Many SMBs avoid credit card processors because they cannot grasp the idea behind payment processing. They would stick to cash transactions instead just to avoid the hassle of shifting to a new model. Admittedly, the inner workings of processing card payment transactions involve several complex steps, so we understand why first-timers might feel intimidated.
Unfortunately, the modern market also has a high demand for card payments. Surveys show that nearly 60% of all small businesses in the country get asked about credit cards daily. So, if you still don’t have a POS system, you need to invest in one right away. Otherwise, the limited payment options will eventually hurt your customer retention rates.
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Payment processing goes far beyond just you and your customers. In fact, several institutions and parties play an active role in processing electronic payments—these include the following:
The acquiring bank, otherwise known as the merchant’s bank, processes and stores card transaction funds on behalf of the merchant. They are also responsible for sending authorization requests to credit card companies.
Issuing banks provide brand-associated credit cards. So, in this context, they are the customer’s bank. They authorize transactions and verify the legitimacy of the card used during the payment process.
The payment service provider (PSP) oversees transactions processing electronic payments via credit cards, debit cards, mobile wallets, and gift cards, among other mediums. They also provide merchants with the technology to process card transactions (e.g., POS systems, payment gateways).
Here’s a step-by-step breakdown of what happens when a customer uses their credit card:
Overall, the transaction will push through as long as the customer uses a legitimate credit card with existing credit. Your POS will instantaneously decline any stolen or unfunded account.
Also, while the process involves multiple authorization requests, steps one to four typically only take a few seconds to complete. The institutions involved have several systems to automate the process. However, transferring the cleared funds from the issuing bank to your merchant account will take at least two to three business days.
Here are the most critical factors to consider when assessing the different credit car¿ processors on the market:
Credit card processors provide varying levels of customer support. Some brands have 24/7 service hotlines, while others assign clients with their respective account managers.
If you have a physical store that operates only during business hours, you might benefit from having an account manager. However, stores that operate 24/7 will also require 24-hour support.
Always read the fine print. Watch out for hardware rental fees, monthly subscription rates, and early termination penalties, among other unfair charges.
Look for payment processors that operate quickly and accurately. Trust us—even a few seconds of delay would drastically increase the likelihood of customers abandoning their online shopping carts. For in-person sales, a tedious checkout process hurts customer retention rates.
Look for payment processors that provide fast-loading payment gateways and reliable POS systems. Having multiple downtimes gives your brand a bad reputation.
Can your business afford a POS system? Processing Card advises SMBs to review their prospective processors’ pricing plans before pushing through with the application process. Check out our quick introduction to transaction fees!
Most processors charge around 1.3% to 3.5% per transaction. However, keep in mind that the exact fees would still vary based on the company’s respective pricing model. For instance, since Square follows an interchange-plus pricing plan with a 2.6% + $0.10 fee, a $100 transaction will be deducted $2.70.
Merchants do not have the power to negotiate card processing fees, although you can compare the different pricing plans available on the market. If you want an inexpensive processor, try either PayAnywhere and GoPayment. These companies charge a 2.69% and 2.4% + $0.25 transaction fee, respectively.
While no one can wholly eliminate cybersecurity risks, a reputable, stable processor has the capacity to mitigate privacy issues right from the get-go. You can also go through online forums for genuine, unfiltered reviews.
Issuing banks charge acquiring banks an interchange fee for processing card transactions. In turn, the acquiring bank passes the payment onto their clients, which they call merchant service fees. The declared amount is often a percentage of the total transaction value.
Payment processors calculate processing fees based on the following pricing plans: tiered rates, flat rates, interchange-plus pricing, and simple flat-rate subscription fees.
Feel free to explore the payment processors on the market. As we mentioned above, different processors have varying features. Generally, you need a system that matches your target market’s payment preferences, the products or services you offer, and your budget limitations.
Also, avoid agents coercing clients into buying one-size-fits-all plans. Any PSP that promotes cookie-cutter plans does not prioritize their clients’ best interests. You will only waste your resources in the long run.
Still struggling to qualify your business for a POS system? Processing Card can help! Check out our resources for more information on credit card processing.
Wilbur Graham has been writing about mobile payments and POS systems since 2012. He got his degree in Marketing at California State University.
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