Whether your business is brick-and-mortar, online, or both, you need to accept credit and debit card payments to maximize profits. Today, there are many options for accepting cards face-to-face, over the phone or by mail, on a Web site, or even on a mobile phone or tablet. Some options are offered by traditional banks and payment processors, while others are challengers to the established order. Let’s see how they stack up.
Options for Credit Card Processing
Your bank is the first place to go for card services, because you will end up in a relationship with a bank no matter how you get there. You need a special account called a “merchant account” to receive card payments; it’s part of any payment service you may buy. If possible, it’s usually good to do business with a bank you know rather than whatever bank a service provider chooses.
But some banks are more conservative than others about granting merchant accounts. If your bank turns you down, don’t despair; there are plenty of alternatives. Some may be cheaper than your bank’s program, although it can be hard to compare prices before buying card services.
Beyond banks like payment processing services, which handle the complex and expensive data processing chores for merchants. The card processing systems maintained by Visa, Mastercard, Discover, et. al., are incredibly complex, and so are the requirements for security and privacy required by governments around the world. Payment processing services take care of all that, providing merchants with simple tools for submitting charges and getting money in return. Payment processors generally have close relations with one or more banks so they can hook you up with a merchant account in most cases.
Chase Paymentech is a subsidiary of JPMorgan Chase, and claims to be the world’s largest payment processor. It handled 29.5 billion transactions worth $655 billion in 2012. Wherever and however you need to accept cards – over the counter, online, or on a street corner – Paymentech has the hardware and software you need. So do Authorize.net (another giant payment processor), iTransact.com, and Square.com.
But look closely at the pricing schedules of these entrenched incumbents. The transaction fees are complex, with six different tiers (three each for credit and debit cards), but that’s just the beginning. You also have application fees, setup fees, software/terminal fees, annual fees, statement fees (yes, there’s a fee for telling you what your fees are), and other “routine” fees. Then there are various fees for exceptional events such as chargebacks, which get so large their name changes to “fines” if you get too many. Perhaps the biggest cost of a payment processor is the value of the time some merchants spend figuring out what payment processing is costing them.
Keep It Simple…
Enter the simplifiers, like Amazon Payments: one fee formula, with discounts based on volume. That’s it. Paypal Payments is another option, with its simple percentage plus transaction fee schedule. Both Amazon and Paypal charge 2.9% + 30 cents for most transaction, with no extra fees for setup, software, or statements.
These firms were born on and for the Internet; their payment processing systems are optimized for online and mobile sales. Countertop POS terminals are not their game, yet. Paypal, at least, is now offering a mini-reader that plugs into a smartphone and enables card-swiping.
For many online businesses that are either just starting, or tend to have low monthly volumes, a Paypal shopping cart is easy to implement (just copy some snippets of code to your web pages), fees are very reasonable, and it’s easy to direct incoming payments to your business bank account. If your business grows, you may be able to find somewhat better rates. But keep in mind that savings may come the cost of increased complexity. You’ll need a merchant account, payment gateway service, and a new shoping cart. Unless you’re somewhat geeky, setting up those pieces will require some technical help.
Shopify.com is a pure-Web payment processor. It can provide all the software for a complete online store plus payment processing. Propay.com was chosen by readers of eCommerceBytes as the best e-commerce service provider for 2013.
Lest brick-and-mortar shops feel left out, QuickBooks Point Of Sale (POS) equipment is available from Intuit Corp., maker of the small business accounting software that everyone loves to hate. Yes, they also have online and mobile apps.
The credit card game has gotten enormously complicated, with many players and each offering many products. My advice is to pick a service provider based on its expertise in whatever marketplace you plan to focus on: retail, online, mail-order, mobile sales at events, etc. Learn the ropes of card payments, start making profits, and then start comparing prices to shave expenses.
Are you accepting credit cards online or in a retail store? What solution have you chosen? Post your comment or question below…
Bob, this article should save many “little guys” some pain and money, not to mention avoiding anger and frustration.
My wife and I do half a dozen arts and craft shows a year and sell on Etsy. We thought it would be good to get credit card service. Our first credit card service came through a bank. What a mistake! The fees, as you said, are many and high!
We switched to Square, and we are happy. Instead of having fees for each sale, each month, each quarter and each year, we now have ONE small fee for each sale. WOW! What a difference.
Gregg
We sell at Farmer’s Markets and need to accept credit cards in a mobile format. We tried the Intuit Go Payment, and liked their interface, but we had a hard time getting their plug in dongle to work. We ended up using Square, and though their software still has limitations, the dongle is very reliable, smaller and easier to swipe through. Neither of them allow for “by the pound” sales. You need to calculate the amount ahead of time and enter it. If you sell items, you can pre-enter them to ring out faster. The software for both units can act as your cash register, letting you enter cash and check sales in addition to credit cards. They also keep sales records for you online which is very helpful when balancing out at the end of the day.
This is a subject all business owners need to address. However, all businesses also need to account for their business transactions and one of the most abused is the lack to use accounting software for their business. Now here is where the problems start for businesses that take credit cards for payment. The end of month reconciling that should take place for everyone, becomes a nightmare trying to reconcile these individual credit card transactions into their accounting software unless the service offers an integration service into the software – most do NOT OFFER this ability. One does, however, and you did not mention them. If businesses use QuickBooks, Intuit (the makers of QB) offers Intuit Payment Solutions that integrates seamlessly with the QB accounting program, while their fees are not exactly the cheapest, the convenience to have the information integrated into their accounting program is priceless! I bring this up Bob, as I am a QB Consultant and I find every business owner I come in contact with to ‘suffer’ from these problems. I hope this offers some insight to a solution.
Hi Bob, good informative article. No, I am not an Internet/Online Business Owner or Seller … However, I am a consumer of Internet/Online Businesses and Sellers.
Since, I have been purchasing a variety of items Online, for many, many years now … I was one of the first to do so … Knowing that an Online Transaction could be very safe and secure. The thing, I look for is “options”, as a consumer. What I mean by “options”, is that there is not only one method of payment available. I don’t want just Pay Pal or Bitcoin or whatever the latest flavor of payments is currently. I want safe, secure, well-known methods of payment options.
I prefer to use my Credit/Check Card/Debit card as my means to purchasing. Why? Simply because, my own financial institute has it’s own means of protecting my “card and account”. Trust me, I have used my card often enough, to know when I might be going “into muddy waters” … But, to date … I haven’t had my account compromised. Yes, my card itself, has been cancelled, due to Visa’s Data Breaches … Not my financial institutions, but, Visa! I must admit, the first time it happened, it was Visa that cancelled my card and issued me a new one. The second time it happened, about a year or so later … Visa again, stepped up to the plate, cancelling ALL compromised Visa Account Numbers and issued new cards.
Through all of these cancellation of cards … My personal financial account was NEVER compromised!!! I know, I was very, very lucky. Now, my financial institution has an excellent method of “double checking” that I am in fact, authorizing the “questionable” charge, at the time of purchase.
So, just for more information from a consumer’s standpoint … Options for payments, is the answer in my book.
Thank you, Bob … For starting this wonderful newsletter The Rank File, in addition to AskBobRankin. I am so excited about learning more on Internet/Online Businesses.