For most small businesses, now is a time to be saving money. There are plenty of opportunities within any business operation to cut costs and pad your bottom line. Too often, though, small business owners and managers will cut out expenses that are integral to the success of the business. You never want to cut costs that will affect your products, services, or customer experience. Instead, it’s critical to focus on the controllable costs that can be lowered without sacrificing the quality that your customers have come to expect.
One incredibly important area to consider is your credit card processing rates. Processing can be painfully complicated, especially when you get into the weeds of some of rate details. But having a grasp of the basics of credit card processing can help you make important business decisions that can save you a whole lot of money. At KORONA, we want our customers to find the best fit for their processing, and will work with each of you to to achieve that. That’s why we integrate with all major credit card processors and will set up a credit card processing rate comparison. That way, you’ll get full transparency, and be able to see exactly what you’re paying for. In this blog, we’ll cover how a price comparison for your merchant services work and how it will save your small business money.
How Can I Get a Credit Card Processing Rate Comparison?
Well, just call us or click the button below! Whether you’re an existing customer or shopping for a new POS system, we’ll break down your current rate against a variety of major processing companies. The goals are to both find you the cheapest solution for your business and provide absolute transparency in the pricing structure. Through this process, we offer our users several major advantages:
Since KORONA is not a payment processor, we integrate with all merchant service providers so our customers can process credit and debit payments. In turn, this gives you the option to find the absolute cheapest solution on the market. We’ll take your current processing volume and run it through simulations with numerous processors to find the cheapest annual option.
Payment processors are notorious among business owners for slipping in additional fees and surcharges. This won’t happen under our watch. We only work with merchant services that provide their users with complete transparency, meaning you’ll see what every charge is for. There are a lot of factors that go into your final processing rate, including interchange fee, processor fee, network fee, and more, so it’s important to have it all laid out for you.
Similar to transparency, we’ll break down your charges by item, rather than give you a bundled final price. Many processors will offer a flat-rate pricing structure or just charge a simple, per transaction fee. While this keeps it simple, it hides the actual charges that went into each transaction. Since the final price you pay for any debit or credit purchase varies on a number of factors, it’s critical to be charged appropriately.
Saving Money on Your Merchant Services
And at the end of the process, you’ll have a solution that will save your business money. In some cases, a whole lot of money. For many of our customers, we’re even able to offset the price of your POS subscription with the savings you’ll receive from a new processing solution. While a fraction of a percent might not seem like much, check out our break down of Square’s new processing rates to see how it can have a major impact on your total annual processing costs.
Why Does Credit Card Processing Cost Merchants Money?
Simply put, merchants are paying for a complicated service that is integral to their business operations. There are numerous parties involved in facilitating each debit and credit transaction that your business accepts. While it may be frustrating to have a fraction of each sale deducted from your profits, it’s a service that a business must pay for like any other.
So what goes on during a credit card transaction anyway? Even though it only takes a few seconds, a lot is happening.
Step 1: First, the shoppers chooses their payment method and, if in a brick and mortar store, either swipes, dips, or taps their card or mobile device in the credit card hardware. For eCommerce shoppers, they’ll manually key-in their card information into your online payment gateway.
Step 2: The card information is sent into the cloud by the processor. It first reaches the appropriate card network, such as VISA or MasterCard, to have it’s interchange fee assessed.
Step 3: The card info is also sent to the shopper’s bank to determine if the transaction is valid and that there are sufficient funds.
Step 4: The credit card processor is responsible to ensuring proper security during the transaction and following all standard PCI compliance rules.
Step 5: Once the issuing bank asseses the validity of the transaction, it sends an approved or declined message through the processor back to the credit card machine.
Step 6: At the end of the business day, the merchant will batch all transactions so that they will be deposited from the shopper’s account to their business account, called the acquiring bank.
Step 7: All fees assessed by the processor on each transaction will be automatically deducted from the final amount depoisted in the business account.
A transaction isn’t simply between you and the consumer when a card is being used as payment. Instead, it requires your processor, two different banks, and a major card network. And not only do these parties simply process the transaction, but they also keep it secure. This protects consumers from having money stolen from their accounts and merchants from accepting fraudulent transactions.
What Are the Different Fees in Credit Card Processing?
When it comes to the final fees, there are a ton of variables that contribute to the final tally. Many small businesses want to know what an average transaction fee will be from their processing. Unless you’re getting a flat-rate structure (which is almost universally NOT recommended), gauging an average is difficult to do. Some businesses find ways to get their processing average to as little as 2% while other are paying 5%! It will vary based on a number of factors that combine to your final processing total.
The bulk of the processing fee assessed to any transaction will be the interchange rate. Interchange rates are determined by the major card networks, but given to the issuing bank for assuming the risk of the transaction. They are evaluated as a fee to cover the risk of processing any given transaction. So a riskier transaction will come with a higher interchange rate than one with a lesser risk.
