Credit Card Processing explained #2 – Rates and Fees

Why shouldn’t I just choose the processor that gives me the cheapest rates?
There are a number of factors that go into the proper setup of a merchant account. The type of business, the average dollar amount of your transactions, the method used for accepting credit cards, etc.
Let me address why these factors make a difference and affect the rates you end up paying.
Credit card processors are similar to insurance companies in that they assess risk and then determine the proper rate structure to setup the account. One of the risk factors that concerns them is the way you accept credit cards – on the internet through a website, over the phone and keyed in to a terminal, or swiped in a face to face environment. The face to face swiped transaction carries the lowest risk so the rates for those kinds of transactions should be the lowest. There are instances where this is not true but they are unusual, such as a b2b business where all the transactions are made using business or commercial credit cards.
Another risk factor is the likelihood of chargebacks. Your customer has 6 months from the time they use their credit card to make a transaction to dispute that transaction. The simpler your transactions are, the more tangible your product, the lower the dollar amounts, the lower the risk. This is one of the reasons that an independent merchant services broker like myself writes business for multiple processors. I match the customer with the processor who has the right risk tolerance for that type of business. So a retail store and a business coach will be setup with different processors and different rates.
Another important factor to consider that affects risk is the dollar amount of the average transaction and any unusually high individual transactions or individual months with high volume. You would think that any processor would be thrilled with high dollar transactions or high volume months but you have to understand, a processor thinks like an insurance company does. In other words, these high dollar amounts make them nervous that there will issues later if your customers want their money back and you no longer have it to give them.
Probably the simplest risk factor to understand is what kind of business you have. A retail store that sells items that people take home with them that day is certainly lower risk than a business that sells special order furniture or intangibles such as coaching, training, and consulting. Doctors’ offices that take payments for co-pays or deductibles at the time of service is certainly preferable to a doctor’s office that bills you later by mail or email.
Credit card processors like simplicity. The simpler the transaction is between you and your customer, the easier the whole process is to understand, the happier they are.
Summing up, chasing the lowest rate is certainly an understandable point of view, but very often credit card processors that throw out the cheapest rates often do not take in all the factors I discussed above and often wind up costing you more in the long run as they have to make adjustments due to not figuring in risk factors when quickly setting up your business.
What can you do to make sure you are setup with the right processor at a fair rate? You can seek out a Certified Payments Professional such as myself, The Business Resource Guy. I have many years of experience matching businesses with the best processor for their business at rate that will help that business hold on to as much of their own money as possible.

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Richard Hassman, The Business Resource Guy, is an expert in payment systems for business. Merchant Services Credit Card Processing, POS - Point of Sale solutions, Gift and Loyalty programs, Working Capital for Business, and Customer Acquisition services. The Business Resource Guy works with all kinds of businesses: Retail, Mail Order, E-commerce, Non-Profit, Museums, Restaurants, just about any business you can think of!