Ideal Cost Reacts: Part 2 – Business 2 Community’s “25 Mistakes Businesses Make When Starting to Accept Credit Cards
We chose to review this comprehensive article because it lays out what merchants should realize when dealing with credit card processors as well as what action steps they might individually take to optimize the payments process. The author relies on many third-party sources for its claims. Since the piece is quite comprehensive, we’re going to break it down in a 5-part series with a final verdict at the end. Let’s see if this guide helps small businesses make better decisions.
6. Leasing your terminals and paying a monthly fee.
I’m sure that a sales rep will try to convince you that you’re better offer is to lease their hardware and pay a monthly fee. They’ll claim that it’s more affordable and protects you from situations like if the equipment breaks.
It’s usually much cheaper to actually purchase credit card equipment. Instead of dropping $50-$100 per month, you can buy a machine for around $300. There are also free options like the Square card reader.
Furthermore, when avoiding leasing equipment, you avoid having to pay for equipment insurance and aren’t stuck being in a contract for the next several years.
It is undoubtedly preferable to avoid terminal leases at all costs. The only possible exception might be a big Point of Sale (POS) System Setup, but those have dropped considerably in price over the years and. Most simple terminal leases don’t even allow merchants to own the machine outright after the term. There is often a buyout requirement for an additional amount. The equipment insurance part is a little confusing because typically, leased terminals are replaced without additional insurance. This is the only potential benefit, but not worth paying a 500%+ markup over buying a terminal.
The other issue with leasing equipment is that the terminals change quickly so merchants could be stuck leasing an outdated, inefficient, or even non-secure model for years after its expiration date.
7. Not reading the fine print on your processing agreement.
Research has found that 73 percent of us don’t read the fine print when signing up online. Even if you do read the terms and conditions, just 17 percent of us understand them.
Before signing up, take the time to read the small print so that you’re aware of charges like:
- Set up fees.
- Discount rates.
- Address verification fees.
- Ongoing fees for a payment gateway.
You also want to look for termination fees or any other hidden. If you’re unsure, ask either the processor or someone who is familiar with credit card contracts like a fellow business owner or consumer law expert.
It is always important to carefully read the fine print and ask others, especially attorneys, for their advice. The fee schedule is typically not the fine print, but rather the terms, which detail your rights and the credit card processor’s rights. Such rights include the rights to freeze funds, close the account, raise rates, and termination clauses. These days, processors have a separate booklet, often exceeding 30 pages of fine print. Whenever a merchant is considering signing an agreement, they should ask if there are any separate terms and conditions beyond the initial application.
8. Ignoring Payment Card Industry Data Security Standard (PCI DSS) compliance.
PCI DSS is a set of security requirements that have been established to protect cardholders’ account data from fraud. The PCI DSS was developed by the PCI Security Standards Council and includes American Express, Discover, MasterCard, Visa, and JCB International.
As a business owner, these standards require that all hardware and software that transmits a cardholders’ data must be compliant. If not, you’ll face massive fines, a loss of reputation, and even bankruptcy.
You can read the entire PCI DSS here, but you should also discuss this with your processor to determine your compliance level.
We don’t have much of a comment other than, we always recommend adhering to PCI DSS compliance.
9. Falling into the bundled pricing trap.
“With bundled pricing, a processor pays interchange fees to banks and assessment fees to card brands on behalf of a business. The processor then charges the business based on its own set of qualified, mid-qualified and non-qualified rates,” writes Ben Dwyer over at CardFellows.
As Due’s Angel Ruth further explains, “To make things even more confusing, these charges are not standard across all processors.” But, this is typically how a bundled or tiered pricing model would look like:
- Qualified: 1.59 percent + $0.05 for all card swipes.
- Mid-Qualified: 2.00 percent + $0.10 for all transactions involving a rewards or non-major credit card.
- Non-Qualified: 2.59 percent + $0.15 for all keyed-in transactions and all transactions that do not fit the criteria of your processor.
“The main issue with this model is that you may be given a too-good-to-be-true rate,” adds Angela. “That’s for merchants who fall into the qualified tier. Most businesses fall into the mid – and non-qualified tiers.
“To make matters worse, the criteria and rates for each of these tiers are subjective, so not only are you now paying more money, you may have no way in which to rectify the matter.”
As if that weren’t bad enough, this structure makes it impossible to “accurately compare rates among processors.”
Ultimately, tiered pricing is expensive, inconsistent, and less transparent. Unfortunately, there isn’t much to do about this except to educate yourself, review your statements, and contact your processor to see if the criteria have changed.
The good news is that you can work with a processor that offers a more favorable pricing model, such as interchange plus, so don’t fall in this trap if you don’t have to.”
If only it were this easy. There are far more factors than choosing a pricing plan. Pricing also includes managing billing errors, optimizing interchange rates, and reviewing fake fees. These days a greater percentage of fees than ever before come from ancillary charges. We recommend signing at the lowest possible markup program. These may include an interchange-plus discount, interchange plus flat-fee, flat-rate, or other pricing.
10. Accepting cancellation policy penalties.
Let’s keep this short and sweet.
Avoid early cancellation fees or lengthy contract terms. The last thing you want is to be stuck paying higher third party rates when your business outgrows your current processing needs.
We always recommend avoiding cancellation penalties if possible, but they aren’t always avoidable. Often, getting the best possible deal requires some kind of commitment, so the processor retains a lower profit margin for an extended period rather than a higher profit margin for a short period. We aren’t sure what the author means by higher third-party rates, as all processors are third-party, and your business won’t outgrow your needs. Instead, your needs may outgrow your processor’s capabilities.
Don’t Take On The Credit Card Processors By Yourself
Since 2009, IdealCost.com has helped hundreds of companies nationwide reduce their merchant account fees through identifying and fixing hidden profit, overcharges, fake fees, and billing errors. Clients have saved $300-$20,000 per month on their credit card processing fees without going through the hassle of changing their processing vendor, bank, or equipment. Switching credit card processors should be a last resort, only reserved for funding delays, poor customer service, or technical difficulties. Before you consider switching credit card processors, see if you qualify for IdealCost.com’s monthly savings program. Upload your most recent merchant statement for a free analysis. You’ll receive an estimate within 24 business hours.
If you are opening a new credit card processing account or switching credit card processors, feel free to contact us for a free consultation. IdealCost.com can help secure the best terms and fees based on your specific needs.