Finding a good credit card processor is a lot like buying a car. You need to check out the equipment and the services offered, haggle over pricing, and hope the salesperson has not hidden fees in your payments. While it may sound complicated, it can be simple if you know how to follow the money. We will show you how to do that to find the best credit card processor for your business.
Follow the money
If you want your customers to be able to pay with a credit card or Apple Pay, PayPal, etc., you have to partner with a credit card processing company. Processors are the go-between for your bank and your customers. With every swipe of the card, your business has to pay three fees: an interchange, an assessment and processing.
- Interchange fee. This is paid to the bank that issued the customer the credit card. This fee is a fixed cost determined by banks and cannot be negotiated. No matter which processor your business uses, the interchange fee will stay the same.
- Assessment fee. The business pays this to the card brand, such as Visa, MasterCard, American Express, etc. This fee is also non-negotiable and remains the same across the board for all processors.
- Processor fees. Any costs above the interchange and assessment fees are charged by the processor. This markup is where processors make money. It’s the only cost that is different among processors. Your goal is to pay the lowest processing markup, while still getting good service.
Processors can charge businesses with either bundled pricing or price-through pricing. Bundled pricing is just what it sounds like. Processors combine the interchange fee, the assessment fee, their surcharges, and markups in bundled pricing. That means you can’t tell what you’re paying for. It’s a way for processors to hide fees.
This kind of pricing also allows the processor to charge businesses whatever it wants for different types of transactions. It can use what is called “tiered pricing” and set its own rates for qualified, mid-qualified and non-qualified transactions. That’s a red flag because the processor also decides how each business transaction is rated and charged. Thus, the processor can increase the business’s prices without increasing rates.
The bundling pricing method also prevents businesses from comparing rates. Even if processors quote the same rates, one processor may route certain transactions to its lowest qualified or most expensive rate, that another processor would route to its highest non-qualified rate. Bundling usually results in higher, hidden, and inconsistent costs.
Bundling pricing is also called “flat-rate pricing.” That means the processor charges one flat rate for all transactions types instead of routing transactions into qualified, mid-qualified and qualified rates. While flat-rate pricing may sound like a good deal, it’s not transparent and often costs more. Once again, the details are bundled so you can’t learn the exact charges and don’t know how much of your costs are profit.
Instead, seek a more transparent processor that uses pass-through pricing. Pass-through pricing fully discloses each fee in detail including how the processor’s rate and fee remains the same for all transactions, whether it’s a rewards card, a swiped card, a commercial card, or any other kind.
Overall, pass-through pricing is less expensive, reveals markups and surcharges, is transparent, and allows for interchange optimization, which ensures most of the transactions process at the lowest rate.
- Find the processor with the lowest markup in fees and that offers the greatest value.
- Choose a processor that is transparent and uses pass-through pricing which lists the interchange fee, assessment fee, the processor’s markup, and interchange optimization.
- With bundling or flat-rate pricing, processors can offer businesses lower rates, then increase their costs later by routing some of their credit card transactions to the most expensive rates. Bundled pricing is almost always more expensive.
The bottom line is that what and how you’re charged by the processor is a big factor in choosing the best provider for your business. But it’s not the only factor. You need to choose a processor that matches your business goals and budget. Some processors specialize in both B2B and B2C payments including ACH, SEPA, etc. Also, if you have global shoppers, you want to choose a processor that can offer your shoppers a local checkout experience in the language, currency, and payment type the customer wants to check out in. Also, for global merchants, make sure the processor can route transactions locally to eliminate high cross border and FX fees. Others offer multiple ways for customers to pay with omnichannel solutions, and still, others may focus on point of sale (POS) transactions or E-commerce. The methods you need will depend on the size of your business, your customers’ needs, B2B relationships and other factors. Once you determine your needs, you can search for a credit card processor that offers those payments and channels
Tips to lower processing fees
- Get at least three quotes with only pass-through pricing. Get it in writing that details every rate and fee. Read and understand the contract. You want to make sure the assessment and interchange fees are at cost and see every transaction fee and markup you will be charged upfront. To learn about current assessment and interchange fees, visit brand card websites like Visa.
- Look for undisclosed fees like monthly fees, payment gateway fees, PCI compliance or non-compliance fees, set up fees, batch fees and chargeback fees.
- Ask for a month-to-month contract because other contracts can last up to three years and be expensive to get out of. Refuse to pay their cancellation fees.
- Require that you get your refund fees back. When a business issues a credit card refund, it is supposed to get a credit from the issuing bank for part of the interchange fee. Many processors will try to keep the credit instead of returning it to the business.
- Demand interchange optimization and that the transaction rates never increase. Also get that in writing.
- Learn about the cost of the processing equipment. And vet any free offers. The offers may require you sign a long contract or pay maintenance fees. Also, buy your equipment, do not lease it. If you lease a credit card machine, you’ll end up overpaying in the long run and won’t own it. Today, you can buy a terminal with contactless payments for a few hundred dollars.
- Learn if equipment is compatible. If you change processors down the road, you want to know that the credit card machines, gateways and POS software still work.
- Scrutinize your statements routinely for rising fees and rates. Even if it’s in writing that rates won’t rise, keep the processors honest by checking your statements for added charges.
Another big factor to consider is customer support. You can end up losing business if there are a lot of technical difficulties and poor service. Find out if support is available 24/7.
Fraud prevention and security should also be top of mind for merchants. All businesses that handle credit cardholder information must be PCI compliant. Systems need to be secure to protect customers’ personal data. The PCI Security Standards Council, which works to enhance global payment account data security, offers free resources for businesses on its website.
The CardConnect and Red Maple partnership offers innovative security features such as point-to-point encryption and tokenization that allows businesses to protect cardholder data for the ultimate data breach protection. Those features also allow merchants to reduce the administrative time and costs associated with maintaining PCI compliance. Learn how it works here.
Red Maple carefully tracks the trends in cyber security and cybercrime to protect retailers. In the world of credit card processing, Red Maple owners say the best way companies can protect online data is by using two-factor authentication. That is a “security process in which the user provides two different authentication factors to better protect both the user’s credentials and resources the user can access.”
For merchants, two-factor authentication reduces fraud because the cardholder must be who they claim in order to complete the transaction, and it reduces the chances of chargebacks.
Red Maple also created StagedPay, which offers a breakthrough solution for retailers to fight online theft and fraud and offers unprecedented protection. StagedPay enhances two-factor authentication and takes it to the next level. Not only are two methods used to enter the credit card, but the card number is used as a third means of verification.
Red Maple has two key products: StagedPay Card Not Present and StagedPay eCommerce which protect customer information by storing and locking-up credit card information in different locations. Find out more at www.stagedpay.com