To any small business, regardless of industry sector, choosing the right merchant services, which enables customer payments to be made via credit or debit card, is as necessary to its operations as breathing is to all living creatures. And yet it may also be one of the most confusing and complicated tasks for business owners to undertake.
A key challenge is how to deal with interchange or swipe fees, which is what a merchant services’ bank will charge a customer’s bank for the transaction, with the small business owner bearing the brunt of the costs. Although recent regulation, such as the Durbin Amendment, which reduces by nearly 50 percent the average amount of interchange fees that merchants pay for credit or debit card transactions, may have initially seemed like a boon in theory to small business owners, what has transpired indicates the contrary in practice.
“The Durbin Amendment is widely considered a legislative failure,” says Eric Stauffer, a consultant at the Los Angeles-based CardPaymentOptions, a watchdog group that helps small business owners get fair credit card processing deals from reputable companies. “The final rules [of the amendment] were changed at the last minute to allow issuing banks to add fees excluded in the original regulation, essentially doubling the purposed 12 cent fee cap to 21 cents plus 5 basis points (0.05%) of the transaction value and a 1 cent fraud prevention fee.” Consequently, transactions under $12 cost the small business merchant more that they did previously.
This is a key proviso for small business owners to keep in mind when seeking out a merchant services provider. Following are several tips that can be invaluable when selecting the right merchant services for a small business.
Figure out your sales volume
What’s your average monthly amount of sales? What is your average sales transaction amount? Once you answer these questions and set a benchmark for both, you can hone in what you want your merchant services to provide for you. It also allows you to avoid paying for unnecessary services, such as reoccurring payments, says Jennifer Gaddis, founder of Heels and Jeans Project, which teaches busy women and working mothers how to improve their work-life balance.
She cites an example of a merchant services provider that charges $30 per month for a regular merchant account but then also includes a $30 monthly charge for reoccurring billing for another account. "However, if the merchant services don't offer monthly payment options to their customers, [a small business owner] could simply use the regular merchant account for $30 per month," explains Gaddis, who runs her business with a staff of three. "This will save you money."
Other questions to ask yourself: Where and how often do you plan on collecting credit card information? Will it be through online information fields or at a checkout counter in a brick and mortar operation? Answering these questions will help you figure out “whether you need to integrate your merchant account with other services that may require additional monthly fees,” says Joe Bielling, founder of Your Merchant Guru, a consulting service that negotiates contracts for merchant services. “In most cases, it will make more sense for you to buy your equipment especially to benefit from lower card swipe rates rather than leasing.”
Expanding on his last point, Bielling says owning a credit card terminal versus leasing it is the more cost-effective alternative given that the terminal can be purchased for “a few hundred dollars” in contrast to the “ongoing monthly fee of $20-$50 for leasing equipment, which would easily surpass a few hundred dollars over the course of a typical three-year leasing contract.”
Avoid the one-size fits all approach
Just because a merchant services account or provider may work for a few small businesses you know, doesn’t mean it will be the right fit for yours. Every company is unique, with its own set of needs and priorities.
“Think about what’s best for your business,” advises Bielling. “A clothing boutique will have radically different credit card processing needs than a home office consultant or a new manufacturing operation. In fact, the only thing most small businesses have in common is the desire to get paid quickly and affordably.”
Research merchant reviews
If you’re going to buy an item such as a specific computer laptop, typically you do some research to find out what other consumers are saying about it. Similarly, you should do the same due diligence when finding the right merchant services for your small business.
“Merchants are not shy about expressing their like or disdain for particular businesses in the merchant services industry,” says Stauffer. “Doing a little online research before signing up can save a lot of headaches down the road.”
Don’t fall for low-rate offers
If something seems too good to be true, chances are it is. “In some cases, these type of rates go up before the contract is over,” warns Bielling. “Hidden fees and line item charges also offset low rates. Compare your total monthly billing with your total cost of processing those payments. Your credit card processor should have cost-effective solutions that meet your needs today, while allowing features and services to be added or discontinued as you grow.”
Make sure all of your merchant services solutions work together
If you are using more than one merchant services at your small business, it’s imperative that each system mesh well with the other.
“There's nothing worse than getting all excited about how much a new service is going to help your company, only to find it doesn't at all integrate with what you're already using,” says Flynn Zaiger, CEO of Online Optimism, a New Orleans-based digital marketing agency that sets up and manages e-commerce sites for clients. “The best way to make sure nothing like that happens is ensuring buy-in from all of the managers of a company so they're all aware of each of the service's benefits and trade-offs.”
To expand on his point, Zaiger offers an example. One time, he signed a client up for a very easy-to-use online storefront builder for small businesses, he recalls. “Two months into using the service, though, their accountants decided to use a sales tax software program without checking if it would integrate,” Zaiger adds. “Needless to say, there was a slight hassle in getting two systems that hadn't ever met each other before to actually communicate. But eventually we were able to patch everything back together. A little more talking between the people at the company would have saved us the time.”
Read the contract thoroughly
Before signing an agreement with a merchant services provider, be sure to read the fine print. “Each provider is going to have their own contracts, and there is no such thing as a boilerplate agreement,” says Stauffer. “Just because the sales rep said you will be paying 1.49 percent + 20 cents a transaction, does not mean that is your final cost. Transactions are usually split into different tiers, and sales reps often only cite the lowest tier.”
Make sure the customer service support works
For Zaiger, whose staff size for his start-up is only two employees right now, this is a key best practice when choosing the right merchant services for clients. “Even if we had no questions, we always give them a call to make sure their response time is speedy,” he adds. “It's essential when starting a new service to be able to have help on the line within minutes of an issue. Making sure that you don't have to wait a full day for a response when something goes wrong will save you 24 hours of headaches and lost sales in the future.”
Things to consider when choosing a merchant processor:
- Access to funds. Will the merchant receive next day funding?
- Customer service. Does the processor have 24/7 support? Is the support in the US or offshore?
- Needs outside of core card processing
- Check acceptance
- Gift cards
- Security: encryption, PCI protection
- Loyalty programs
- Equipment type. Does the merchant have mobile needs? Does the merchant need an entire POS system or just a terminal?
- Does the merchant require online sales products?
Sidebar: Merchant Services Shopping
For small businesses currently searching for merchant services providers, check out the following online resources. Not only will they help you zero in on a provider that’s right for you but help you do some cost comparisons as well.