4 steps to understanding merchant processing
For customers, the process of using a credit or debit card takes a few seconds - a swipe of the card, perhaps the inputting of a PIN or scribbling of a signature, and they're done. Behind the scenes, however, there's a lot going on. Here's a quick guide to understanding merchant processing:
Step 1: Know the players
First off, you should be familiar with the main types of organizations in the payment sphere.
- Merchant account providers that manage the processing
- Credit card associations like Visa and MasterCard
- Payment gateways for online sales
- Issuing banks that distribute cards to consumers
- Acquirers, who act as go-betweens for merchants and credit card associations
The lineup shifts depending on the particulars of a given sale. For instance, a relatively new class of payment providers does away with merchant accounts, but charges a heftier rate for the simplicity.
Step 2: Become familiar with the process
In the seconds it takes at the check-out counter, information may flow literally around the globe.
Merchants do not need to know every nuance, but it does help in evaluating offers from credit card processing companies. There are a variety of partnerships merchants may enter with processors.
A more traditional way to structure the relationship is "tiered," or based on a series of buckets, often three, into which any given transaction fits. For instance, a tiered contract might offer three different discount rates: qualified, mid-qualified and non-qualified, all based on the merchant and type of customer payment. The charge for any given payment would include a percentage plus a few cents per transaction.
On top of charges for individual payment card transactions come flat fees that vary by processor. For instance, some companies charge a Payment Cards Industry fee that covers the costs of keeping current with quickly-evolving security standards. Other fees merchants may encounter include terminal fees, statement fees, monthly fees, and fees if a threshold dollar amount of transactions isn't met. As with any business relationship, some of these fees may be negotiable.
Step 3: Prepare for the EMV shift
The PCI fee mentioned above brings to mind an important change coming to U.S. merchants. After Oct. 1, 2015, the "EMV shift" means merchants are encouraged to use more secure chip and PIN card readers as opposed to ones that read magnetic stripes only. EMV stands for Europay, MasterCard and Visa, the consortium of payment card companies pushing this new standard. After that date, should a given transaction turn out to be fraudulent, the party with the least-secure equipment may be held liable for costs.
Merchants should ensure their payment processor is ready for this change, which brings the U.S. in line with Europe and other parts of the world where the more secure EMV technology is already the default.
Step 4: Consider data, customer support and marketing tools
While the above points cover the basics of merchant processing, business owners searching for a payment processor would do well to consider these other factors:
Data: Small businesses are learning the value of collecting fine-grained data about their customers' purchases. Make sure the payment provider you choose offers data back to you in an easily-usable form.
Customer support: A mission-critical operation like accepting payments must be reliable. When glitches occur, you need to know you can reach help quickly. Find out if the payment processor you're considering offers 24-hours-a-day, 7-days-a-week customer support. If not, does their support staff work the same hours your shop is open?
Marketing tools: Facilitating credit and debit purchases is key, but businesses can benefit from marketing services like loyalty programs, stored-value solutions and gift cards. These programs need to integrate with your payment system, so savvy payment services companies are a great place to start after you have decided to add them to your marketing mix.