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Accepting credit cards is crucial to keeping your new business competitive, but the processing fees can eat away at your profit margin. There are not only transaction fees for every transaction, but there are also flat service fees for using a processing service and incidental fees for things like chargebacks. When you're just starting out in your new business, every bit of savings helps. For you to save, you need to understand how credit card processing solutions work.
Credit Card Fees
According to CreditDonkey, if a consumer swipes their credit card in your machine, it will cost you an average of 1.5 percent to 2.9 percent to process that transaction. For non-swiped card transactions, the fees are higher, averaging 3.5 percent. That's because there is a higher risk of chargeback and online fraud. You pay for that risk.
So Why Not Just Accept Cash?
The biggest reason is that not very many people carry cash anymore. For those that do, 76 percent of them carry less than $50 at any given time, says NerdWallet; and many keep less than $20 in their wallets. Therefore, it's just logical to accept the credit cards and pay the processing fees instead of losing a sale.
Here's How Credit Card Processing Works
If you pay online, your information runs through a payment gateway. That is, the consumer inputs his credit card information and clicks send. When the consumer pays in the store, he swipes his card or inserts it into a chip reader. That payment gateway is the major difference between online and in-store transactions. Then the information then runs through the credit card processor. After, that it goes to a company like Visa or MasterCard before being processed through the issuing bank. Only then do you collect your payment for the transaction.
Can Processing Fees Be Negotiated?
Credit card processing services are pretty straightforward, but they're not always set in stone. Being a new entrepreneur, you probably won't be able to negotiate your processing fees unless you are a high-volume seller from the get-go. Usually, only those businesses that are established high-volume merchants have the clout to negotiate their credit card processing fees.
What Can A New Entrepreneur Do?
What you can do as a new business owner is to shop around for processing services that fit the volume of your business. There are 4 basic pricing models to choose from. Most businesses can operate efficiently within the Interchange-Plus model. For low-volume businesses, flat fees might save you money. Subscription service models are best left to high-volume businesses, while the tiered model isn't recommended for any company.
As a start-up, the Interchange-Plus and the flat fee models might be the best credit card processing solutions for you. Shop around. Read all the fine print. Ask a financial professional for advice if you don't understand which would work best for you.
You can also contact credit card processing companies like Americard Payment for more information.