Top Three Mistakes People Commit While Selecting Credit Card Processors
Credit card processing is an expensive venture. It is the type of business that one mistake could turn out to be catastrophic. If you talk to any merchant about credit card processing, you will hear them complain about the cost and the complexity of the whole process.
If you are looking for processors based on common factors such as who offers the lowest rates, the simplest pricing or the most saving, then you are setting yourself up for an overpayment. The reality is that credit card processing entails much more. Let’s examine each of these factors.
Low rate Vs. Low cost
There is nothing common between low rates and low cost since the processing cost is not determined by a merchant’s rate. The processing cost considers three factors namely: bank’s cost, credit cards’ company cost and the processor’s cost. Visa and MasterCard (the two main cards associations) set pricing for each transaction through assessments which they collect as their income.
The card issuing banks also contribute to the cost of processing since they set a price for each transaction through the interchange. The issuing banks collect interchange as their income. When all these players harmonize and come up with reasonable prices, then we can talk about low-cost card processing.
A high risk credit card processor creates three different types of rates namely: qualified, mid-qualified and non-qualified. The processor may charge you higher for any transaction (s)he may deem as unqualified.
Low rates are expensive
Many people tend to run to merchants with the lowest rates. They tend to think that the merchant with the lowest rate will have the lowest cost. This isn’t true. More often a high risk credit card processor with the lowest rate is the most expensive overall.
The amount you will end up paying regarding credit card processing fee will be significantly more than the low rate the card processor quoted. The low rates touted on the merchant’s website are meant to entice you into signing up, but the processor knows that you will pay more. The low rate may only apply to a small portion of your transactions.
Don’t think that savings are always savings
Never shop for card processors based on the promised savings. Look at the total markup. In most cases, the savings usually promised by the credit card processor never materialize and you are left wondering what happened.
The card processor will try to create an illusion of savings. In a tiered pricing scheme, the pricing usually conceals interchange cost making it impossible for the card processor to know how much a transaction will cost by simply looking at the pricing statement from another company. If the processor does not know about the costs, then it becomes difficult for him/her to know how much you would save.