how to accept credit cards - the ultimate guide
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Accepting credit cards has proven to increase average order sizes by as much as 40%. Here's how to start accepting credit cards in your business today.TRANSCRIPT
The Ultimate Guide
How To AcceptCredit Cards
Do you want to accept credit cards in-store, online, remotely via smartphone or over the phone?How and where you accept credit cards will make a difference in terms of the type of credit card processing solution you decide to implement and how much it will cost. You may end up with 3 different solutions for accepting credit cards in-store, online, and via your smartphone.
TechnologyThe technology which you’re going to use to accept the transaction is going to be different for in-store, online, and mobile. If you have a store, you’re probably processing your credit card transactions through a point of sale system (POS).
Risk / Cost The risk of fraud is higher for online transactions versus in-store transactions, where the cardholder is present and their identity can be verified by the person processing the transaction. Because of the higher risk, processing Internet based credit card transactions tends to cost more.
Brick and Mortar Store:Merchant Account, or POS System and Merchant AccountA credit card reader (which can easily be rented or bought) will hook into your store’s POS system or directly into your Internet and submit information to the credit card company.
Online: Payment Gateway + Internet Merchant Account, or Shopping Cart + Payment Gateway + Merchant AccountJust because you have a merchant account doesn’t mean you are set-up or allowed to take online transactions through the merchant account. You need to ask specifically about an Internet merchant account.
For online transactions, the payment gateway (you can think of it as the form in which a person inputs their credit cards data) replaces the credit card reader. After the transaction is successfully processed, the money is sent to a merchant account and then on to your bank account. !Many solutions, such as Paypal, combine the payment gateway and the merchant account.
Mobile:Payment Gateway + Merchant AccountWith mobile, your smartphone becomes the credit card reader. A small attachment is provided for your smartphone which enables you to swipe the credit card’s magnetic strip. After the transaction is successfully processed, the money is sent to a merchant account and then to your bank account. !Many solutions, such as Square, combine the payment gateway and the Merchant Account.
Why do you need a merchant account?A merchant account is required by the credit card companies. This kind of account allows the credit card companies to easily take back fraudulent or disputed transactions before they hit your bank account.
Which is better for merchants?
Credit Cards vs. Debit Cards:
Your focus in terms of which set of fees you want to minimize, is going to depend on the number of transactions that you are doing, and the size of those transactions.
Here’s what you need to know:• If most of your business comes in transaction sizes of less than
$25, the fixed amount per transaction is what you want to try and minimize.
• If most of your business comes in large transaction sizes of more than $25, then the percentage you are charged per transaction is going to be more important.
• The smaller the total amount of transactions you do each month is, the more important any upfront setup and ongoing fees that the merchant service provider charges are going to be.
All the rates are negotiable based on your volume so it’s important to speak with several to
understand which is offering you the best rate. !Here are the questions you want to ask:
Do you use a tiered or interchange plus pricing model?There are two basic ways in which the transaction percentage can be charged. One is a fixed percentage based on the type of credit card, which includes bank fees, credit card company fees, and merchant account fees. Typically this is called a tiered pricing system.
Where the merchant account fee is set (and not dependent on the credit card) but all of the other costs, including bank and credit card charges, are passed on to the merchant. !We recommend sticking with providers that offer the interchange + pricing model. With this model it’s easy to see exactly how much you are going to be paying.
The other is the “interchange +” model
Accepting Debit Cards can cost from 0.2% - 2.0% of the transaction, plus a fee from $0.11 to $0.25 per transaction. !Keep in mind that fees will vary depending on whether the card is taken in store, via a mobile device or over the internet. Internet transactions are considered the riskiest and therefore generally have the highest costs.
What are your fees for debit cards?
Accepting Credit Cards can cost from 1.5% - 4.0% of the transaction, plus a fee from $0.20 to $0.30 cent per transaction. !Make sure you get these fees listed for all the different cards you plan to accept. For example American Express and International Cards always costs more, and many rewards cards do as well.
What are your fee for credit cards?
