Why Is Credit Card Processing So Confusing/How It Works

As the world economy adjusts to the 21st-century trends, small businesses are rapidly forced to cope with credit card transactions. Most consumers opt to trade with firms that have modern accounting services in place. Credit cards have proven to be the most convenient mode of trading when it comes to payment of medical bills, rent, buying a car or a home. However, although getting a credit card is easy and ensures safe transactions, processing has often been so confusing, which is why Go Getter Marketing Group is here to guide you.

Why Do Businesses Who Accept Credit Cards Often Get Confused

75% of consumers today prefer to use credit cards in everyday purchases- makes most business owners go crazy about it. Go Getter Marketing Group takes you through six top confusing things about using credit cards and how you can make the process simpler.

Payment Card Industry (PCI) Compliance                      

Credit card security is crucial for protecting customer credit card information. For any organization, processing transactions through credit cards, whoever small the payments are maintaining a secure environment that prevents fraud and data breaches, so customers can trust your company.     

The challenge facing most business owners is the lack of enough knowledge about security standards- they are unable to verify whether their card processor is compliant or not. Ensure your organization has a better understanding of PCI DSS guidelines for safe handling of cardholder information. 

Pricing Models

Different processors have different pricing models. According to Amad Ebrahim, founder of Merchant Maverick, the most popular pricing methods are tiered pricing and interchange plus. If you want to know if your company is getting the best deal or not, you should be able to separate your processor’s profit and the interchange fees for all transactions.

Instead of dealing with hundreds of interchange rates, the tiered pricing plan condenses these rates to a more manageable number which simplifies the process for small businesses.

Interchange-Plus 

This pricing model is more transparent: charges are broken down, allowing you to see what each transaction charges. On the other hand, the model makes it harder to read statements causing more confusion.  

Therefore, given their customer base and rate of transactions, businesses should obtain as much information as possible to help determine the most suitable credit card processor for their company.

Contract Terms

Contract terms are often lengthy to read, so failure to read through every line could lead to an unpleasant surprise. Business owners risk hidden fee charges and are prone to more confusion for lack of understanding. Key aspects to look at in a contract are:

  • Monthly Minimum fees
  • Payment Card Industry (PCI) compliance fees
  • Early termination fees
  • Setup Fees
  • Annual and monthly fees

E-commerce Compatibility

Technology allows merchandisers to conduct business anywhere- an advantage to most organizations. Unfortunately, this freedom confuses credit card processing as a result of compatibility differences with different dealers. For the success of your business, it is important to choose the best payment technology solution in the market.

Credit Card Processing Service Fees

Now that you have an understanding of different pricing models used in credit card payment, let’s look at the different charges associated with a transaction.

Transactional Fees

Transactional fees are charged every time you run a transaction. Usually, these fees come in two forms and represent the highest cost of using payment cards

  1. Percentages e.g 1.15%, 0.30%
  2. Per-item dollar amounts e.g $0.54, $0.0211

Both forms are set by the credit card companies (MasterCard, Visa, Discover, American Express) and charged on each transaction. Ideally, you are paying for the ability to use their cards.

Average Credit Processing Fees for each brand

Brand Average Credit Processing Fees

MasterCard 1.55%-2.6%

Visa 1.43%-2.4%

Discover 1.56%-2.3%

American Express 2.5%-3.5%

Recurring Fees

In addition to transactional fees, most service providers include additional flat fees for more profits. Some of these fees may reflect on your monthly statement and vary in value, name, and applicability. Recurring fees may include monthly minimum fees, annual fees, PCI compliance fees, statement fees, IRS report fees, payment gateway fees, and POS software fees.

Incidental Fees

Unlike recurring fees that are always charged, you will only get incidental fees per occurrence. This category could include address verification fees, early termination fees, chargeback and retrieval fees, reprogramming fees, terminal fees, setup fees, and payment gateway fees. For instance, you only pay chargeback fee when a chargeback occurs- no payment at all if you do not have any chargebacks. 

Difference between Payment Facilitators and Payment Processors

Both payment facilitators and payment processors aim at helping business owners run their businesses by providing reliable payment solutions.  

Payment Facilitators (PayFac): These are service providers for merchants like PayPal, Due, Bit Pay, and Square. For you to accept online payment, you will need a merchant account from a payment facilitator. Also, you should know the reasons that make your merchant processor hold funds.

Payment Processor: Once you start transacting large volumes, having your merchant account allows you to enjoy better pre-transaction rates. A payment processor links you directly to the acquirer and permits you to have an individual merchant account. Understanding credit card processing can be a complicated subject if you’re just starting your business. To better understand and a more in-depth look, meeting a credit card processing consultant from Go Getter Marketing Group could be the perfect decision for expert advice.