Payment Processing Rates and Fees: 5 Facts You Need to Know
The benefits of accepting credit cards typically far outweigh the costs. But there are costs involved, and it’s a good idea to take the time to educate yourself about the merchant account rates and fees you are paying when you sign up for a payment processing account. Make certain you understand how to read your merchant statements and flag anything that seems confusing or contradictory. Being well informed is important to ensure you understand what you’re paying and why.
Here are five facts you need to know when it comes to rates and fees:
- “Free” isn’t necessarily free.
You are likely to encounter offers from processors offering this or that for free in exchange for signing a merchant account agreement. It might be a free terminal or credit card reader, or the processor might waive any setup fees or application fees. While there are some great new account offers out there in the world, be wary about signing a merchant account agreement with any salesperson who literally walks in to your business off the street. Unless they are associated with a large, reputable processor, you’ll probably experience little in the way of customer support once you’ve been on-boarded.
- If it sounds too good to be true…it probably is.
There are select processors out there who will charge you a flat rate on most or all of your transactions, or one flat rate for card-present transactions and a higher flat rate for card-not-present transactions (with a transaction charge commonly added to the latter). Again use caution so you don’t pay dearly for the simplicity and ‘convenience’ of this pricing model. For small businesses with very low processing volume, a flat rate pricing platform may be a worthwhile choice. But read the fine print or flat rate pricing may end up costing you more in the long run. If a processor promises a “low flat rate,” that seems too good to be true—it probably is. Unless you are dealing with a trustworthy and established processor, a very low rate may be offered only an introductory (temporary) rate, or applies to a very narrow band of credit cards or transactions. You could actually be paying a variety of other fees that more than make up for the shortfall on the rate. And when the low flat rate expires, or isn’t in effect, you are probably going to be overpaying by a wide margin.
- What you do (or don’t do) can translate into a potential fee.
Additional or unexpected fees can come into play with some processors if you do something incongruous (or fail to do something you’re expected to do). For example, if a patient walks in to a medical practice and pays their co-pay with a credit card, and the front-office staff “keys-in” the card, that transaction can be charged at a higher rate (a card-not-present rate) than if the card is dipped or swiped. Or, if you have accepted cards on a particular day and fail to batch out at the end of that day, you could potentially pay higher fees on those transactions. Be certain to review current best practices with your processor; then make sure you adhere to them religiously.
- Discretionary or negotiable fees—should you pay them?
The fees for some credit card processing services are discretionary or optional, but you might very well find the services to be worth the cost, either in terms of overall cost savings, added peace of mind, or both. For example, there is a fee for Address Verification Service (AVS), which is recommended when a credit card is not physically present. This service verifies that the address and zip code provided match the information on file with card issuer, making it a first line of defense against fraud. Similarly, it may be worth it to pay a modest fee for the peace of mind that comes with data breach coverage. Also, keep in mind that some fees might be negotiable. For instance, it’s common practice for payment processors to charge a cancellation or termination fee if you close your account before the date stipulated in your merchant account agreement. However, this fee may be negotiable, particularly if you have unresolved issues that your processor cannot or will not resolve. Consult with your processor to understand their negotiable and discretionary fees.
- The cheapest option is not always the best option.
Some processors may be able to offer slightly lower rates and fees because they don’t have the resources to provide service and support. But what happens when you need help after hours or on a holiday—or on the busiest day of the year for your business? Look for processors that have an 800 number that you can call 24 hours a day, seven days a week, 365 days a year. Ideally, customer service agents should be U.S.-based, so there are no issues with a language barrier or challenges with representatives understanding the needs of your business or industry. And keep in mind of the value a processor offers you. If you pay slightly more, but you get a processor who can help you with security issues and maintaining PCI compliance, it’s worth the cost.
Think first or pay later
To understand the fees you will be paying, research processors first and ask them to outline all the fees. Think about reaching out to business associations that you or your business belong to and find out if the processor you’re considering is an endorsed or recommended partner. This may entitle you to a ‘group discount’ that might otherwise be unavailable.
Understanding fees and rates may not be the most exciting part of business, but when it comes to your bottom line, it may be the most cost effective.