Why the cheapest credit card processing may cost you more
The cheapest credit card processing plan you find that offers a "discount rate" or "no surcharges" may sound attractive at first, but what's really going on with these card processing fees and services? Are they worth it? Often paying less upfront can mean paying even more in the future. Here's why the cheapest plans aren't always the best, especially for small businesses.
Merchant account fees vary widely
Merchant account fees are infamously difficult to discuss, because there are so many different classifications for them, and multiple types of fees, based on many factors, tend to apply to every transaction. Briefly, there are interchange fees and processing fees, which tend to both be a combination of a percentage of the transaction, as well as a flat amount per transaction. This is in addition to any contract expenses you may also have to pay.
These fees and their structures can be hidden from merchants, making them difficult to determine in a discount rate scenario. As a result, controlling these fees and noting if they rise or fall over time is almost impossible for the average business owner. What looks like a "discount rate" or good deal right now may prove to be nothing of the sort after a few months of transactions.
In addition to transaction fees that are typically fixed, the cheapest credit card processing plan might become more expensive when you start adding up incidental fees. For example, know what other types of fees and charges you might encounter and over what periods. Are they monthly recurring fees? One-time fees? Do you have fees associated with contract changes or exit? Monthly minimums, etc.?
Consumer buying habits are changing
With the proliferation of payment apps, mobile wallets, online accounts, and of course credit/debit cards, more and more consumers (especially younger generations) are ditching cash and checkbooks entirely to pay with their cards and their phones. While your goal should be to obtain as many customer payments as possible from as many sources as you can. Different forms and modes of payment come with different costs, e.g. in-person transactions versus those so-called "card not present" transactions (like web payments or mail/phone order payments) are subject to different interchange rates. In addition to knowing if your "one low rate" covers a range of payment types, you also need to understand what payment types will be and if any come with additional expenses.
Don't pay for processing you don't need
When you sign up for small business credit card processing, pay attention to the fine print. Get your credit card processor to explain in detail what you're getting for the price stated. How are your customers paying? Debit or commercial card? Different cards come with different rates and your cheapest credit card processing might not be so cheap, if you're paying a bundled rate you may not always be receiving the benefit of optimum interchange rates.
Customer service, security and so much more
Probably the biggest thing you need to know is that the cheapest credit card processing plans often are no frills. In the world of payments today, the frills can be very important. For example, along with the credit card terminal or POS system that you'll be using; are security solutions such as encryption available to you? Are your devices chip-enabled or ready to read those cards that now tout a microchip? Data security and fraud prevention are major considerations in any small business' plan to accept payments and you should know if these services are available to you and at what cost. In many instances, today, these data security and fraud prevention services are bundled and packaged specifically for small businesses—and often integrated directly with the payment processing—so that they're both approachable and affordable. In addition, what customer service is available to you and when? Will you be able to reach a representative during the hours your business operates?
Configuring credit card processing for small business doesn't need to be difficult. Make sure you understand what you're getting for what you'll be paying. Additionally, don't make the mistake of thinking that what appears to be the cheapest credit card processing plan available to you is the best or even the "cheapest.” It often isn't.