Just starting out with your small business? Finding great credit card processing rates may seem impossible, but there’s hope. By following these simple tips, you’ll be able to secure some of the best credit card processing rates in the industry.
TL;DR
- Not all credit card processing companies are created equal. To ensure that you’re able to take payments in a cost-effective way, be sure to carefully compare their fee structures, contract terms, and available features. Look for transparency in pricing, no hidden fees, and options that suit your specific business needs.
- Make it a point to choose the right pricing models. Prefer interchange-plus pricing over tiered models for transparency and control over costs; avoid leasing terminals by purchasing affordable ones outright.
- It’s best to avoid long-term contracts. Opt for flexible, month-to-month contracts without hidden fees for credit card processing to avoid being locked into unfavorable terms.
Here are Stax’s top credit card processing tips.
In today’s world, knowing how credit card transactions work is super important for any business owner, given that card transactions make up the bulk of all payment transactions. No matter if you’re just starting out or you’ve been in business for a while, making your credit card system work better can really help your business grow—by saving you money, making your systems more efficient, or improving your customer experience.
Avoid non-mandatory contracts
No one likes to be stuck in a contract, from cell phone contracts to credit card processing contracts. It’s common in the credit card processing industry to lock clients into multi-year contracts filled with hidden fees. Contracts are not mandatory, especially contracts with cancellation fees. Instead of negotiating a fee waiver, seek out processors whose core business model is month-to-month contracts. This guarantees you flexibility and ensures the provider must earn your business every month.
If you do opt for a contract, you should read the terms very carefully, looking for hidden fees, rate changes, and other specifications that may end up costing you money.
It’s also worth asking ahead of time what the renegotiation process would look like. It’s not unusual for companies of any type to raise rates quite a bit when starting a new contract, and it’s best to be prepared for what to expect.
Be sure you know if there is a date you need to provide an opt-out by if you end up switching processors, as well. Some contracts will automatically renew (potentially at higher rates) if you pass a certain date without providing notice that you’re ending usage of the processor.
Find affordable terminals and avoid leases
Credit cards and EMV terminals are cheaper than you think. A good terminal can cost around $250 these days, so don’t try and lease one if you have the money to buy one upfront. If your processing company offers to include one in a contract, always make sure to read the fine print to see how much they’re charging you for it. It’s usually better to buy one yourself and get a cheaper rate.
Avoid tiered pricing
If you’ve had a business before, then you’re probably used to tiered pricing. It’s expensive and unneeded with its lack of transparency. The processor controls which transactions fall into the high-cost (non-qualified) tiers, often downgrading transactions to inflate their profit margin. Avoid it at all costs.
Instead, go for interchange pricing. Interchange-plus is a transparent pricing model. Note: Whether you use interchange-plus or another model, the ability to surcharge (pass the cost to the cardholder) is a separate decision based on state law and network rules. Paying interchange rates instead of tiered rates is a common practice among big businesses, and it’s the best option for you, as it gives you the most control over costs of all the pricing types.
Always know where your money goes
Before you start looking for a good credit card processing rate, you need to do your research. Learn where your money goes by looking up interchange and assessment fees. Interchange is a key component of your total cost. The interchange-plus pricing model is generally the best way to go when choosing a pricing option, as it provides the most transparency. Interchange fees are variable expenses set by the card networks and card issuers, not fixed. They fluctuate based on the type of card used and the transaction method. Here are the Mastercard and Visa interchange fees, for example.
Assessments are also a series of rates and fees charged by Visa and MasterCard, and they are the same across the board.
Just because you’re a small business doesn’t mean processing companies can treat you like one. Credit card processing rates (Interchange fees) are the same for all merchants. However, the total effective rate you pay is not. Large businesses benefit from highly negotiated processor markups and specialized pricing features that small businesses cannot access, so you must always negotiate the processor’s markup.
Eliminate the markup: Choose subscription pricing
This modern model (like Stax’s) removes the percentage markup entirely. You pay a low, flat monthly fee plus the direct, variable interchange cost. This provides the ultimate cost predictability and is the cheapest option for high-volume merchants.
Secure your transactions
Ensuring your customers’ transactions are secure isn’t just in the customers’ best interests. It’s in yours too.
Secure transactions ensure you can maintain a trustworthy reputation with past and future customers, as well as reducing the financial losses that come from the fines and legal fees associated with compromising customer data.
One of the most famous data breaches happened to Target in 2013. They were required to pay an $18M settlement, but losses are estimated to top $200M. A large part of that was simply lost customer revenue. Their earnings dropped 46% afterwards because people were afraid to shop there. It was a potent example for everyone of just how important your company’s reputation for security is with your customers.
