Five Tips on Credit Card Processing

We felt providing small business owners with Five Tips on Credit Card Processing would save them time and keep them better informed when it came to making a decision on pricing and service. 

Small business owners must make numerous decisions on a daily basis.  If you’re running any kind of business, more than likely you must make decisions regarding how you accept and process payments both in-store and on-line.

1.   Interchange Plus Pricing is the Easiest Pricing to Understand  

The easiest pricing to understand is Interchange Plus pricing. It is also in many cases the lowest pricing for your small business. “Interchange Fees” make up the majority of monthly credit card processing fees.  They are set by the major card brands such as Visa®, MasterCard®, Discover® as well as other card brands that represent the various payment networks. Interchange fees are used by card issuing banks to cover costs involved in providing services to their customers.

That portion of charges that represents the Interchange fee is paid by the merchant's bank to the cardholder's bank, also known as the issuing bank. The merchant’s bank pays the issuing bank for the value and benefits that merchants receive when they agree to accept credit card payments.

Processing fees” are the fees charged by the acquiring bank or merchant’s processing bank, which we will refer to as the “processor”.  There are basically three different fees that processors charge for processing the transaction, although some merchant processing sales agents like myself only charge an authorization fee and discount fee on each sale, we do not charge .  Charging an extra transaction fee is like double dipping, so don’t let your bank slip in that fee. Authorization fees should only be a few cents on each sale. PayPal charges $.30 per transaction which is considered by many to be quite high, especially on transactions of less than $30.00, since that means you are paying an extra 1%.

If your agent or bank is also charging you a “transaction fee” you would then have to add the authorization fee and transaction fee together to see how many cents you are paying on each sale. Some sales agents may try to hide the fact that there are those two fees, and if you see those two fees on your application before your sign, you are very likely overpaying. There is usually no reason to be paying an authorization fee and transaction fee, unless both are very low. Online transactions are an exception. A typical online transaction could have an online transaction fee and an authorization fee, but in either case it should still be less than the $0.30 per transaction that PayPal charges.

Discount fees should be stated as basis points, which are fractions of a percent. Example:  50 basis points equals .005 or one-half of a percent. So, 50 basis points on a $30 transaction equals $0.15.  Most agents will quote you an authorization fee and discount fee based on the type of business you are in, your monthly credit card volume and your average ticket sale.

Ask the sales rep or banker to itemize the monthly amounts you are paying for things like a statement fee, PCI compliance fee, debit enablement fee (if you will be taking debit payments) and next day funding fee. You should also ask if there are any monthly fees, setup fees, monthly minimums or activation fees. Another good question to ask if you are a startup or online only company is, “How much will I have to pay the first month if I don’t process any transactions?”

Ask for the application in advance of signing, or at least a written quote so you can review the quote and ask any questions after a good review. If you are a restaurant owner or manager you can also refer to our Five Tips on Credit Card Processing for Restaurants for some additional information specially prepared for restaurants.

 2. How to Calculate the Savings

Many small merchants don’t know how to calculate the cost savings when a sales agent or banker offers to save them money on their credit card processing. Give these five tips on credit card processing to your bookkeeper or accountant and talk to them about what you are currently paying then give us a call to get better rates and save money. Here is some straight forward advice on how to calculate your savings.

Current Processing Costs:  Let’s say you process $40,000 per month, 1,000 transactions and your current Interchange Plus pricing is $.20 per authorization and a discount fee of 75 basis points (.0075%). That means you are paying $200 for authorizations (1,000 x $.25) and $300 for the discount fee ($40,000 x .0075) for a total of $500.00

Proposed New Processing Costs: If your new pricing is Interchange Plus pricing of $.15 per authorization and a discount fee of 55 basis points (.0055). That means you are paying $150 for authorizations (1,000 x $.15) and $220 for the discount fee ($40,000 x .0055) for a total of $375.00, meaning you are saving $125 per month with the new pricing.

You also need to understand exactly what your monthly fees are for such things as statement fee, PCI compliance fee, next day funding fee and debit enablement fee if you take debit cards that require the customer to put in their PIN.

Don’t be fooled by banks promising you low rates without calculating the savings yourself. Banks use their name to charge higher processing rates and lock up the merchant for 3 years. Also, be careful about contracts that automatically renew for 1 year periods and in some cases even 2 years, if the merchant does not cancel the contract at least 60 days before the end of the automatic renewal period. You may want to hand write on the application before you sign that there is no yearly contract and no early termination fee. If the banker or sales agent says they can’t give you that preferred pricing without a three year contract or termination fee, DON’T BELIEVE THEM and DON’T SIGN. Following these five tips on credit card processing can save you a significant amount of money.

