Credit Card Services are an amazing tool for both business owners and the general populace. But despite the benefits, you can be paying more than needed because you don’t understand the murky world of credit card services and their payment structures. If your business already accepts credit cards, or you’re in the process of setting it up to accept credit card payments, here’s what you need to know about how it is structured so you can make sure you’re not being overcharged for these services.
A credit card transaction goes through a lot of hands between the client and the business owner.Here are all the parties involved in the process of credit card payments:
- First off, the payment gateway; more pertinent when transactions are carried out on the web, they are set up by the merchant account provideras the first step in completing a credit card transaction, e.g. the shopping cart.The merchant account provider is the company that takes care of the process as a whole, an overseer of sort, e.g. CreditCardProcessing.com.
- Next there’s the acquiring bank, the party that actually processes the payment, collecting the information from the merchant account and receiving authorization from the associations.
- Credit card associations are basically the governing bodies, e.g. MasterCard. They set the rules that all credit card providers must follow.
- Lastly, the issuing bank – your ordinary banking institution that provides your consumers with a credit card, e.g.Bank of America.
Type of Fees
Two varieties of fees are charged when conducting business via credit card.
- Pre-markup: This fee is issued by the credit card associations themselves, and is uniform for all providers who use that particular credit card association. It is essentially non-negotiable.
- Markup: This is, simply put, the merchant account provider’s fee.This part is negotiable, and should be as low as possible so that you can get the best deal.
Fee charging structure
The structure for charging fees is also segregated into two popular models.
- The interchange plus model: A straightforward structure that tells you, in a detailed list, all the wholesale and markup fees that are charged per month. It makes for a lengthy statement, but very simply informs you how much you owe in both markups and base fees every month.
- Tiered pricing: This one comes with three sub-categories – qualified, mid-qualified and non-qualified. If, in carrying out the transaction, you follow the provider’s instructions to the T, thenthe transaction is qualified. The instructions include basic directives like swiping in person, and settling in batch on the same day among others. If you fail to follow all directives, your transactions drops down to either mid or non-qualified based on how many criteria are not met. Qualified transactions are the cheapest, followed by mid-qualified and non-qualified, respectively. Make sure you understand what the requirements for qualified rates are if you’re on a tiered plan so that you can make as many qualified transactions as possible.
Remember, the markup is crucial, and should be the criteria by which you compare merchant account providers, along with other fees like minimum fees which should be set as low as possible, and those charged for internet gateway or credit card terminal, which should ideally be free. Other things to watch out for are annual fees, cancellation fees, and statement fees, online or offline – all of which ideally shouldn’t be charged at all.
So there you go! You can now gauge whether you’re paying extra to process credit card transactions. If you’re not, that’s good news. But if you are, you better start looking for a more reliable and transparent credit card processor before you end up unnecessarily spending a fortune.