How To Choose A Merchant Provider

Mark Forster
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Whether just starting out or looking to transition your business model due to an increased growth phase, here are a variety of thoughts and questions I would be aware of when choosing your payments partner.

 Full service vs. Facilitator

If you’ll be accepting less than $3,000 per month in credit card payments, a mobile credit card processing company (sometimes called a payment facilitator) like Square or PayPal that charges a flat rate and no monthly or annual fees is usually your best bet. Although the percentage rate that you pay for each sale is higher, there aren’t regular fees, so your costs stay low. If you process more than $3,000 in sales each month, working with a full-service credit card processor that has lower rates may save you money, even though it charges regular fees.

Consider how you plan to accept card payments

If you have a brick-and-mortar location, you may want either a terminal for a counter top checkout station or a mobile card reader that allows you to check out customers anywhere in the store or restaurant. If you plan to accept payments multiple ways, such as online and on the go, you want to look for a processor that supports both methods. If you already have a website or a point-of-sale system, or if you’re planning to get one, you want to check with these companies to find out which credit card processors they’re compatible with.

Call at least three processors for pricing quotes

Most mobile credit card processors post their rates and fees online, as do some of the best full-service processors. However, in many cases, you need to call companies and speak with sales reps to get pricing quotes and request contracts to review. Even if the first processor you call offers you what sounds like a great deal, you want to call a few more companies so you can feel confident in your decision.

Request interchange-plus rates 

When you call processors for quotes, you may have to specifically request interchange-plus rates. This is usually the most cost-effective pricing model, and it’s the one industry experts recommend. The rate you’re quoted is the processor’s markup — a percentage and a per-transaction fee — that’s added to the published interchange rates set by the credit card networks that everyone pays the same amounts for. In other pricing models, the markup is combined with the interchange rate, so you can’t see how much you’re actually paying the processor. Since the markup is the only negotiable part of the rate, these are the numbers you want to see and compare when you’re shopping around.

Find out about fees

If you read online complaints about credit card processors, you’ll notice many are about undisclosed fees. To avoid this problem, you want to read all three parts of the contract to make sure you’re aware of all possible fees. Common fees include “batch fee”, PCI compliance fee, charge back fee, gateway fee, and various network fees such as Visa’s Fixed Acquirer Network Fee (FANF) and Mastercard’s Merchant Location Fee. 

Below you will find a more extensive list with some explaination:

  • Monthly statement fees: The credit card processing company might charge you monthly statement fees to cover the expense of mailing you a statement. It costs about $10 per month on average.
  • Application and setup fees: You may face a fee just for applying for the processing service. Setting up the equipment needed to accept credit cards may cost you extra, too. This fee can vary widely, depending on the company.
  • Monthly minimum fee: This refers to a minimum amount in fees the processing company must collect in any one month. If you don’t meet or exceed this minimum amount, the company will charge you to meet the minimum. Say for example, the company’s monthly minimum fee may be $25. If your total credit card transaction fees one month are $20, the company will charge you $5 to make up the difference.
  • Monthly gateway access fee: Some processors may charge you this monthly fee for providing a payment gateway, which transmits transaction data from your processing system to the credit card companies. Monthly fees cost approximately $10 to $30.
  • Early termination fee: Some processors may charge you this fee for early cancellation of your contract. The fee can cost anywhere from a few hundred dollars to thousands.

Get a month-to-month contract

Standard processing contracts can be difficult and expensive to exit. Most have three-year terms, automatically renew for one- to three-years and have 30- to 90-day cancellation windows. They also have early termination fees. You want the flexibility of monthly terms because it allows you to move on if there’s an issue with the service or if your rates go up and you find a better deal elsewhere. Keep in mind that processors want your business and many sales reps are willing to give you month-to-month terms if you ask for them. Before signing the application, make sure the contract’s terms have been updated or that you’ve received a written waiver.

Buy processing equipment

Basic processing equipment is affordable and buying it upfront saves you the headache of a leasing contract and other entanglements. An EMV-compliant, NFC-enabled terminal that allows you to accept chip cards and contactless payments usually costs a few hundred dollars and most EMV-compliant mobile card readers cost less than $100. Leasing isn’t a good idea because you pay several times over what the equipment is worth, and at the end of the lease, you don’t own it. Also, the contracts are noncancelable, so if you sell or close your business and return the equipment, you’re still stuck paying for it until the end of the lease.

Vet any “free” offers

Although many companies offer free equipment or have free placement programs, there are a few things you need to consider before you accept, such as whether you must sign a lengthy processing contract to qualify, if the rates are different under the free program, and if there are any monthly insurance, service or maintenance fees. You’ll also want to find out if you’re required to return the equipment when you close your account and if there are any restocking fees or wear-and-tear penalties.

 How helpful is customer support?

What if you run into technical problems with your credit card machine? Or you have questions about your monthly billing statement, such as confusing fees?

Hiring a payments processor that provides 24/7 customer support and direct help from an account representative can solve these issues. In addition, a helpful account representative should be able to explain any fees or costs you don’t understand. And in the end, it might be worth paying a little more in fees to avoid unreliable, confusing service for your small business.

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