The tough part, say payment experts at MasterCard, is comparing costs and finding the processor that’s right for your type and size of business. Simply opening what’s called a “merchant account” to process payments is the easy part. Knowing you’re getting the best deal possible is what’s difficult.
It starts with understanding the different entities that process credit, debit and prepaid card payments.
Electronic payment networks are built and maintained by giants like Visa, MasterCard and American Express. Banks such as Citi, Chase and Capital One then obtain a license from these networks to issue their cards.
Acquiring banks are local, regional or national banks that participate in the electronic payment network on the merchant’s side – your side. You can set up a merchant account (payment processing account) at one of these banks.
Third-party processors (TPPs) focus mainly on larger merchants.
Independent sales organizations (ISOs) cater to small business accounts. But they don’t usually offer payment services themselves. Instead, they have deals with acquiring banks or TPPs to provide the actual processing services.
Internet payment service providers (IPSPs) focus exclusively on Internet-only businesses.
Here are some tips on picking a provider and getting the best rate:
Look for a provider with expertise handling your type of transactions. For example, do you offer mainly products, or services? Are purchases done in person, by phone, mobile, online or all of those? Be aware that an established business with a good credit history that has mostly in-person purchases will be considered a better risk and thus offered the best deal.
Ask to see an example of how bills are broken down. Most merchant accounts are subject to a variety of fees. What you want is a clear breakdown of what those fees are so you understand what you’re paying for.
Ask how fees are calculated. For example, are rates tiered by number of transactions? Or by dollar amount? Ask processors for sample reports to compare.
Terms and prices are negotiable, so get multiple bids from different processors. Don’t let them talk you into signing a non-disclosure agreement until you’ve seen several bids and you understand the costs.
Get tough on pass-through fees. Many processors pay fees to third parties that they then pass along to you. But you don’t necessarily have to pay those fees. Find out the purpose of the extra fees first, and then try to eliminate or reduce them.
Beware of being nickel and dimed to death. Examine the entire range of fees. Charges for such things as statements, minimum billing and reporting can often be negotiated, since statements and reports are often available online. Ask for a bid that doesn’t include such fees.
Consider a longer term deal. In general, the longer the contract, the lower the rate. Most are 2-3 years, but some are shorter. If you are willing to sign on for a longer term, use that to negotiate a lower rate.
Watch out for reserves and holdbacks. Some processors demand a “reserve” or deposit to guard against refunds and chargebacks. While this might be necessary for some businesses, at least make sure you understand the amount and what would trigger its use. Also be clear on how you can get your reserve deposit back at some point, or eliminate the need for it once you’ve established a good track record with the provider.
Get a grip on chargebacks. Businesses are typically not liable for certain chargebacks on “card present” (in-person) transactions. But you may have exposure on chargebacks for remote or “card-not-present” purchases. Make sure you clearly understand the processor’s policies on chargebacks.
Inquire about customer service. Where will you turn if you have questions or need a problem resolved? Ideally there will be a dedicated number to call for live help with any issues you have.
MasterCard has a very helpful website at www.masteryourcardUSA.org with more tips on getting the most from a merchant account. Look in the “Small Business” section.
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