In Brief: While opting for cheap credit card processing solutions may seem enticing, there can be hidden risks when doing so. What might seem like a great deal at first can bring unexpected fees, rising prices, poor customer support, and security vulnerabilities later on. Merchants should carefully evaluate potential processors by asking key questions about rate increases, fees, customer service, and PCI compliance.
Lower Processing Rates Aren’t Always What They Seem
While accepting credit cards as a payment method has long been the standard for most businesses, there are pros and cons of doing so. On the plus side, credit cards are convenient for customers, and those who pay by credit card tend to spend more than their cash-paying peers. On the downside, processing credit transactions comes at a cost. In fact, the fees associated with accepting credit cards can be as much as four percent of the transaction amount. As a result, businesses are left with a decision – absorb the impact on the bottom line, raise their prices, or pass along processing costs to their customers.
With these less-than-ideal options, many companies choose an alternate route: seeking out credit card processors that offer “lower rates.”
While the allure of cheap credit card processing can be tempting, it is important consider the potential pitfalls that can arise when opting for overly inexpensive processing solutions.
Quick Overview of How Processing Fees Work
About 70-80 percent of processing fees come from the credit card companies in the form of interchange. There are hundreds of interchange rates that may apply depending on the type of credit card that is used, and these rates are not negotiable. Merchants may be able to qualify for lower rates by passing along specified data in the transaction, but that’s about as far as it goes with the credit card companies. The remaining 20-30 percent of processing costs is charged by the payment processor. A cut-rate payment processor may charge smaller fees, but sometimes those rates come with other costs and trade-offs that can quickly overshadow the savings. Consider the following: 1. Unnecessary fees. When switching to a provider that promises cheap processing fees, it’s not uncommon for merchants to face other charges that they didn’t know about. A lack of transparency from some card processors can create unpredictable expenses and require additional work to sort out the charges. Below are examples of added fees to look out for:- Non-EMV fee
- Risk fee
- PCI non-compliance fee
- Monthly vs. daily discount fees
- Customer intelligence suite
2. Steadily rising prices. This is akin to the promotional deals that some cable companies are famous for. Entice customers with a low rate, then raise that rate over time. The practice of “bring them in low then raise them up fast” is pretty common among some providers in the payment processing world. And a big misconception is that signing a contract will protect a merchant from these price increases. Many contracts include small print that allows for rate hikes.
3. Customer support. Rock-bottom prices that come at the cost of customer support may create an entirely new problem in itself. Merchants that run into hardware issues, have questions on transactions or are looking for timely support may find themselves out in the cold. Credit card processors have to make money somehow, and making cuts to customer support is a fast way to manage expenses.
Merchants should consider ongoing support when shopping for a processor. Selecting one that provides proactive support is ideal. Proactive customer support is especially important to help stay up to date with industry changes and look for ways to qualify for lower interchange rates.
4. Security and compliance. Of course, compliance is a key component of any payments program. Inexpensive processors may cut corners on security measures, leaving businesses vulnerable to data breaches which will be very costly and damage the business’ reputation. Payment providers should help their customers become PCI compliant rather than simply collecting a monthly non-compliance fee.
What to Look for in a Payment Processor
Below are five questions that businesses should ask when looking for a new credit card processing company.
- How often do you raise your rates?
- What additional fees will be charged?
- How is customer service delivered?
- Do you provide PCI compliance assistance?
- What is your customer retention rate?
The answers to these questions can help determine if the cheap processing rates are really worth it.
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