As an entrepreneur, software developer, or accountant you understand that the payment processing industry is essentially mandatory for you to engage with to accept payments in your business so you can efficiently get paid from your customers. For decades, it has also probably felt like lies and deceit are mandatory too. It isn’t. There are ways for you to avoid being taken advantage of by payment processing companies and it starts with knowing what the lies are, so you don’t fall for them and sign the wrong contract. The following lies are 10 of the most popular lies being told in 2023:
We Eliminate The Middleman
There are 12-15 payment processing platforms in the United States that authorize and settle daily transactions and deposit them into the business bank account. Fiserv, WorldPay, Elavon, and Global Payments are a few of the most notable payment providers that are considered ‘direct processors’. There are over 2k registered resellers of these platforms called Independent Sales Organizations. Regardless of who you are processing with, eighty to ninety percent of your costs are controlled by Visa, MasterCard, Discover, and American Express. This portion of your costs is called Interchange, Dues, and Assessments. The payment processing platform you’re using has no impact on these fees and is the same if you’re using a direct processor or an independent sales organization. The only impact on cost beyond that has to do with your provider’s markup. When I worked for a direct processor, I thought all ISOs had to mark up the fees from the direct processor and pass it on to the customer. I was wrong. As I met with prospective clients, I came across plenty of customers using a ‘middleman’ that were processing at costs we couldn’t beat or come close to matching.
You Can Process Payments For Free
The hottest craze in the payments industry has been merchant processing providers telling business owners they can process payments for free. Nothing could be further from the truth and, if done improperly, can lead to business owners paying thousands of dollars in fees. Payment processors promote these programs, not because they are better for your business, but because instead of charging you 2.5% to process payments, they get to charge your customer 4% and make a lot more money on your account. In my opinion, if the customer is going to pay more anyway, you might as well increase your prices and keep the additional profit you’re giving away to the payment processor and avoid having to pay Visa a $5k or $25k fine for improperly adding fees at the checkout.
It’s Illegal To Store Credit Card Information
I’m not sure where this started, but I’ve heard business owners say it’s illegal to process a credit card over the phone or to store the information. This in some cases has to do with PCI Compliance and probably had to do with some merchant processing company trying to find leverage to get a merchant to switch or to discredit their existing provider. PCI Compliance has to do with how you handle and store the credit card information you handle over the phone, on your website, or within your business environment. You can store credit card information securely using a secure website provided by most payment providers. It’s, of course, always best to make sure you don’t write down information on paper or in an Excel spreadsheet that’s unencrypted. If you need recommendations on how to store information securely, without being charged significant fees to do so, feel free to schedule a call with us.
We Get Better Rates From Visa + MasterCard
Visa, MasterCard, Discover, and American Express partner with banks to distribute their credit and debit card programs. This is when they determine what fees will be associated with those programs. No payment processor is involved in setting these fees so if you hear a processor elude to them having a special relationship somewhere, they are lying.
American Express Costs More Than Visa + MasterCard
American Express changed their billing model to match Visa’s over 5 years ago making them more competitive and affordable for businesses doing less than 1m in annual sales with them. This in combination with American Express cardholders spending more per transaction, makes accepting this form of payment a great decision for your business. If you find that your payment processor is charging you significantly more for American Express, you may not be on the American Express OptBlue program and will need to ask your provider about updating your pricing.
Debit Cards Cost The Same As Credit Cards To Process Payments
In 2010, the Durbin legislation was passed placing a cap on debit card fees. This cap was applied to all transactions involving debit cards that were issued by major banks like US Bank, Wells Fargo, Citizens Bank, Bank of America, Key Bank, or any other bank with more than $10b in assets. These banks are considered ‘regulated’ and the fee associated with these debit cards is .0005% and .22 cents per transaction. This fee is the same whether it is processed in person, online, or via the phone or invoice and represents a significant reduction in costs for businesses accepting debit cards in their business.
Typing In Credit Cards Is Always More Expensive
Many businesses using companies like Stripe, PayPal, and Square have become accustomed to paying three to four percent for typing in a credit or debit card to process it and this is because these providers charge more for typing in payment information. In some cases, Visa & MasterCard charge more for transactions that are processed without the physical card being present, but it isn’t always the case. When set up properly, a business can still expect to pay rates as low as 2.5%-3% for credit card transactions and less when processing debit cards. The key in all scenarios is choosing the right payment provider and getting the most transparent pricing, which is called interchange plus.
Signing A Contract Will Save You Money
Contracts do not save you money. There is no stipulation in Visa or MasterCard’s pricing matrix that indicates a merchant will save money on payment processing if they sign a contract with the merchant service provider. Point-of-sale, software, and merchant services companies often require merchants to sign a contract with hefty termination penalties so they can recoup the cost of hardware and so they can increase the profitability of the accounts that they onboard. This has nothing to do with the true cost of processing payments in your business and you should have an advisor familiar with payment companies and their agreements before you sign any long-term contract with a company that has access to your bank account. We’ve seen companies levy termination fees as high as $20k per location for local small businesses, which is harmful to their cash flow and capital reserves.
Rates Are Going Up Because Of The Economy
Payment processing companies can be notorious for increasing rates and blaming it on Visa, MasterCard, Discover, or American Express. The same has happened with the volatility in the economy. Payment processing companies are blaming rate increases on market conditions, when in fact, there is no material reason for a payment processor to double the markup on their accounts other than the routine desire to increase their profitability. Visa postponed many of their rate increases during the pandemic and payment processors still handed down unreasonable fee hikes. If you’re tired of having to deal with rate increases on your own, schedule a call with us to see if your provider is being honest with you about the rate increases. We can tell you whether it is a legitimate fee increase from Visa or MasterCard, or if it is just a profit grab.
It Costs More Because It’s Integrated
Integrated payments is the process of a software company embedding payment processing into their software so you as a customer have one solution to run your business. We are a huge advocate of using an integrated system as it can streamline your operations and help you run a better business. We aren’t a huge advocate of you having to pay 2x as much to process payments for your business just because it’s integrated though, especially if you’re paying a monthly software fee. This isn’t always your software company’s fault as payment processing companies take advantage of software companies too. Software companies are experts in building, hopefully, great software. They aren’t experts in evaluating processor fees or hard costs charged by Visa, MasterCard, Discover, and American Express. They sometimes partner with the wrong payment processor to offer payments and it results in them charging more for payments just to justify the cost of doing the integration.
As a business owner, it’s important for you to know that it shouldn’t cost you more to process payments within your software as there is no true hard cost that makes it so. This is a profit center for payment processors and software companies and the costs should be reasonable while also being easy to justify, especially if there are tools being provided that help you grow your revenue and serve customers at a greater level.
How To Avoid The Lies
The best way to avoid these lies and control your costs tied to accepting credit cards is to work with an honest provider that is dedicated to doing what’s right for entrepreneurs. Since 2006, PaySuite has been focused on helping entrepreneurs manage the costs and services related to accepting credit and debit card payments in person, online, or within their software. Whether you are a startup, a seasoned entrepreneur, or a software company wanting an honest solution to handling payment processing, we’d love to serve you. If you have any specific questions about handling payment processing in your business or software, feel free to schedule a call with us.
We look forward to learning more about you and your business!