Dharma Merchant Services uses an interchange plus system. Here is an example chart from Dharma’s website that shows your costs and the cuts for each party involved in a transaction:
Some merchant account companies will charge you fees when you sign up, which are monthly or in bulk. This may or may not include hardware, training, customization, integrating a new system with your current existing software and hardware.
What upfront/setup fees are there?
All merchant account service providers charge Payment Card Industry (PCI) compliance fees for security. This is generally somewhere around $100 a year. Some bill this separately on an annual basis and some roll it into their monthly fee. !Many also charge a monthly fee for things like customer service. If the merchant service provider charges a monthly fee often times they will include everything including the PCI fee in this monthly fee.
What ongoing monthly and/or annual fees are there?
This is for things like card readers, terminals, cash drawers, bar scanners and printers. While some hardware is free, others will cost you. Merchant Warehouse sells iPhone 4 and iPad card readers for $129.00 and PIN Pads for $69.00 to $105.00.
Are there any hardware purchasing or leasing fees?
While sometimes merchant account companies will provide a complimentary payment gateway for online transactions, a merchant is expected to purchase a shopping cart, payment gateway and point of sale system independently.
Are there any fees for payment gateways and POS systems?
In addition, there are also fees charged by the merchant account providers which are not related to transactions. !Fee vary widely from one merchant provider to another. The section below will help you become a smarter shopper.
What You Can Expect In Terms of Fees
Just for using the provider or sometimes for customer support. Some companies will charge a flat rate per month and include everything, such as Dharma Merchant Services and BluePay, which both charge a $15.00 monthly fee that includes the PCI fee. Some other companies charge PCI separately.
Ongoing monthly fees may apply
Which can be included in your monthly fee, or charged annually. Merchant Warehouse charges a $99 PCI fee for example. Other companies still charge for this but, like Dharma Merchant Services, include PCI in the monthly fee.
There are also Payment Card Industry (PCI) compliance fees for security
Such as card readers, terminals, cash drawers, bar scanners and printers. While some hardware is free, (many mobile credit card processing providers offer one free card reader such as Intuit GoPayment and Square), others will cost you. Merchant Warehouse sells iPhone 4 and iPad card readers for $129.00 and PIN Pads for $69.00 to $105.00.
There can also be hardware fees for purchasing or leasing hardware
While sometimes merchant account companies will provide a complimentary payment gateway for online
transaction, a merchant is expect to purchase a shopping carts, payment gateways
and point of sale system independently.
Another kind of fee is for payment gateways and POS systems.
When you visit a website, the lowest rates will jump off the page. If you don’t want to get a shock when you receive your bill, look beyond the giant bolded numbers to the smaller and higher rates for card brands (American Express is always more), types of cards (like rewards cards) and additional fees.
Processing Rates & Fees
Each transaction you make has several fees involved. One is a set $ amount transaction fee, which is typically $0.10 to $0.25 per transaction. A second fee is a percentage of the entire purchase amount.
Processing Fees
This is the fee you need to pay attention to, as it can range from 1.69% to 3.70% or more. Part of this fee is set by the credit card companies (these are Visa’s US rates for April 2014), and part is set by your choice of processor.
Processing Fees
One is a fixed percentage based on type of credit card, which includes banks fees, credit cards company fees, and merchant account fees. Typically this is called a tiered pricing system. !The other is the “interchange +” model, where the merchant account fee is set (and not dependent on the credit card) but all of the other costs, including bank and credit card charges, are passed on to the merchant.
There are two basic ways in which the transaction percentage is can be charged.
In a common tiered system, cards fall under three categories.
Under the Hood of the Tiered System
Are charged at the highest rate. For a non-qualified card, the rate could be 3.70% plus $0.20.
Non-qualified cards
(A higher rate than discount) have a medium rate. A transaction could cost you 2.69% plus $0.20.
Mid-qualified A
Are charged at a discount rate (this is the rate that companies promote in advertising). For a typical qualified card, you could be charged around 1.70% plus a transaction fee of $0.20.
