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Wednesday, April 2, 2014

A Small Business Guide To Accepting Credit Cards

For most merchants, the ability to accept credit cards is critical to the success of their business. Many who are interested in accepting credit cards get stalled in the process by any number of predictable questions:

  • What are the qualifications?
  • How do you get a Merchant Account?
  • How much does it cost?

Not all that long ago, accepting credit cards was not only expensive, but also difficult to qualify. Fortunately, things have changed over the years, and now getting a Merchant Account for your business is easier than ever.

There are a couple of different options to consider, including a traditional Merchant Account, or a solution such as PayPal which almost all of us are familiar with.

Basic Qualifications

First of all, a good credit history will qualify you for lower processing rates, but "Bad Credit" Programs are also available. In general, this is what you'll you need to qualify:

  • US Resident
  • Checking Account
  • 18 Years or older

Traditional Merchant Accounts

The most common and cost effective method is to obtain a traditional Merchant Account through one of any number of Merchant Account Providers. These Providers act the middle-man between your business and the bank that is handling the transactions.

Monthly account fees are minimal, usually no more than $10 per month, plus transaction fees which usually include a percentage of the amount, plus a per transaction fee. Most Merchant Providers will ask you to sign a contract term up to 3 years.

Always check for any 'early termination' fees. You will also need some type of equipment to process the transactions. For any merchant who is serious about their business, this is the prudent way to proceed.

Non-Traditional Merchant Accounts, i.e. PayPal

For those just getting started, or perhaps merchants who plan to sell on eBay may choose a PayPal solution.

PayPal actually has a number of solutions available, although most people are only familiar with their basic service. Their basic service is a terrific way to accept credit cards, but really requires that the customer also have a PayPal account. Well, there's a reason you can't use your PayPal Account at a department store!

They do have other services, available for an additional fee such as their Virtual Terminal Product which lets you use your computer to accept credit cards. They also have another product i.e., "Web Payments Pro" which will let you accept credit cards on your web site. These additional services cost about $30 extra per month, at which point, you are probably better off choosing a traditional Merchant Account.

Rate Structures - Card Present, Volume

I always get frustrated whenever I see Credit Card Processing companies advertising rates I know aren't remotely possible. Can you imagine being sold on a rate, signing a three year contract, and then you find out that rate you wanted never applies to you? Here's some things you want to be aware of.

Card Present Transactions

Chances are that the rates you'll see advertised are based on "Card Present" transactions. These are cases where a credit card is swiped into a machine that is directly connected to the processing bank. This applies to you if your credit card machine plugs into a phone line, or if using a CDMA or GPRS wireless machine. If not, these rates probably won't apply to you.

Basically, the assumption is that if you physically swipe a card that has a direct connection to the processing bank, the chances for fraud are lower. If taking orders over the phone, on a website, or using a mobile phone application, you'll likely be paying more per transaction. The highest rates you are likely to see result from transactions done by those old manual credit card processing machines, i.e. "Knuckle Busters."

Again, be careful with advertised rates as they may not apply to you. You'll want to make sure they quote you rates based on the types of transactions are likely processing.

Volume of Charges & Average Charge Amounts

Some businesses such as Nail or Hair Salons often operate with low-frequency, and low-margin sales while a typical retail store might have a high frequency of charges, with a low profit margin. The type of business you are in directly affects your rate structure and the amount you'll paying throughout your contract.

The best advise I can give you here is simply to make sure that Credit Card Processing company you are talking to is familiar with your business-type. You'll want to get that "warm and fuzzy" feeling that the company you are talking to understands your business, and that the contract they give to sign you reflects that understanding."

How not to get Burned!

Actually, it's not hard to avoid getting ripped off if you understand the marketing and sales tactics used in the industry.

Rate Manipulation (Custom Bins)

The most common tactic is manipulation and abuse of the rate types, i.e. Qualified, Mid-Qualified, and Non-Qualified. Each of these categories is referred to as "Bins." In general, this is what you should expect:

Qualified (lowest rates):

  • Visa Charge & Debit Cards
  • MasterCard Charge & Debit Cards
  • Amercian Express


  • Gift Cards, etc.

Non-Qualified (Highest Rates)

  • Rewards Cards
  • Business Charge Cards
  • Mileage Cards

So where's the abuse? Well, imagine if you signed a contract with very low "Qualified" rates, but then found out the processing company doesn't consider debit cards as "Qualified." What if they moved the debit cards into the "Non-Qualified" Category?" You got it, you'll be paying a fortune in fees, while locked into a long term contract.

Finally, consider visiting Credit Card Processing Practices at http://www.creditcardprocessingpractices.com or the buyer beware series at 1st National Processing at http://www.1nbcard.com for more specific information regarding industry practices.

Don't worry though; just a little homework goes a very long way and by doing so, you are likely to find a good fit for your company in no time at all.

Good Luck!

By Timothy Sweezey

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