Whether you’re the owner of a brick-and-mortar storefront, you’re strictly an online merchant, or you run your business from a food truck, you want to ensure that customers can pay conveniently and that you understand exactly what it costs your business to make that happen.
With the arrival of innovative payment options like digital wallets, businesses of every size have had to transition away from accepting cash-only to choosing merchant account services and mobile payment processors that can keep up with the newer demands of potential customers.
Understanding merchant accounts and credit card processors
If your business will accept credit and debit card payments, that money needs a place to go, and that’s where credit card merchant accounts factor into your business plan.
A merchant account is a bank account that receives money collected from debit and credit card transactions. After each card transaction, the resulting payment gets transferred to the account, and from there the money can be funneled into a standard business account.
If your company takes both online and in-store transactions, the merchant account for card-present transactions may be different than the one you use for online purchases, but basically every modern business needs at least one merchant account to do business in the modern era. Once you have an account, you then have to think about how your customer will be interacting with your business. This will determine what sort of credit card processing solution can best facilitate those transactions.
If your customers come to you and most of your transactions happen inside your physical location at a traditional point of sale, your needs will vary from those of a business that’s physically mobile and brings the business directly to the customer. Likewise, if most of your transactions take place without being face-to-face with your customer, this will affect what type of credit card processor you’ll want to use. Luckily, there are several credit card processing methods to choose from to ensure your business is prepared for your customers’ payment preferences.
Selecting the processor that’s right for you
If your business is a traditional physical storefront, the most commonly used processor is a retail merchant account. This allows your customers’ credit and debit cards to be swiped (or inserted or tapped) through payment terminals at your store.
It’s becoming less common to see businesses that don’t also have an online component for handling transactions. To process payments online, you need an internet merchant account. You can then process both credit and debit card payments through your website.
In lieu of traditional point-of sale systems used with most cash registers, you can also set up your business to use smartphones and tablets as payment terminals. In these cases, you’d need mobile credit processors to allow your business to accept payments anywhere you have a WiFi or data connection. Nearly any type of business or individual can use this sales processing method, from artists selling paintings at local art fairs, to local coffee shops and beyond.
One payment processor type that’s less often used these days, but can still cater to a specific type of transaction, is mail or telephone order merchant accounts (MOTO). These accounts let you process payments by phone or direct mail as the name suggests, and may be necessary for some businesses.
There are other considerations, too. For one, if necessary, make sure the processor you're considering supports multiple merchant account types. If you already have a point-of-sale system or website merchant page set up, make sure any processors you’re looking to work with in the future are compatible with your current setup.
Facing the Fees
You may think that you can credit and debit cards at your business along to your customers. This is mostly true, but be wary of adjusting your prices to accommodate this, especially if your business is in a highly competitive space where a rise in prices could put a competitor into a more appealing position in the eyes of the customer. Most merchants choose to eat interchange fees as an expected cost of doing business.
Since costs are arguably the most important factor when choosing a credit card processor, become familiar with the types of fees you can face.
Initial costs, like equipment installation and application fees are common one-time fees associated with credit card processors.
When using a credit card processor for card payments, you’ll be charged an “interchange” fee for every transaction made with a debit or credit card. These fees usually fall between 1.5%–4% of the total purchase amount. For smaller businesses where low-volume and low-cost purchases are commonplace, this can be a major hurdle when trying to remain competitive with bigger chains.
Several factors, including the type of card used and how the transaction takes place, can affect these fees. For instance, with less risk of credit card fraud with in-person transactions, in-store payments could cost you less than online or phone payments. There are no additional fees to use EMV chip cards at your business, but it does cost money to equip your business with EMV technology, which is basically mandatory in modern times.
Look out for small monthly fees, including costs for mailed monthly statements, or rental charges for the processing terminals themselves, generally around $20 to $100 a month. Some processors may charge a fee for early contract cancellation. Plus, most processors will have minimum requirements for the fees they collect every month, and if your business is shy of this minimum amount, you can be charged the difference.
Another cost to be mindful of is the price of leased equipment, which you’d be responsible for even if you were looking to sell your business, or worse, if you were forced to close shop. Other ancillary costs to keep in mind are modern payment amenities like mobile readers to plug into devices you’re planning to use for your transactions.
Be sure to ask all the relevant questions pertaining to what charges you’ll have to plan for when finding a processor since every business has their own considerations.
The reason merchants may opt to charge customers more for using their credit cards is because they have to pay fees to accept credit card transactions.
Ultimately, you know your own business the best, and therefore, the most rock-solid thing you can do when choosing a credit card processor is make the most informed decision you can that will accommodate you.