When you process a credit card transaction in your retail store, there is an element of risk involved in the transferal of payment -- a moment when the processing company assumes, but cannot confirm, that it will receive payment from the credit card holder.
In the majority of transactions, this risk is minor and ephemeral. However, certain transactions come with a greater degree of risk that the company will not receive payment or will become a victim of fraud.
To make up for the risks of this kind of transaction, credit card processing companies charge the merchant a much higher fee. Once you understand how risk is assessed by your processing service, you can take action to reduce that risk and, therefore, reduce your transaction fees.
When processing a credit card transaction, you can be charged one of three different rates. The qualified rate is the lowest possible rate a transaction can incur; this rate is based on the most common way you accept the majority of your cards.
The non-qualified rate is the highest rate that your credit card processing company can charge you, it is most commonly incurred when a card number is keyed in, rather than swiped.
- When a card number is manually keyed in, there is no way for the credit card processing company to know whether the card was actually present for the transaction. Since fraudulent use of credit card numbers costs companies millions of dollars each year, they charge a higher fee for those transactions that are most likely to result in a loss.
- If your business manually keys a large number of cards, not only are you losing more money to higher fees; you are leaving yourself open to the financial ramifications of credit card fraud.
Techniques to Reduce Risk
Having a few transactions be charged at the non-qualified rate can put a dent in your business's revenue. Having an entire day's worth of credit card transactions charged at that rate can cause severe problems, especially if it happens regularly. You need to take action to reduce transaction risk within your retail store.
- To avoid the non-qualified rate being applied to a full day of transactions, make sure to settle your terminal within the time limits of your credit card processing company -- usually 24 to 48 hours. Your employees should be properly trained in settling the terminal when appropriate.
- Reduce the number of transactions that you key in manually. This cannot be fully avoided, as customers will always have finicky cards that refuse to be swiped. If you have any business processes that necessitate manual keying -- such as off-site sales -- invest in a mobile card reader to accept swiped cards while you're away from your terminal.
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- Keyed transactions are not the only cause of transaction risk. Some rewards cards and business cards are not processed under the qualified or mid-qualified rate because they are more rare than most common credit cards. Check your transaction history to determine what kind of card is most regularly used in your business, and make sure that your credit card processing company attributes the qualified rate to that card type.
When accepting credit card payments, you should ensure that the majority of your customers' credit card information is acquired by swiping, and that you settle your terminal daily. The less risk that is involved in acquiring, transmitting, and processing your customers' credit card information, the lower your transaction fees will be. Double-check your current merchant fee structure, and look into mobile payment services to help reduce your risk.