The Federal Reserve notes that 123.5 billion (with a B) non-cash payments changed hands in its 2018 report. That represents a nearly 11% growth rate over the previous reported year. While a cashless society is far from imminent. you can see the trajectory.
Businesses that do not offer card payments are at a disadvantage. Impulse buys are limited to customers having cash in their pockets. Also, expansion to online sales becomes nearly impossible if you depend on paper checks and snail mail.
Does your small business struggle with card payment processing? Often there are roadblocks like cost, convenience or complexity. How do you find the right solution?
Read on to learn more.
How Do Card Payments Work?
As a consumer, it’s pretty simple. Put your card in the machine, it boops and beeps, you sign or enter a PIN and go. Money magically moves from your account to the merchant. Transaction over.
From the other end, there are actually a series of transactions happening to get the money into the merchant’s account– and each transaction takes a percentage of the sale. For a small business, this percentage can reach a total of 8% or more of each purchase.
This can cut deeply into profits. Some people choose to go cash only. Your business can struggle with the cost of lost sales if you don’t take cards.
Payment Processing Simplified
There are a bunch of people involved between your cash register and money reaching your account. Often there is a delay of a few days, too. Let’s look at the players.
Consumer
We know this person. He or she holds the debit or credit card.
Merchant
The merchant or seller is the one providing valued goods or services. That would be you.
Processor
Processors (AKA merchant acquirers) provide the card readers and send the information to card issuers on behalf of the merchant. They group all transactions from several merchants together and process payments with each card network.
A percentage of each transaction is paid for this service. There are methods to shift these costs to others. In many states, it is permissible to surcharge the cost of credit card (but not debit!) processing.
For example, check out Striker Payments EPX Edge. Each state has different compliance requirements to surcharge credit purchases or discount cash payments.
Card Issuer
These are the financial bodies that provide the credit or debit card. Bank of America, Chase or Citi are some examples.
Card Network
Card networks organize payment processing between the processor and issuer. American Express, Discover, MasterCard and Visa are the largest networks in the U.S.
The Basic Walk-Through
So what is happening between the customer signature and money into your account?
End of Day
All your daily transactions are uploaded from your card reader to the processor. Some machines do this more often to prevent data loss.
Processor Separation
Daily transactions by several merchants are batched together and separated out by card network.
Network Separation
Each card network batches together daily transactions by the issuer and sends the transaction information for payment.
Issuer Payment
The payment is made to the card network, which in turn delivers it to the processor. The processor credits the merchant account. This can happen within three days or overnight, depending on the kind of transaction and the risk involved.
Often, processors will advance a portion of payments to a merchant to avoid issuer or network delay. However, they will only offer this service on low-risk transactions. There may be a cost involved.
How to Choose a Processor
Regardless of the processor you choose, these are the basic steps. The question is the cost of each step, the speed of each step and the cost and quantity of chargebacks. You need a processor compatible with your needs.
A brick and mortar business selling goods is different from a web-based service. A for-profit business is different from a charity that raises funds. Certainly, a one-person shop is different from a multi-location mega-chain business.
Look for credit card payment processing tailored to your specific needs. If possible, ask at least three processors for their recommendations. Costs are often based on transaction volume, so you may find some surprises when making comparisons.
Beware and Compare
Check your costs upfront, ongoing and at cancellation.
Compare these costs to your business needs. A nonprofit that runs an annual Christmas bazaar might need credit card processing once a year. So they may find the best deal to be unlimited equipment, no upfront costs and no cancellation cost– even if they pay more per transaction.
Compare that to a lunch delivery service that has one order counter and hundreds of small transactions a day. They might opt for a low transaction cost and buy their own equipment.
Different card processors charge differing amounts. There are fees generated by the transaction processing itself. These are pass-throughs.
Beware of fees associated the processor, like statement fees or support charges. Fees associated with equipment or with compliance can add up. Expect that fees increase with the riskiness of the transaction.
Customer Support and Fraud Prevention
Merchant services can be complex. You need to consider the type of equipment you need and you need to consider the amount of support. In addition, consider your access to help for things like chargebacks and fraud.
Card present, in-person transactions are the safest. Especially if you have a chip-enabled reader. Less safe and more costly are card, not present transactions. These include telephone, fax, mail order or web sales.
Fraud detection and prevention is important, especially online. However, lost sales due to false declines can be a problem. Match your security level to what you’re selling and which channel you use.
Grow Your Customer Base With Card Payments
Add cashless options to increase the number of possible customers for your business. Find a processor that understands your type of business and your sales channels. Have an understanding of what your payment processing costs are.
Compare fees and options. Sometimes a higher transaction fee is better than upfront or cancellation fees. Determine what service level and transaction safety level you need.
Want to learn more about growing your customer base? Keep reading this blog!
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