Qualified cards
interchange plus pricing is an attractive option for small business. You pay the interchange rate set by credit card companies, plus a set transaction fee, and, a set percentage fee to the processor.
Once available only to enterprises,
Is that you always know exactly what you’re paying your credit card processor when you swipe a card.
The benefit of this system
Dharma Merchant Services uses an interchange plus system. Here is an example chart from Dharma’s website that shows your costs and the cuts for each party involved in a transaction:
Let’s do a quick comparison. If you are a retailer who processes a $10,000 per month in credit cards for 100 $100 transactions, here’s a look at the possible processing costs.
Tiered SystemVisa Regular Debit Qualified card rate: 1.69% + $0.10 transaction fee = $1.79/$100 transaction If you process 100 transactions per month at $100.00, you will pay $179 per month in credit card processing fees.
Visa Rewards card rate:3.69% + $0.10 transaction fee = $3.79/$100 transaction If you process 100 transactions per month at $100.00, you will pay $379.00 per month in credit card processing fees.
Interchange System
0.41% + $0.34 transaction fee = $0.75/$100 transaction If you process 100 transactions per month at $100.00, you will pay $75 per month in credit card processing fees.
1.97 + $0.22 transaction fee = $2.19/$100 transaction If you process 100 transactions per month at $100.00, you will pay $219.00 per month in credit card processing fees.
Visa Regular Debit Qualified card rate:
Visa Rewards card rate:
As they have the least amount of risk associated with them. This is because the card and card holder are usually present. Additional security measures, such as customers providing signatures or ID also help verify charges.
In-store fees tend to be the lowest
They are often higher than in-store payments, but less than online transactions. If you’re using a merchant account service provider that also provides mobile processing, like Merchant Warehouse, you can process cards through mobile devices with a free app, without additional terminal or gateway fees.
Mobile processing fees vary by provider
As the is a higher risk associated with transactions. Neither the card nor the card-holder is present. For a $100 purchase, Dharma charges eCommerce transactions at 0.35 + $0.15 interchange and you would pay $2.68. For a $100 retail transaction, the rate is 0.25% + $0.10 over interchange and would cost you $2.19.
Internet transactions are the highest
Refunds Part of offering great customer service is offering refunds.How much it will cost depends and you should make sure you understand this clearly before your choose a processing company. Some companies will charge you a small fee but will refund the interchange fee.
There is also a time limit on refunds. The range varies but is often between 60 days to 120 days. It can take three to five business days for a refund to process, though they are online complaints of refunds taking up to six weeks. !Here’s a video from authorize.net that shows you how to issue a refund.
Not interested in being burned by a credit card user posing as a friendly customer? To avoid costly and time consuming fraudulent activity, be sure to:
• Rrequest identification with a photo id for in person transactions • Visually check the signature and card number • Ask for the three digit code on the back of all Visas and
MasterCards (and require this in online purchases) • Require contact information for phone or email (in online
purchases) • don’t hold data on your own computer • Use the Address Verification Service (AVS) for all online and phone
purchases (ZIP code and street address) and be sure they match up with the credit card
• Refund cards, versus cash
IntegrationA lot of credit card processors integrate with QuickBooks.Many also integrate with POS systems, though it may depend on the brand. This is the same with hardware. Many companies will work with major brands, but also sell or lease equipment that is guaranteed to work.
Keep in Mind... Swiping cards is usually the cheapest way to process. It is also less risky as the card and card holder are usually present. Swiped card rates have a range of fees. The very lowest swiped rate is what most companies highlight in advertising.
Keying in card information is another way to take payments. It takes longer and often comes with a higher rate than swiped cards. There is a higher risk associated with keying in as the card and cardholder do not need to be present.
Keep in Mind...
At the End of the DayAccepting credit cards boosts small business. A lot of companies would love to serve you, so shop around for a solution that fits your needs. Don’t get bedazzled by the advertised rates. Clearly identify and understand the fees you’ll be paying and you’ll be on your way to ringing up more sales and building more success.
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