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Credit Card Processing

Accepting your customers credit cards is more complicated then it looks. With so many different banks and third party merchant providers offering credit card processing solutions it helps to have a concise overview of the various transaction fees, discount rates and technologies to consider.

1. Credit Card Processing - Info

2. How Credit Card Processing Works

3. Basic Fees

4. What To Ask Merchant Service Providers When Evaluating Them

5. What To Look For From Your Merchant Solution Provider

6. Requirements For Receiving a Merchant Account

7. Credit Card Processing Equipment Overview

8. How To Compare Merchant Solution Providers

9. Where To Go For Merchant Account Providers

1. Credit Card Processing - Info

Whether you conduct business online, offline or both you will at some point consider accepting credit card payments from your customers. The decision to allow credit card payments may be a simple one; however, selecting a merchant account provider is complicated and can have a real impact on your business not to mention your bottom line. Unfortunately, not all merchant accounts are alike. You’ll soon learn that providers have different approaches to rates, fees, limits, not to mention customer service – and finding the right match for your business is critical. The remainder of this guide will break down the process and key considerations to enable you to find the right solution.

2. How Credit Card Processing Works

Without getting too detailed and caught up in all the possible exceptions, here’s what happens when a credit card is processed:

1. Merchant processes card with a point of sale unit or via software if online.

2. Data is transmitted (card info, sales amount) to the “acquiring” bank.

3. Acquiring bank requests authorization from the “card-issuing” bank.

4. If accepted, acquiring bank processes the transaction and sends approval back to the merchant.

5. The merchant reviews the transactions and transmits confirmation to acquiring bank for deposit.

6. Acquiring bank then requests and receives funds from the card-issuing bank.

7. Acquiring bank then deposits funds into the merchant’s account.

3. Basic Fees

Needless to say, all parties involved in this process benefit (take a cut). Here are the primary fees to consider:

Set-up fee – one time fee for getting started

Transaction fee – merchant pays a fee for every transaction

Discount rate – flat % charged to merchant for every transaction

Chargeback rate – rate of monthly sales “held” in reserve to offset any fraudulent transactions

Chargeback fee – there is often a fee for charge-backs

4. What To Ask Merchant Service Providers When Evaluating Them

In order to get the best deal from a merchant service provider it is important to understand the different ways they can make money.

New client set-up and application fees

Sale of processing software and equipment

By participating in the transaction fee that occurs with every customer transaction

With this in mind, when evaluating providers, make sure to consider how they make their money and how reasonable their products and services are. In addition, be careful to inquire about the following:

Am I required to contribute to a reserve? What % of sales?

How will my credit rating affect my cash reserve requirement?

Will my credit rating affect any of my fees?

What is my monthly minimum processing fee?

How could the rates you’re quoting me change following the application process?

Can my equipment fee change at all as a result of the application process?

What happens if I process a foreigner’s card?

What happens if I’m unable to process/batch my daily transaction (miss a day)?

What happens if I exceed my daily (revenue transacted) limit?

What happens if I have an unusually large number of charge backs?

5. What To Look For From Your Merchant Solution Provider

First, you have to make sure that you have competitive rates and fees. For example:

If you sell high volumes of products, low transaction fees are critical

How will your discount rate change for offline (card present) transactions vs. online?

Does your business expect to receive chargeback’s? What are the policies associated with these?

Etc.

Next, make sure you understand the level of customer service you will receive. Hours spent trying to resolve technical issues, etc. can be extremely time consuming and costly.

Finally, consider whether you will require additional services such as integrated ecommerce processing and order management as not all merchant providers offer these capabilities.

6. Requirements For Receiving a Merchant Account

Banks and third party merchant providers have established a variety of requirements in order to mitigate the risks associated with processing credit cards including credit, fraud and contingent liability risks. Basic requirements include:

A business checking account with a US bank.

A US postal mailing address (same address as business checking account).

Online - server must be located within the US

Depending on the nature of your business, credit rating etc. additional requirements can include:

above normal setup and transaction fees

above normal reserve requirements

7. Credit Card Processing Equipment Overview

While not as complicated as selecting a merchant solution provider, selecting the right equipment, and getting a good deal on items such as credit card terminals is important.

Things to consider when purchasing credit card terminals:

Fees on transactions that our “swiped” are often lower than if keyed in

The cost of leasing equipment usually far exceeds purchasing it within a year

Not all terminals accept debit cards which require the customer to key in a pin number

Similarly, if you plan on accepting gift cards you will need to purchase terminals capable of handling them

Businesses whose transactions are entirely online should not buy terminals – their software should handle the authorization

Make sure that AVS (address verification system) comes standard with your equipment to cut down on fraud

Note: you don’t require new equipment when switching merchant account providers – you simple need to have the existing equipment re-programmed

Receipt Printers:

Choices include thermal, dot-matrix and ink-jet and are often built into the credit card terminals. Be realistic about your needs and priorities… is color really a necessity (the main reason for ink-jet)? Is wireless truly a requirement for your business?

8. How To Compare Merchant Solution Providers

When comparing providers it is extremely important to remember that the type of business you have and the needs that come with it will determine what you’re looking for from your merchant account. Once you’ve identified the key attributes that you’re looking for (low transaction fee vs low discount rate), you’re ready to compare solutions.

First make your best estimate of the following:

Average number of transactions per month; and

Average size ($$) per transaction

Next gather the following costs from each provider:

Set-up fee(s)

Transaction fee(s)

Discount rate

Chargeback fee (s)

Gateway fee(s)

Use your transaction assumptions and fee research to calculate the resulting monthly fees for each of the merchant providers you are considering.

9. Where To Go For Merchant Account Providers

In addition to the advertisers featured on this page, here is a sample list of current providers:

Landmark Merchant Solutions

Merchant Warehouse

Charge.com

Merchant Account Express

Chase Merchant Services

ACS Merchant Services, Inc.

Citicorp Payment Services, Inc

BA Merchant Services, Inc.

First Data Merchant Services

NOVA Information Systems, Inc.

Bank One Merchant Services

- Choosing Credit Card

When it comes to acquiring a credit card, there is a plethora of choices out there for any credit consumer. However this makes the process of browsing through the credit card offers and selecting the best one difficult for the average consumer.

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- Choosing Credit Card

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