As an e-commerce business owner, I’m sure you’ve been told time and time again that processing payments is simply going to be a hassle. The credit card processing industry gets a bad reputation, but it doesn’t have to be that way! Many providers take advantage of the confusion to charge unfair markups and hidden fees - not to mention provide extremely poor customer service with little-to-no backlash.
There is hope, however. A lot of the tactics that traditional processing providers use to increase their profits can be combated with a little know-how and research. Not all processors are this way, but knowing what to look for will help you choose the perfect one for your online store.
1. Expensive Pricing Models
When it comes to payment processing, there are a few ways you can be charged. Some are more expensive in the long run than others, and in some cases that’s based on your monthly volume, which I’ll explain in more detail below.
In order to truly understand each of these models, we must first understand a term known as interchange. Interchange is defined as the lowest cost of accepting credit cards. Each credit card you accept on your online store has a price associated with it that is set by the credit card companies themselves. This is interchange, and every business owner must pay it.
Since individual business owners cannot work directly with the credit card companies, they must obtain a merchant services account to accept cards. The following pricing models reflect how these merchant services companies charge for their services in addition to the interchange.
- Markups: Companies that charge markups take the interchange of a card, and add a percentage on top of that in order to make a profit. For example, if you accept a debit card with an interchange rate of .5%, a provider with markup pricing might charge you 2% and profit the difference. This model often works best for merchants with a low volume of transactions, but keep in mind that as you grow, you start to pay more and more in markup.
- Tiered: A tiered pricing model takes all card types and splits them up into groups, setting different markups for each group. Since there is no regulation on this system, they typically take the most frequently used cards and put them in the most expensive group - resulting in more profit. This method is the most expensive for any type of business, and should be avoided!
- Subscription: The best choice for businesses in most cases, subscription-based pricing models give merchants access to the lowest cost of interchange, meaning that there is never a percentage markup on top. In exchange, business owners pay a low, flat monthly membership. This means that you’re not paying a percentage of your sales, so as you grow, your monthly subscription will stay the same. This also makes your monthly statement a little easier to understand, which is sigh of relief for many business owners.
2. Hidden Fees
Business owners have been conditioned to believe there are hundreds of additional fees associated with credit card processing - but it’s not true! Most of the fees you see on your statement every month in addition to the cost of the credit cards are put there just so that your provider can make a larger profit. By adding these fees into an already complex statement, many business owners don’t notice them and end up paying more than they should.
Here’s a rundown of just some of the fees that could show up on your statement:
- Batch fee
- Statement fee
- PCI Compliance fee
- Transaction fee
- Check verification fee
- Early termination fee
- Setup fee
When speaking with a prospective provider, simply ask what their additional fees are (I would suggest naming some from this list specifically!) and see what they say.
No one loves signing long, confusing, and binding contracts, especially growing businesses! As your e-commerce business grows, your payment needs might change, and contracts can be very expensive to get out of. Once you sign a long-term contract for payment processing, that provider no longer needs to win your business. This can result in fee hikes and poor customer service.
As you explore your options for credit card processing, consider having conversations with companies that offer month-to-month pricing. These companies will be able to offer the flexibility you need to grow and the peace-of-mind you need to thrive.
4. Processing Limits
Another way credit card processing could end up being more expensive for you is if your provider sets processing limits on your account. Being truthful with your processor is important when it comes to estimated volume, because in order to protect against fraud, your processor will often flag transactions that are way above what should be expected.
That being said, as long as you’re being up-front about expected volume, you should never be charged extra for exceeding a processing limit. Unlimited processing is a basic need for growing businesses, and something that should be discussed before signing up with a provider.
5. Off-Page Payments
As an e-commerce business owner, you understand more than anyone the importance of keeping customers on your site. Once they’ve chosen their purchases and hit that “buy” button, the last thing you want is for that person to leave the page in order to put in their payment information. This increases the risk of that customer abandoning their purchase, and results in lost profit for your business.
By partnering with a provider with technology that is able to keep your customers on your site to input payment, you increase your conversion rates and make more sales. You want everything to be seamless for your customers, and payment is arguably the most important part!
6. Bad Customer Service
Last, but certainly not least, is customer service. Payments are so important to your business, so knowing that you have a dedicated account manager on the other end of the phone to help if you need it is a huge weight off of your shoulders. Many providers outsource their service teams or bounce callers around between departments for what seems like (and often is) hours - if you even succeed in getting someone on the phone at all!
Choosing a provider with in-house service can make a huge difference to your payments experience, and is something to discuss with your sales rep as you evaluate different merchant services companies to use for your online store.
The world of credit card processing doesn’t have to be scary, and although it might seem unlikely, I promise there are vendors out there that can offer you an experience free from all of the nightmares listed above. All it takes is a little bit of knowledge and some honest conversations with payment processing vendors in order to find the perfect payment processing partner for your e-commerce store.