Purchasing Tips for Credit Card Processing

Business.com / Financial Solutions / Last Modified: February 22, 2017

Review these five tips when purchasing a credit card processing system for your business.

Accepting credit cards has become easy with companies like Square that are automating it through the use of your phone or tablet device. However, some are still in the market for traditional credit card processing companies so there are a few purchasing tips to know before you speak with a vendor.  

PURCHASING TIPS

  • Read the fine print. Since credit card processing plans are complicated, go over everything carefully before you sign.
  • Don't pay cancellation fees. Buried in that fine print might be a cancellation fee running from a couple hundred dollars to thousands of dollars. The whole point of such fees is to keep you trapped in a long-term contract. You can usually ask to have the cancellation fees removed, but if you don't look for them, you can't get them waived.
  • Interchange Plus. This may be the best pricing plan for small businesses, as it's the most transparent, with no tricky fees or hidden costs associated with tiered structures.
  • What are the account policies? Most credit card processing companies require you to maintain an account with their bank; this way it's easy for them to transfer funds. Other considerations include whether there are monthly account fees, whether you can access your account online, and if there are any restrictions on minimum balances or withdrawals.
  • Comparison shop. There are numerous vendors to consider. The following checklist will help you compare services and features.

CREDIT CARD PROCESSING EQUIPMENT

You can't process any transactions without hardware that reads the card, transmits the data, receives data back, and generates a receipt for the customer and a record of the transaction stored in a database. You also need the software to route and store all these transactions. Where can you get this equipment? You guessed it-the credit card processing company.

Can you buy equipment the credit card processing company doesn't use from manufacturers? Probably, in most cases. Do credit card processing companies accommodate the equipment of several different manufacturers? Yes. Does it make more sense to buy the hardware and software from the OEM (Original Equipment Manufacturer) and just let the credit card processing company do its own thing? Possibly.

The equipment you'll need includes such items as a card reader, a pin pad, a manual card imprinter, and possibly a cash register. If you can buy the same equipment from the OEM that the credit card processing company is using, there shouldn't be any problem. On the other hand, if the processing company uses proprietary software, you'll need to determine whether it's compatible with the hardware you have.

The more common question is whether you should buy or lease the equipment. Leasing may be attractive as a way to minimize initial cash outlay, but check to see whether the lease is cancellable and whether there are any fees to cancel. Leasing generally costs more in the long run, but there may advantages to take into consideration.

CREDIT CARD PROCESSING TERMS

Annual Fee: Charge to maintain a merchant's account-sometimes charged quarterly rather than yearly. Can range anywhere from $79 to $399.

Authorization Fee: Charged each time a transaction has to be approved; applied whether the transaction is approved or not.
Batch Fee: Charge to settle and sort the day's sales, sent to the processor as a batch; this fee usually increases if a batch is sent later than 24 hours.

Chargeback Fee: The bank is responsible for all merchant transactions and, as some protection against loss, assesses this fee when merchant transactions are disputed and settled in favor of the customer. A typical chargeback is $15 to $30, plus the cost of the transaction and the amount processed. Visa and MasterCard limit to 1% of dollar volume that chargebacks can be assessed; above 1%, fines are assessed to the processing bank that are ultimately passed on to the merchant.

Customer Service Fee: A charge for maintaining the merchant account.

CVV2 (Card Verification Value): The three- or four-digit number on the back of the card that is not embossed on the magnetic strip. It ensures that the purchaser actually has possession of the card.

Durbin Amendment: Legislation passed in 2011 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act that lowered the debit card Interexchange Fees charged by Visa and MasterCard.

Payment Card Industry Data Security Standard (PCI DSS): Data security controls criteria to reduce credit card fraud for any organization or business that handles credit, debit, pre-paid, bank ATM, and POS cards.

Point-of-Sale (POS): The physical location where a purchase transaction takes place.

SSL (Secure Socket Layer): An encryption protocol used to protect financial information transmitted over a computer network.

Statement Fee: Charge to generate a monthly statement for the merchant, whether that statement is paper or electronic.

Transaction Fee: Assessed when the merchant accepts an authorization.

Pin Pad: The keypad on which a customer enters a PIN number for debit card transactions, or signs for credit card transactions. Usually includes a card reader (swipe).

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