Each card network is tasked with coming up with its own interchange rates. The rates are based on a number of factors, including the type of card being used, how the card information was entered, the total amount being charged, the type of business you own, and several others. The card networks do vary in their interchange rates – American Express and Discover usually have higher rates than other major networks, which is why some retailers don’t accept them.
Interchange rates can’t be negotiated with your processor or the card networks. They can, however, be lessened by your store’s policy. You can choose not to accept certain types of cards or allow keyed transactions, for instance. These are higher risk transactions and will come with higher fees attached. For a more in-depth look, check out our guide to interchange fees.
While the interchange fees go to the consumer’s bank, the card networks also take a small cut of every transaction for their role in regulating the industry and setting the interchange standards. These fees are the smallest of any transaction and are non-negotiable. Your credit card processor has no control over these rates. For instance, the assessment fees for MasterCard, Discover, and VISA range between .11% and .13%.
The credit card processor will also take a small but of any transaction that they facilitate. Your processor is responsible for making sure all parties communicate and that the transaction is quickly and successfully approved or denied. Your processor is also responsible for making sure the transaction follows all industry standards, including PCI compliance. These fees ARE negotiable and vary widely by each processor. Businesses can request lower rates from competing processors. These are a major component of finding the cheapest merchant services solution.
Tied to your processor fees can be many additional, or, hidden fees. Not every processor charges their merchants for all of these, and the best don’t charge for any of them. In our cost comparison, we’ll show you each of these potential fees, too, so you can see if you’ll be hit down the road with extra bills. Below is a list of potential additional charges some processors tack on the the final total.
Chargeback – For transactions that get a chargeback request
Payment gateway – Providing an eCommerce payment gateway
PCI compliance – Extra fees for following PCI rules
Hardware rental – For those that rent or lease hardware, these fees will be bundled into your total
Batch – Surcharges for daily batching
Support – Some processors don’t include customer support, or only include a certain amount and charge for additional use
Minimums – Card minimums, such as an additional fee for any transaction less than $5. This ensures the processor is making a profit on every single transaction.
Cancellation – Fees for cancelling are entirely avoidable
Wireless access – Additional charges for providing cloud access to the payment machines
Processors that charge a flat rate for their service advertise themselves as void of any of these fees. In reality, these are bundled into a flat rate percentage that is far higher than a typical interchange rate, plus normal processor and network fees. More on that below.
What Are the Different Rate Structures?
Again, the interchange rate and network fees are non-negotiable. You’ll also see them referred to as wholesale fees. These are fixed and will not change based on your choice of processor.
Processing rates, plus any of the aforementioned additional fees are negotiable. These are sometimes referred to as markup fees. It’s these that you want to focus on when finding the best processing fit. Any markup fees should be transparent in your processing bill.
When it comes to your processing rate models, there are two main categories: pass-through and blended. Pass-through rate structures offer more transparency to users, while blended models combine all fees into one.
This is the most transparent pricing model in the industry and is recommended for nearly any business type. Each processing fee breaks down all components separately, starting with the interchange fee and then itemizing all wholesale and markup fees with each monthly statement. It requires a bit more reading, but shows businesses exactly what they’re being charged for.
Like interchange-plus, this separates the wholesale cots fo each transaction from all markup fees. The markup comes as a simple monthly fee that is your subscription or membership in addition to the non-negotiable interchange and network fees. This model offers the same transparency as interchange-plus, but is better suited for businesses that process large average transactions.
Sadly, most businesses are on a tiered processing plan. These plans have a lot of ways of manipulating their pricing to gouge small businesses. The opaqueness of the structure allows them to increase the rates for numerous reasons that only the most informed business owners will be aware of.
The tiered aspect of this plan means that each transaction will fall under a certain pricing tier, with “qualified” transactions having the lowest rates. Conveniently, what makes a qualified transaction is anyone’s guess.
Flat-rate pricing is slightly more transparent than tiered. It bundles all fees together but doesn’t use the dubious tiered system. Instead, each transaction is assigned the same percentage rate, or percentage plus a flat fee, no matter what the wholesale costs (interchange and network fees) were. These flat rates seem simple and low, but they’re not. For most transactions, the wholesale fees are a small percentage of the flat rate, leaving the processor with a large portion of each fee. The breakdown is never given to customers on monthly statements.
What About the Credit Card Hardware Devices?
Finally, any brick and mortar merchants will need credit card hardware (eCommerce stores will only need an online payment gateway). This hardware will need to integrate with both your POS system and credit card processor.
It’s important that all businesses now accept modern forms of payment, including EMV and contactless options. This has a two-fold benefit, protecting your business against fraudulent transactions and offering your shoppers more choice in how they pay.
For more information on hardware options, give us a call. KORONA integrates with all modern payment hardware, again leaving businesses with choice. Set up your free cost comparison consultation today! We’re here to help businesses succeed and save you money. And since we’re not a processor, our only goal is finding each business a reliable and fair processing solution.
Among other things, Michael writes about trends and tips in retail for KORONA POS. His focus is on bringing small business owners a more holistic approach to growth. In his spare time, you'll find him hiking somewhere in the southwest. Connect with him on LinkedIn.