3. Upgrade to a Terminal and POS System that Can Process Chip Cards

If you haven’t already updated your credit card terminal or POS system to process chip cards, you should do so immediately. Give these five tips on credit card processing to your manager or IT professional and talk to them about your currently security. Here are some reasons why you should upgrade:

-       Most processors will charge you a non-compliance fee that could cost you $30 to $100 more each month that you don’t upgrade;

-       If someone uses a stolen or fraudulent card, your business will have lost the amount of the transaction and must pay a chargeback fee of up to $40.00;

-       Even if the card is not stolen, there have been cases of so called “friendly fraud” in which a customer plays dumb and doesn’t recognize the charge, but since the business is not processing chip cards, the business loses hands down;

-       Processors are beginning to shut down credit card terminals and POS systems that do not accept chip cards, and may not give the business owner much advance warning of the shutdown;

-       If you have a data breach and are not using EMV processing equipment, your insurance company will not cover your loss which can run in the thousands of dollars for a small business and in the millions for a large business, as was the case with the Rosen Hotels data breach; and

-       You could even face fines from Visa and MasterCard and they could deny you the ability to accept credit cards in the future.

Even if you are using updated EMV equipment for processing transactions, your business still faces various risks when it comes to accepting credit card payments. Here are a few steps you can take to make sure your business is safe and you are reducing your risk of small or large losses.

-        Make sure your terminal has a password to allow refunds to customers, but only allow managers or employees you trust access to that password;

-       If possible, talk to your processor and change the password for refunds periodically, especially if you had to let go of managers that were less than trustworthy;

-       Talk your insurance carrier about getting cyber insurance coverage, what it costs and what it covers.

-       Do not use a POS to swipe credit cards since that data is stored in the POS and if you have a data breach, or the POS company you use has a data breach, you will need to notify all those customers affected, the card brands will fine you thousands of dollars and you will have to pay the cost of reissuing new cards to the customers that are in your POS system. As mentioned above, Rosen Hotels had a data breach and was not using an updated POS system. They were fined $2.4 Million and their insurance carrier claimed the data breach and any ensuing losses were outside the scope of the commercial general liability policy.Make sure you understand the PCI compliance requirements of your processor and what happens if you are non-compliant; and

Businesses that follow these five tips on credit card processing can significantly reduce their risk of loss when it comes to credit card fraud.

 4. Online Credit Card Processing and Online Ordering

     Online Ordering for Retail and Restaurants  

If you are a busy retail store or restaurant, you should carefully think about working with a processor that can accommodate your online credit card processing needs. PayPal can be quite expensive at 2.9% and $.30 per transaction. On a $25.00 order the cost is 4.1%. Selling online is becoming more and more common so depending on the type of business you have you need to be able to accommodate your customers with some form of online payments.

Online credit card processing saves your small business and your customers valuable time when it comes to placing an order. It allows small business owners to expand their customer base, reduce costs by freeing up time and employees.  Not only that, but it helps increase gross revenues by expanding your customer base and can improve your overall profit margin.

Online ordering software for restaurants is now big business and many restaurants use three or more online services. While restaurants were willing to pay percentages of 10% to 30% of each order to companies like GrubHubSeamless and UberEats, that is no longer the case. There are now better online ordering alternatives that can cut your costs and improve your gross and net profits. They provide an easy to use app to restaurants and their customers at one flat monthly fee and features that help promote a restaurants online ordering business through social media posts on Instagram, Facebook, Pinterest and Twitter. If you are paying more than 4% per order to an online ordering company, you are over paying and need to cut your costs.

     Online Payments and Invoicing for Trade Businesses

Tradesmen like electricians, plumbers, carpenters, roofers, and landscapers have also started to see the usefulness of using online credit card processing as well with systems like Converge that can integrate through a plugin with QuickBooks. Even dumpster rental businesses and the refuse collection industry can benefit from using an online system that will save them time and help them operate more efficiently.  While these five tips on credit card processing might not apply to each business specifically, most of these tips will actually apply to most businesses large and small.

Online payment means these businesses don’t have to keep rebilling customers who are slow to pay. The Converge online credit card payment system also has a recurring billing function for credit card payments as well as ACH, so you can set it up and it will automatically charge the customer based on pre-arranged agreement of monthly payments.

Even if a business does not have customers with the same monthly payments every month, there is an intermittent billing feature. Let’s say you have customers that require your services sporadically throughout the year and you bill them per invoice several times per year, but it is always different amounts depending on the type of work, length of the job and the price of the materials and labor. Through the Converge “tokenization feature”, once the business sets up the account for a customer the credit card data is securely stored on the processor’s servers in an encrypted manner. Then the business can periodically bill the customer as various jobs are completed, without having to get new credit card and billing information from that customer.

5. Switch to the American Express Opt Blue Program

American Express now has a program for small businesses that do under $1 Million per year in American Express credit card income. Businesses that are using the Opt Blue program get a combined statement from their credit card processor so Visa, Master Card, Discover and American Express are all on one statement, instead of getting a separate statement from American Express.  Even more importantly, the rates for American Express have come down significantly, so if you are still getting a separate bill form American Express, give us a call and we can show you how much we can save you with the Opt Blue program.


We hope these Five Tips on Credit Card Processing have shed some light on what many feel is a confusing subject. These credit card processing tips should better prepare you for when it comes to reviewing or changing your current credit card processor. We are always available for free consultations and analysis of your recent processing statements no matter what business. We enjoy leveling the playing field for small business owners when it comes to electronic payment solutions and explain things in an easy to understand manner.  

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