Dec 27, 2022 7 min
What to Research When Selecting a Credit Card Processing Company
Today’s consumer relies heavily on credit cards for purchases. Business owners know the importance of capturing credit card payments, so they do not miss out on customers. Cash is no longer king – especially with the increase in online sales in the last couple of years spurred by the COVID-19 pandemic.
So how does a business choose the right credit card processing company?
Consult this guide for research tips along the way, and reach out to us at CARDZ3N. We will complete a free review of your business’s current performance and identify areas of improvement as part of our Merchant Services.
Credit Card Processing: What is it and How Does it Work?
Before diving in, it is essential to understand credit card processing and the technical process behind how businesses accept customer payments.
A processing company connects the multiple services required to complete a credit card transaction – credit card networks, issuing banks, a payment gateway, and the merchant payment processing account/bank. These are the “key players” in credit card processing. The processing company enables the secure transfer of the customer’s data between these services, namely the issuing bank and merchant account.
The transaction has a couple of steps – authorization and settlement. The credit card processor will connect with the customer’s issuing bank to verify their card details and purchase amount. This happens rapidly and results in the customer’s card being approved or denied for the transaction. See a detailed list of these steps, which breaks down the interaction.
Choosing the right processing company is more than just one-size-fits-all, as different merchants require unique options. Credit card processing companies use other fee structures, such as charging per transaction or a flat-rate price.
Why is Credit Card Processing Important for Your Business?
Credit card processing is necessary because many customers exclusively use credit for shopping. Customers may want to take advantage of credit cards that offer rewards, cash back, and loyalty programs. They will miss these bonuses if they use cash, checks, or debit cards.
Younger consumers rarely carry cash because of the prominence of merchants accepting credit cards. It is rare to encounter a cash-only business today because of the inconvenience to the customer. These friction points are an opportunity to lose well-earned customers.
Factors to Consider When Choosing an Online Credit Card Processor
When choosing a credit card processor, functionality and customer support are critical factors in your decision.
Ask yourself these questions to narrow down find the best option:
• On average, how many sales does the business generate monthly?
This is important because processing companies may charge a per-transaction fee. If the company has a high number of sales, this becomes an excellent option to cut costs on the overall volume of transactions. However, that can become costly if the business has less than $10,000 more in sales in a month. Smaller firms will want to look at a company offering a flat rate instead.
• Where does the business sell?
Is the business an online vendor? Are there brick-and-mortar stores? Does it sell in-person but migrate between locations? Small businesses will need physical infrastructure to support credit cards if they have multiple locations. For example, they will need equipment or registers where customers can scan or tap their card to transmit payment information. If the business is on the move, like a food truck owner, it will require portable equipment.
In an online environment, the customer manually enters the card information. Online sales require a secure payment gateway.
If the company operates in-person and online, it will need a solution that can handle both in an integrated system.
Does the business sell internationally? If yes, it will need a credit card processing partner that supports exchange rates and international cards.
• What products does the company sell?
Some vendors have limitations for restricted items. If selling a product that is considered restricted in some states, the business may need to look to a traditional merchant services vendor. Popular credit card processing companies often maintain a list of approved (or unapproved) items that may prevent potentially controversial companies from using their service.
A vendor may also consider an account to be a high-risk merchant account. The business is at a higher risk of fraud, returns, or chargebacks based on its products and services. As the payment processor takes on more risk, they will often charge higher transaction fees to compensate. One could be designated high-risk for several reasons, so evaluate this during the selection process. For example, processors take whether you accept international payments or even your credit score into account in their calculations. Some processors consider specific industries high-risk, so they plan accordingly.
• Need around-the-clock customer support?
Most providers have 24/7 service for critical events such as network outages, but some will limit support at their lower cost levels.
With this information, narrow down the options for credit card processing services.
How Much Does Processing Credit Cards Cost?
This will depend on the processing companies under consideration. The two basic types are fee-per-transaction and flat-rate vendors.
A small business that receives less than $10,000 in revenue monthly will want to opt for a flat-rate vendor.
A more significant or established company with a large volume of transactions should use a vendor that charges per transaction as it is more economical. These processing costs go down the higher the number of transactions being processed. An organization may have a tiered system that adjusts fees or uses buckets to categorize transaction costs.
In addition to credit card processing costs, remember equipment costs and the secure payment gateway. Depending on how the company operates, these costs will factor into the overall costs for the service.
Payment Processing Fees or Merchant Service Provider Fees: What is the Difference?
If a fee-per-transaction partner is a proper fit, you may see different fees based on their pricing model. These fees come from other players.
Simplified, there are two main types of fees – wholesale and markup. Not all merchant fees are at the transaction level – there are costs to maintain a merchant account yearly or monthly. At the transaction level, processing fees can come from various sources. Banks can charge these, credit card associations, or payment processors. No matter the source, the payment processor collects the fee and passes it to the bank or credit card association. These are not negotiable fees.
However, there are ways to lower credit card processing fees:
• Negotiating with Credit Card Processors
While some fees are not negotiable, as mentioned above, some are. Use data to reinforce conversations. For example, if your business anticipates a high volume of transactions, this benefits the processor as more transactions equal more revenue. The processor also benefits.
• Lowering the Possibility of Credit Card Fraud
There are two main ways to reduce risk – swipe customers’ cards instead of manually keying in information and entering security information. Rates from credit card companies are higher if the information is keyed in, so avoid this by encouraging swiping cards as the primary method. The other way is to have the customer enter information such as their zip code or security code by prompting them on the terminal or the processing gateway.
• Using a Service that Verifies Addresses
Use a service that verifies a customer’s billing address with their card issuer. Have the customer enter their address during checkout to compare it to the address the issuing bank has listed. Visa even provides incentives to use this, charging lower interchange fees.
• Setting Up Your Account and Terminal Properly
Take your time with account setup, as it can lead to higher processing fees due to incorrect business information. Take the time to set the account up correctly to save money in the long term.
Set up terminals to process transactions within 24 hours, reducing processing fees by lowering the number of transactions.
• Connecting with a Credit Card Processing Professional
Do not be afraid to consult an expert! This is complicated, and a professional can help obtain the lowest rates possible. Companies process many credit cards as a cost of doing business, so minimizing expenses will go a long way.
So, what should you do next? Start by evaluating the business’s needs to determine what type of credit card processor is suitable for the company. From there, narrow down the search to specific vendors that meet the criteria that will allow the business to flourish and develop.