How can I save money on credit card processing?
If you're currently with one processor and want better rates, it may be worth your time to contact your account manager and ask if they can help you reduce your costs. Also, by reviewing your statement on a regular basis, you may be able to identify costs or fees that you're overpaying. Here are five steps you can take to ensure you're getting the best pricing on your credit card processing service.
1. Review your statement every month. Credit card processing contracts rarely include pricing guarantees, so it's important to closely monitor your statements so you know what's going on with your account. Regularly review your rates and fees so you get a feel for what you can expect to pay on average for processing each month.
Also, watch for notifications about rate increases, new fees and reminders about PCI compliance requirements, such as the annual questionnaire that you need to take to avoid costly noncompliance fees. If you notice a change in your pricing, if there are fees that you don't understand or if you receive a notification about your compliance, call your rep to discuss your account.
2. Request a pricing review. If you're an established merchant and you want lower fees, you may be able to request a pricing review or audit to see if you qualify for lower pricing. Requesting an account analysis can be particularly worthwhile if your business has grown since you signed up with the processor and your transaction volume exceeds your initial estimates, as you may be eligible for lower rates.
3. Request interchange-plus pricing. If you're currently processing on a tiered pricing plan, ask your processor if it can switch your account to interchange-plus pricing. Many processors allow you to switch to a different pricing model so that you see for yourself which pricing model works best for your business. If you do this, be sure to ask if the new plan triggers any different fees or requirements. For example, ask about the new plan's monthly minimum and how much you need to process to meet that requirement.
4. Ask if fees can be waived. Some fees are negotiable, and your rep may be able to waive or lower them for you. For example, if your business is seasonal and you're having trouble meeting the monthly minimum in the offseason, your rep may be willing to waive or lower it for you. Your rep may also waive the PCI compliance fee after you complete the annual questionnaire.
5. Shop around and renegotiate your rates. If you've been with your processor for a year or longer, consider shopping around to see if your rates are still competitive. As with car insurance, it's beneficial to take the time to look for better deals every year or two. This is particularly important if your rates have increased over time or if you've been with your processor for several years and you don't know what pricing is available elsewhere.
If you find better pricing from another processor, don't be afraid to contact your rep to see if they can renegotiate your rates. You have more negotiation power if your service is provided on a month-to-month basis and you own your equipment, since you can switch to a new service without penalty. If you're under contract, the rep may be less willing to renegotiate, but it's still worth a try.
If you're overpaying for your processing and the rep won't renegotiate your rates, you want to read your contract to find out the procedure you need to follow to switch processors when your contract finally expires. Be aware that most contracts automatically renew, that you have a very short window in which you may cancel without penalty, and that you may need to begin the cancellation process well in advance of the contract's expiration date.
Card readers, terminals and POS systems: What should I use to accept credit cards?
You have several options for the processing hardware you use to accept credit cards at your business. Which one is the best credit card reader for your business depends on how and where you plan to accept cards, and whether you want something basic and inexpensive or a solution built into a larger system.
You should be able to accept magstripe cards, chip cards, contactless cards and mobile wallets. No matter which style of card reader you choose, you want it to be EMV compliant so you can accept chip cards and avoid liability for fraud occurring at the point of sale. This also allows you to skip signature authorization, which speeds up checkout.
If you're purchasing new equipment, you also want it to include near-field communication (NFC) technology so you can accept mobile wallets like Apple Pay and Google Pay as well as contactless cards, saving you the expense of updating your equipment later as these payment methods grow in popularity.
Consider choosing a device with a built-in keypad or a connected PIN pad if your customers prefer paying with debit cards, as many full-service processors offer special low rates for debit PIN transactions.
Before buying processing equipment from a third-party vendor, check with your credit card processing company to make sure it will be compatible. Here are three types of equipment, along with some of the top brands for each.
1. Mobile credit card readers are the most affordable option. Prices typically range from free to $100. These card readers connect to your phone or tablet through the headphone jack or Bluetooth and work using a credit card payment app that you've installed on your device.
Many processors offer free magstripe card readers to their new customers – no strings attached. However, in most cases, you'll want to upgrade to one that accepts chip cards or splurge for a model that supports all three acceptance methods: magstripe, EMV chip and NFC contactless payments.
The best mobile credit card reader brands include Clover, Ingenico, PayPal, QuickBooks Payments and Square. Mobile card readers are available from both full-service and mobile credit card processing companies. See our mobile credit card processing review to learn more.
2. Stand-alone and wireless terminals are the next cheapest options, usually costing $150 to $600. These countertop credit card readers have built-in receipt printers and keypads. Most connect using either dial-up or Ethernet, and wireless models connect with 3G, GPRS or Wi-Fi via Bluetooth. All new terminals are EMV compliant and allow you to accept both magstripe and chip cards. Many also accept NFC payments.
Top terminal brands include Dejavoo, Ingenico, Pax and Verifone.
3. Point-of-sale systems are usually the most expensive option, though there's a wide range of prices, depending on the type you choose. If you plan to use a specific POS system, you want to check with the company to find out which processors the system is compatible with, as some only integrate with a few. Others are proprietary and require you to use the POS company as your payment processor. Tablet-based systems are the cheapest and work with mobile card readers.
POS systems with built-in card readers cost $1,000 to $1,500. Top brands include Clover, Square and NCR Silver. See our POS systems review to learn more.
Should I buy, lease or accept free processing equipment?
Nearly every credit card processing company has some sort of free equipment offer. Some processors give you a terminal if you sign a contract, while others have a free placement program in which you borrow the equipment.
Accepting free equipment sounds like a great way to save money, but as a perceptive businessperson, you know that "free" often isn't really free, and you need to do the math to determine whether the free option is actually the best option for your small business.
