Entrepreneurs Beware: When Choosing a Credit Card Processor, Look For Transparency
What do American business owners depend on the most for payments? Credit cards. Some businesses elect not to accept credit cards for commerce, rather only accepting cash which makes them less attractive to consumers. In 2014 alone, consumers engaged in 26 billion credit card transactions with a total credit card volume of $4 trillion. The need for credit card processing services has never been greater. As an entrepreneur, you need to be vigilant when selecting the right credit card processing company to enroll with. Some of these processors state they have the “lowest rates”, which can lead businesses into a serious dilemma. Most business owners are not educated as to what they are being charged by their processor, especially in the area of fees.
A few facts that can benefit those who are uneducated on credit card processing fees:
- “Interchange” is defined as the credit and debit card rates and fees collected by the card issuing bank.
- “Dues and assessments” are known as the fees paid directly to the card brands, typically $0.10 – $0.15/transaction
- The fees that are paid to a credit card processor are called the “markup”.
Most processors fail to tell business owners the wholesale cost of processing. The wholesale cost of processing is also known as the total of the interchange, dues and assessments.
CardPaymentOptions (CPO) is a website that reviews and compares card processing services while providing expert help to ensure your business is not overpaying to accept cards. Phillip Parker, founder of CPO, states that even banks may not be the best source of information or services. They simply act as a reseller of another provider. Banks and processor markups are unable to be calculated because businesses can’t see processors costs. Processors typically use a tiered pricing model that bundles everything together using three false rate tiers: qualified, mid-qualified, and non-qualified. Business owners typically are unaware when processors knowingly change those tiers resulting in higher costs to their business. The first big step owners should take to better understand what they are paying in processing fees is to demand a different pricing model from their processor. This model is called the interchange-plus pricing model. A small percentage and transaction fee separate from the processor’s cost is charged upon the processor’s markup.
As an entrepreneur, it takes an enormous amount of confidence to enter a business venture with considerable risk and a lot to learn. Transparency is the most critical characteristic when choosing the right credit card processor. If the processor only provides the bundled pricing model, it is time you search for a new processor or talk to an expert on lowering your current costs.