Your business will always need to compete for customers, and an excellent way of gaining an edge over your rivals is to ensure that you have all the bases covered when it comes to payment processing options.
The way you are able to accept payments and the scope of your options can make a huge difference to customer perceptions. Without question, offering them the ability to choose the right payment channel that is secure and convenient will make a huge difference to your business.
From being able to take a range of card payments, to gaining access to high risk ACH merchant accounts, if that’s what your business profile requires, here’s some key points to take on board if you are a small business owner.
Key Takeaways
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Understanding How Much Payment Processing is Really Costing You
You expect to pay fees for using a payment processing facility. However, the headline rate you are often quoted by card processing companies is not always the actual fees you pay in the end.
You need to be able to calculate your effective rate, which is a number that you arrive at by dividing your total processing fees by your total card sales. Knowing this number makes it easier to budget and allows you to compare when shopping around.
Don’t forget that Automated Clearing House (ACH) options are usually considerably cheaper than card payments, so that is always worth bearing in mind.
Choose the Right Pricing Model for Payment Processing
Another key issue to consider is whether your business is better suited to a flat-rate or interchange-plus pricing model.
It pays to take the time to understand the difference between the two. Flat-rate pricing is straightforward and offers a greater level of predictability when it comes to knowing your fees. This model usually works well for low volumes of transactions, or when you are just starting out.
Alternatively, interchange-plus pricing is a system where the base fee set by the card networks is a different number to the processor’s margin. Talk to your provider to get these options fully explained.
To give you an example of how flat-rate pricing works, here’s a typical setup scenario:
Your payment processor will have a base rate that calculates all of their usual underlying processing costs. They will then add their profit margin. This is then delivered in one flat rate that is quoted to you. For instance, you could be charged one rate for in-person transactions and a different rate for online transactions. The fee for online transactions is usually higher to reflect risk and compliance regulations associated with this type of payment.
Although this pricing model does give you greater fee predictability you should know that this way of paying for payment processing could get expensive when you start processing large volumes of sales or have a high high average ticket size. In those scenarios, the interchange-plus model usually becomes more cost effective.
You should also be aware of another option known as tiered-pricing. This is when transactions are allocated in certain so-called tiers, such as qualified, and non-qualified. This is an area of pricing where industry jargon is highly prevalent and can easily cause a lot of confusion. If this is being offered to your business as an option , take the time to understand what is involved, as the markups can be quite high in some instances.
Keep an eye on hidden costs
Staying on the subject of hidden costs, always keep an eye out for extra fees and charges being quoted in your contract. These can quickly add up. What you are looking for is things like chargeback fees, regular monthly fixed charges, and PCI non-compliance fees.
You will find that many payment processing providers will apply a regular charge for ensuring that your business always complies with the latest industry security standards. This is to be expected, as the legal landscape is constantly evolving, but you do need to keep any eye on what you are being charged for.
Chargeback fees can vary greatly between providers. This is a penalty fee charged to you when a customer disputes a transaction with their bank. Again, these fees can soon add up, so check what your chargeback fees are.
In addition, you may be charged for either renting or buying the physical card readers needed for taking payments. It is a good idea to verify what these costs are so that you can factor them into your budget calculations.
You can’t afford to ignore PCI compliance requirements
Whatever the size and type of your business you must comply with Payment Card Industry (PCI) data security standard rules.
Your card and payment processing provider should be able to provide you with all the right encryption and other security protocols required to stay on the right side of the law. Be mindful that non-compliance can have consequences, including being subjected to hefty financial penalties.
In a nutshell, security and compliance is an area of payment processing that is non-negotiable. Look for providers who are able to offer you more secure options such as P2PE and tokenization facilities, which are known to be robust in safeguarding customer details. As a base starting point when it comes to security protocols, make sure you always use EMV (chip and pin)or contactless methods, as they are much safer than manually keying in card numbers and details.
Multi-channel flexibility is key to your growth
Ultimately, most customers now expect and demand to be able to pay in the way that is most convenient for them. Whether that is making a direct payment using ACH, or making a card payment, your business needs to offer a variety of payment methods.
Make sure you choose a payment processing provider who can give you all the tools needed to be a truly multi-channel business.
Once you understand these important aspects of payment processing it should be easier to create a system that allows your business to thrive. It can definitely make a difference to your bottom line when you choose a payment processing provider that gives you all the payment options you want at the right price.
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Frequently Asked Questions
1. How can small businesses reduce payment processing costs?
Small businesses can reduce payment processing costs by understanding their effective processing rate, comparing pricing models, monitoring hidden fees, and considering lower-cost payment options such as ACH transfers when appropriate.
2. What is the difference between flat-rate and interchange-plus pricing?
Flat-rate pricing combines processing costs and provider fees into a single predictable rate, making budgeting easier. Interchange-plus pricing separates the card network fee from the processor’s markup and can become more cost-effective for businesses with higher transaction volumes.
3. Why is PCI compliance important for payment processing?
PCI compliance helps protect customer payment data and ensures businesses meet industry security standards. Failure to comply can lead to financial penalties, security risks, and damage to customer trust.