Purchasing credit card processing equipment: Buying processing hardware outright is nearly always your best bet. Although it may be an expensive upfront cost, over time it's less expensive and less restrictive than other equipment options. You can keep your purchasing costs low by shopping around for the best price, choosing a basic terminal instead of a fancy POS system and asking if used equipment is available for purchase.
As you shop around for equipment, you want to find out if the equipment is proprietary or "locked." This is an important consideration, because you don't want your purchased equipment to be unusable if you switch processors. If you already own unlocked equipment or decide to shop for new or used equipment online, check with your new processor to see how much it charges to reprogram the equipment, including shipping and handling costs, and how long the process takes. Many processors offer this as a free service.
Free credit card terminals: Although free sounds fantastic, even the best processors may require you to sign a contract in return for free equipment. The best contract terms for free equipment are one year long and then go forward on a month-to-month basis. Most free equipment contracts last for three years, and many automatically renew for two-year terms. Some companies require you to sign up for a different pricing plan if you choose to accept free equipment.
Another thing to be aware of if you accept free equipment is that some processors may charge you the full price of the terminal in addition to an early termination fee if you end your relationship with the company before your contract expires. Before accepting free equipment, consider whether being tied to a contract or accepting higher processing costs is worth the purchase price of the equipment.
Free placement programs: These may initially sound like a good deal, and many processors offer this option, but as with free equipment offers, you may be required to sign a long-term contract. However, when your contract expires or you switch processors, you're required to return the equipment.
Many free placement programs come with monthly fees and may include additional monthly minimum requirements that you must meet to avoid penalty fees. Be sure to request the contract and a list of all the fees associated with the program – such as insurance or maintenance fees – to read over before you agree to accept such an arrangement.
Leasing equipment: Many processors encourage you to accept a lease on equipment because it's a very lucrative arrangement for them. Some reps give persuasive reasons for leasing equipment, such as "it's like a cell phone plan" or "many customers choose to lease for tax reasons." However, carefully consider every other option before you lease equipment, as this is generally one of the worst decisions a small business can make when setting up credit card processing.
Consider the following leasing myths and truths.
Leasing myth No. 1: It's like getting a cell phone, which means that if equipment breaks, the processor will replace it.
Truth: While technically true, most equipment comes with a manufacturer's warranty, and you may be able to purchase an extended warranty or insurance. If your purchased equipment breaks while under warranty or while insured, the manufacturer replaces the equipment anyway, according to the terms of the warranty or insurance.
Leasing myth No. 2: It's easier to update to the newest model if you lease your equipment.
Truth: This myth assumes that if you purchase equipment, you probably keep it longer than the four-year term of your lease. The processor expects that when your lease expires, instead of purchasing your existing equipment, you'll take out a new lease on new equipment. However, the money that you save by purchasing the equipment outright puts you in a better position to buy new equipment when it becomes available.
Leasing myth No. 3: Leasing is better for tax write-offs, since you'll have an expense that you can write off yearly instead of just a one-time purchase.
Truth: The long-term expense of leasing is still higher than purchasing equipment outright, even if you factor in the tax write-offs you expect to receive. If you're considering leasing for these tax reasons, you want to do the math to verify that the costs and savings are in fact what they're purported to be.
Remember, leasing is short-term cheap and long-term expensive. You'll often find that for the amount of money you pay over the life of the lease, you could purchase the equipment several times over. Additionally, most equipment leasing contracts are noncancelable, which means that you can't return the equipment and, further, you pay a fee to get out of it. Even if your business fails, you return the equipment and you get out of your processing contract, you'll still be held personally responsible for the remaining time on your equipment lease.
Should I work with a direct processor, ISO/MSP or a payment facilitator?
There are three main types of companies that provide payment processing services:
- Direct processors that provide merchant accounts and have relationships with the banks and credit card brands
- ISO/MSPs, which are independent sales organizations (ISO) and member service providers (MSPs) that resell merchant accounts
- Payment facilitators (also called PayFacs or merchant aggregators) that have master merchant accounts and provide submerchant accounts
Traditionally, ISO/MSPs are considered the best choice for small businesses – they cater to this market, offering a high level of service, low rates, few fees and favorable contract terms. PayFacs are also popular with small businesses, providing processing services on a pay-as-you-go basis that allow even very small businesses to accept credit card payments.
However, big processors want your business too. They're making efforts to tailor their processing services to small businesses by offering more competitive pricing, developing technology that makes it easier for you to run your business and providing industry-specific processing solutions.
What this means for you, the small business owner, is that you have a wealth of choices for credit card processors. We included all three types in our best picks. Read on to learn more which companies we recommend and the qualities we looked for in each use case.
How can I protect my business from credit card fraud?
Data security is a huge issue in the credit card processing industry. Although the large breaches that you read about in the news, such as those sustained by Home Depot and Target, may lead you to believe that your business is too small for criminals to be interested in, that isn't the case. In fact, small businesses are often the preferred targets of security attacks.
According to the PCI Security Standards Council, 71% of cybersecurity attacks are aimed at small businesses. Even more grim is the success that criminals have with their small business targets. Security experts estimate that 90% of data breaches affect small merchants. Criminals target small businesses because many business owners fail to prioritize data security. As a result, the data often isn't as secure as it is with large companies that have the resources and personnel to put stronger security protocols in place.
You can take two important steps to increase security, protect data and reduce fraud. First, comply with PCI DSS. PCI DSS measures have proven successful in discouraging attacks, as 96% of merchants that sustained data breaches in 2011 were not PCI DSS compliant. Second, if you haven't done so already, upgrade to EMV-compliant processing equipment. Visa reports that EMV-compliant merchants have seen counterfeit fraud drop by 76% since the liability shift of 2015.