As time goes on, fewer people are using cash money when making purchases and so small businesses understand the need for taking credit and debit card payments. Unfortunately, when first starting out, many business owners don’t know that it is just as important to choose the right credit card processing services as it is to accept plastic in the first place.
There are a number of considerations to be aware of and if you find that you didn’t fully research the services available when you first began taking credit card transactions, it’s time to begin looking at what’s out there. Credit card processing companies are most often referred to as ‘merchant services,’ so when searching online for credit card processing companies you may also want to look for that term as well.
4 Parties to Every Transaction
Before looking at credit card processing companies, the first thing to learn is that there are more parties involved than just merchant services (the processing company) and the cardholder. There is an issuing bank that actually lends the money. Then there is you as the merchant, the bank which processes the payment called the acquiring bank and then, of course, the customer.
What many merchants may not understand is that the acquiring bank is also a lender. The cardholder’s issuing bank lends the customer the money to make the purchase but the acquiring bank lends you, the merchant, that amount until the issuing bank pays them. This is where those fees you are charged come into play.
It can be quite confusing at first trying to figure out why each type of credit card charges different rates. When speaking of types, this usually refers to Visa, MasterCard, Discover and American Express and this too can be confusing because there are a number of ways in which they assess the fees they charge.
It is sufficient to say here that just as the issuing bank charges you a fee for lending you money on your charge card, the acquiring bank charges the issuing bank a fee, called the interchange fee because they are also acting as a lender and need to charge for their services.
The Acquiring Bank Is Actually a Two-Part Process
Rarely, if ever, will the merchant be dealing directly with the acquiring bank even though that is the financial institution that will be ‘lending’ you the money your customer charges. The acquiring bank works through a credit card processing company known as a merchant service provider. This is the entity that you will be dealing with when accepting credit card payments, and this is where your journey begins when seeking merchant services at low rates.
Stepping back a moment, it is important to understand how each credit card processing company begins to determine the rates they charge. Just as issuing banks offer cardholders varying rates, processing companies offer merchants different rates, most often based on their share of the acquiring bank’s percentage of payment to them.
Some are willing to assess credit card processing at low rates by literally ‘eating’ a portion of their payment to build a larger client base. Think of it like those gas wars we see from time to time. Some merchant services are willing to charge low rates in order to win over a larger number of merchants, thus significantly raising their bottom line. This is how huge fast-food chains like McDonald’s operate. Keep prices low to attract a larger customer base.
Putting It All Together
Now that you have a better understanding of all the parties involved in each transaction, you can see why each merchant services company that vies for your business charges rates that vary from provider to provider. The credit card processing company is paid a pre-specified amount from the acquiring bank that is fairly standardized across the industry. It is the merchant services provider’s option to take less for each transaction in order to grow their own business. It makes perfect sense from a business perspective.
One final aspect that should be mentioned here is the credit card processing machine sometimes referred to as a credit card processing terminal. Some of these are rented and some are purchased outright at the onset of contracting with the credit card processing company. When looking for merchant services with low rates, also look for credit card machines manufactured by reputable companies such as Verifone and Hypercom.
Although you are looking for credit card processing rates that are as low as possible, you also want merchant services that offer state-of-the-art credit card machines that are reliable and tech support that is available when you need it. Your customers expect excellence in customer service and you should demand no less from your merchant services provider.
Whether your business is just now beginning to accept credit card payments or you are simply disenchanted with your current provider, the above information should help you make choosing a credit card processing company much easier. Look for a reputable provider that offers low rates, technologically advanced credit card machines and dependable tech support when needed. Find those three elements and you are good to go.