Optimize your credit card processing speeds
Slow transactions are, at best, an annoyance to customers, and at worst, result in lost sales, especially online. In order to improve processing speeds, you should make sure your POS equipment is up-to-date and that your internet connection is both stable and fast. Part of this includes performing regular maintenance on your hardware and software and ensuring that your settings are configured for reduced friction.
For instance, you should reduce the amount of prompts that an employee or customer might have to click through in order to actually proceed with payment.
Use address verification services (AVS)
AVS is a fraud prevention measure for online and card-not-present transactions. It’ll compare the billing address provided in the transaction to the billing address on file with the card issuer. The service can determine if the addresses are a perfect match, partial match, or not a match at all.
AVS does not prevent all types of fraud, but it’s a good way to detect suspicious transactions. Generally, you’ll implement AVS directly through your credit card processor, and you’ll need to monitor its effectiveness over time to improve the system.
Train your staff to handle data securely
For in-person transactions, it’s crucial your staff is able to take payments in an efficient and trustworthy manner. Customers need to feel that their data is secure and that transactions don’t take any longer than necessary. Furthermore, your staff is likely the weakest point in your security due to the factor of human error, among other things. Providing your staff with education on how to handle customer data can help prevent data breaches that even a well-intended employee might cause.
There are a few key areas to provide training on:
- Recognizing what potential risks may look like (such as common phishing tactics).
- The physical measures required to keep customer data protected, such as locking devices or safely stowing and securing any actual paperwork with customer data.
- Require employees to create strong passwords for any systems they access (this includes implementing multi-factor authentication (MFA), which is mandatory for PCI compliance).
Leverage your data
Your credit card processing solution will ultimately gather a lot of unique data on customer behavior and preferences. Analyzing this data in the reports your processor provides can help tailor marketing efforts and improve overall business strategies. The data gathered by a credit card processor is particularly handy in identifying trends and patterns and, therefore, forecasting what business will likely look like during a certain time period.
At this point, most businesses do use systems other than the credit card processor as their central operating system (think an ERP or ecommerce site host). It’s crucial to ensure that any credit card processor you choose can integrate their data with your preferred central system. This is vital for fast, accurate reconciliation and to gather the data needed for chargeback defense.
Many of our tips apply to how Stax works. Our subscription model features no contracts and optimized terminals that pair perfectly with our pricing plans. We also offer compliant surcharging (non-cash adjustment) as an option for businesses seeking to eliminate processing fees entirely.
Quick FAQs about credit card processing
Q: What are some tips for securing cost-effective credit card processing rates for my small business?
Some tips include comparing fee structures, contract terms, and features of different processing companies, opting for interchange-plus pricing over tiered models, avoiding long-term contracts, and purchasing affordable terminals outright instead of leasing them.
Q: Why should I avoid long-term contracts when choosing a credit card processing company?
Long-term contracts often lock you into unfavorable terms and may have hidden fees. Opting for flexible, month-to-month contracts can help avoid this.
Q: What is interchange-plus pricing, and why should I prefer it over tiered models?
Interchange-plus pricing is a cost-effective and transparent pricing model where the merchant pays the interchange fee plus a markup. This contrasts with tiered models, which lack transparency and can often be more expensive.
Q: Why should I avoid leasing terminals and instead purchase them outright?
Leasing terminals can often be more expensive in the long run than purchasing them outright. Plus, owning your terminal gives you more control over your costs.
Q: How can I ensure secure transactions for my customers?
Secure transactions can be achieved by keeping your POS equipment up-to-date, performing regular maintenance, using address verification services (AVS), and training your staff to handle data securely.
Q: What is address verification services (AVS), and how does it help with transaction security?
AVS is a fraud prevention measure that compares the billing address provided in the transaction with the billing address on file with the card issuer. It helps detect suspicious transactions.
Q: How important is staff training in handling customer data securely?
Staff training is crucial, as human error is often the weakest point in security. Training your staff on recognizing potential risks, physical measures for data protection, and creating strong passwords can help prevent data breaches.
Q: How can I leverage data from my credit card processing solution?
The data gathered by a credit card processor can help identify trends and patterns, aiding in tailoring marketing efforts and improving overall business strategies. Ensure your processor can integrate their data with your central system for real-time comparisons.
Q: Are credit card processing rates the same for all businesses regardless of their size?
Yes, credit card processing rates are the same for all businesses, big or small.
