bank of America does not process their own charges, but instead partner with an outside processing company under a revenue sharing relationship.
These scenarios could lend themselves to shady practices. The business owner (customer), may or may not know that the processor is a separate entity from the bank, and will most likely place the same amount of trust in them that they placed in their bank, misguided or not.
There are several ways processor can and do take advantage of businesses. First and most common is requiring a contract. Typically, a 3, 4, or 5 year contract is part of the processing agreement, whether disclosed or not. Often a business owner will be told that the contract “locks in their rate.” This is patently untrue. The rates that the card brands charge (Visa, Mastercard, Discover, Amex) change twice a year, accepting those cards is accepting those interchange rates. The processor may also have verbiage in the contract allowing them to adjust fees (their processing rate, or discount), at their will. Contracts in the industry usually require a notice prior to the end of the term, or an autorenewal is affected, looping the business back into at least a yearly agreement. Often times there is an early termination fee, this is simply the processor covering their minimum income from the account. To put it simply, a contract only benefits the processor, never the merchant.
Processors will often raise their rates on a merchant after an introductory period, the notification given may be fine print on a statement (those are rarely perused enough) with continued use of the service taken as acceptance of the rate hike. There are often many unnecessary fees added to a processing account, appearing on statements ambiguously as “administration fee”, “service fee”, or a similarly generic label. While it’s true that a processor incurs cost with a merchant account on file, it’s one thing to pass that cost to the business, it’s quite another to create unnecessary fees to generate more revenue.
Transparency is lacking in the payment processing industry. A common practice is just focusing on the rate, for example “interchange plus 0.35%”, which means the merchant pays whatever the card brands charge plus the processors rate of .35% on the volume processed. What they often gloss over are the monthly fees, annual fees, contract status and cancellation fees. A monthly minimum usage fee is very common as well. Let’s say the monthly minimum is $25. This fee just guarantees that the processor makes a minimal profit on an account that didn’t process enough volume to generate more revenue. This will be in addition to any monthly fees on the account.
What can a business owner do to mitigate costs and shenanigans? First, ask the processor if you’re in a contract, how long is it, is there a cancellation fee, and finally is a contract required? Secondly, ask them to divulge any and all fees, monthly, quarterly and/or annually. Customer service is severely lacking as well, ask if you get a relationship or account manager as a contact or are you limited to 800 # phone trees.
The last few years have provided many changes in the industry … opportunities to mitigate costs. If your business will be processing less than around $10,000 monthly, a flat rate % makes a lot of sense. This option has allowed processors that will offer a flat rate an opportunity to compete with the Squares, Stripes, and PayPals of the world. Cash discount, surcharging, and adding convenience fees are often employed for merchants that wish to pass a majority of fees to their customers.
If you’re already taking payments, an annual review of your processing is a must. Beyond that, on a monthly basis, look at your overall rate (%), by dividing the amount you paid your processor into the amount you processed. If your volume is steady and your overall rate doesn’t fluctuate too much, you can be pretty certain that you haven’t experienced a rate hike. Conversely, if your volume is steady and you see a spike, that should be a red flag.
Pay it Forward processing was founded on the idea that most of the practices you’ve just read about aren’t fair to business owners. We guarantee to match or reduce your current rate, without a contract, cancellation fee, or rate hike; while providing personal support. If we’re a fit for your business and you decide to work with us, you’ll automatically be enrolled in our unique give back program, “Every Swipe Benefits Charity” at no additional cost to you. This is an ongoing donation of a portion of our proceeds to a charity of your choice, we’ve generated over $453,000 donated nationally since 2014. Thanks for reading, and please consider me a resource to answer any questions you may have.