Sometimes less is more, but sometimes more is more. In the case of presenting ways for potential customers to give you their business and their money, more can mean lots more – and not just in sales. More ways to pay can mean more customers, more frequent purchases, more referrals, and more ways to expand. Learning to understand what the customer wants from the checkout experience can help you present them with an array of options that are good for them and good for you.
Checking Out and Cashing In
Once upon a time, there were not a lot of options for merchants and business owners who wanted to present an array of payment options for their customers to use. There was cash and written checks– presented in person or as a COD – or credit cards, which required equipment, payment gateways, fees, and so on. Then came PayPal, WePay, Google Wallet and assorted other methods of transferring money online. When it came to taking payments at a location and online, it was difficult to integrate the two. When it came to processing credit cards, the process for applying for the merchant account, waiting for approval, obtaining the equipment, and then figuring out the fees caused a lot of business owners to forego accepting credit and debit cards. Some grit their teeth and muttered about the cost of doing business as the interchange fees lunched their profits. Then there were the scammers, offering inexperienced business owners what sounded like a good deal, but with onerous and even extortionate terms hidden in the boilerplate contracts.
Big Money In
The facts behind credit card use on and offline are daunting. Market Watch, relaying stats from the subscription only Nilson Report, noted that Americans’ use of credit cards, debit cards, and prepaid cards topped $4 trillion with Visa branded debit and credit cards leading the way – accounting for over $2 trillion of total spending. Merchants can operate on cash and checks, plus PayPal, but it takes access to that $4 trillion to a piece of that dollar pie to start a real cash flow. Whether wholesale or retail, virtual or right over the cash wrap counter, plastic rules. And perhaps, with so many credit card security breaches making the news, that’s why shoppers are looking for ease of checkout, a range of options, and security with 80 percent of them feeling more secure about online shopping if logos from major cards are featured on the site.
Big Money Out
For a merchant to get a piece of that pie there are quite a few paths to take; you might arrange a merchant account with your bank, or take the DIY built-it-yourself approach. Or for those using e-commerce platforms such as Shopify, there are out-of-the-box solutions provided by the platform that are more advantageous to smaller merchants by offering all-inclusive transaction fees. Understanding the terminology of credit card rates and fees is key to understanding just what offers are good for your business – and which ones will suck your bank account dry. Very often payment gateways and banks such as Wells Fargo will offer glossaries to help you understand the terminology and how it applies to your merchant account. Key terms to understand are:
- Authorization fee: this fee is charged each time a transaction is sent the issuing bank for authorization and applies whether or not the charges approved.
- Batch fee: when a merchant settles their completed transactions every 24 hours the practice is called “settling the terminal” or “settling the batch” a fee can be charged to the merchant for closing the batch – this does not include other fees or processing costs.
- Chargeback fee: chargebacks are the biggest risks in accepting credit cards. These are not refunds which is something completely different, a chargeback occurs when the purchaser denies the validity of the charge. The amount typically charged equals the amount of the disputed transaction plus a fee to be determined by the provider. Fines for excessive chargebacks can be assessed against the merchant and reach into the thousands of dollars.
- Interchange fee: an interchange fee is paid to the issuing bank by the acquiring bank.
- Monthly minimum fee: monthly minimum fees are charges to the merchant for processing costs. If the fees do not equal or surpass the contracted monthly minimum the merchant will be charged the difference no matter how little processing they have done.
- Statement fee: this is a fee for the monthly statement sent to the merchant at the end of the processing cycle denoting the amount of processing done and the fees incurred. This fee may sometimes be waived if the merchant accepts a paperless statement.
- Transaction fee: this is the fee charged to the merchant once the merchant accepts the authorization.
Read Your Contract
By far the most important thing anyone considering accepting credit cards for their business can do is to educate themselves in the terminology of merchant accounts, and read their contracts painstakingly. By contracting with trusted service providers, you and your customers will feel more secure. Remember, if an offer from a credit card processor seems too good to be true, it probably is. Predatory processing companies exist and rely on inexperienced business owners and bad-faith contracts keep themselves in business. Be extra careful of any site or person offering you free credit score analysis or advice. Your business’s health depends on you – so please consider all your options very carefully.