We’re glad you snagged a copy of The Ultimate Guide to Payment Processing. At Paymentsmith, we love to help companies succeed with their payment processing. As we’ve done that, we’ve realized that there are certain pieces of knowledge a business owner must know in order to set up the company for success. Our hope is that no matter where you are in business, this guide to payment processing will help you navigate through the complex world of payments and credit card acceptance.
We have always felt like the payment processing industry has a bit of a black eye, meaning the industry doesn’t have a great reputation for being transparent. With that being said, we’ve built Paymentsmith on the precedence of doing things different…in a good way. We feel that by giving our audience honest information, we will gain trust in return. To us, trust is everything! Our goal is always to empower others with the knowledge necessary to make the best decision possible – even if that means it’s not with us.
Partnering your business with the right payment processing company is an important decision, so it’s best to be well-informed when shopping around. Whether you are a start-up or a full-blown enterprise, this guide will help you understand where you fit and what your options are (& it’s a beautiful thing to know your options) in the most simplified way we could come up with.
So, without further ado, here it is. The Ultimate Guide to Payment Processing.
#1: How Card Acceptance Works
Before you dive head first into payment processing, it’s good to know how it actually works. You don’t need to know all the intricacies of payments, but knowing the basics will help you have the necessary conversation (or negotiation) with whomever you choose to process with.
Just because a payment acceptance solution works for your neighbors business, does not mean it will work for you. Payment processing is truly an integral part of every business, but it’s not one-size-fits-all.
Knowledge is power baby! To start, let’s discuss how payment processing actually works…
A card transaction happens so fast in today’s world, most people don’t realize how much actually goes on in the background to make it happen. The fact is, there are usually 6 parties involved in one credit card swipe. Which is pretty crazy to think that it all happens within seconds.
The players in the game are:
- The Cardholder: The customer swiping a card with their name on it
- The Merchant: The store or vendor aka YOU
- Acquiring Bank / Merchant’s Bank: Whoever the merchant banks with
- Acquiring Processor / Service Provider: Usually a third-party merchant services provider aka Paymentsmith
- Credit Card Network / Association Member: Visa, Mastercard, AMEX, Discover, etc
- Issuing Bank / Credit Card User: The customer’s bank
The complex interaction is basically what you, as a merchant, pay for when you get your payment processing statements every month. For now, this should help you have a basic understanding for how the money is transferred from the customer to the business.
#2: ISO’s, Acquires, Fintechs, Aggregators…OH MY!
Traditionally speaking, people used to only go to their bank to set up credit card acceptance or payment processing for their business. However, today there are many options outside of the bank world who are authorized to set up card acceptance and merchant services. These businesses may be referred to as ISO’s (Independent Sales Organization), Fintech (financial technology company… pretty broad spectrum here), an Acquirer or Acquiring Bank (aka a bank) and an Aggregator (merchant aggregator).
Now, we’re going to break down for you what the difference is between these business entities to better help you understand what you need for your processing.
ISO’s (Independent Sales Organizations)
An Independent Sales Organization or ISO, simply put, is a third party payment processing company that is authorized to handle merchant accounts for businesses. An ISO can range from one individual to a large group of people under a name and license. ISO’s have a lot of freedom to do what they want, in contrast to a bank which is very regulated. This is often why there are large discrepancies in pricing with ISO’s because they can upcharge without consequences. On the positive side, ISO’s are a lot more flexible than banks, allowing for an easier, more customized experience than a bank would provide. Paymentsmith, for example, is an ISO.
An acquiring bank (also known simply as an acquirer) is a bank or financial institution that processes credit or debit card payments on behalf of a merchant. The acquirer allows merchants to accept credit card payments through their system. Examples of an acquiring bank are Citibank, Bank of America, Chase, Wells Fargo, etc. Traditionally speaking, banks have been the primary option for business owners due to brand recognition, trust and existing relationships. However as more and more aspects of business become digitized and automated, banks have become less of a ‘go-to’ for merchants because of their regulation requirements which in turn offers less of a customized product or service. The banks, however, have a regulated system they must abide by, so you have less of a chance of being swindled in pricing.
A merchant aggregator, payment aggregator, or simply aggregator is a service provider that allows merchants to accept payments without having to set up a merchant account. Well-known aggregators are Square, Stripe, and PayPal. This business type is relatively new, is free to sign up for, and super easy to use for the individual or the small business. This is, often times, what businesses today start out with. Payment Aggregators usually charge a flat rate, which is a very simple to understand concept, further making an aggregator an easy option for businesses.
Fintech is sort of a ‘loose’ term used to refer to innovations in the financial and technology crossover space, and typically refers to companies or services that use technology to provide financial services to businesses or consumers. This is a broad term that could define any of the above business sectors. Generally you will hear the term Fintech as anything financial technology related that is not a traditional bank. You will also hear Fintech closely related to blockchain and crypto, but that’s not our topic of conversation today. Paymentsmith can also be referred to as a Fintech company.
Basically, you can set up your business’ payment processing with any one of these entities. They all have their own strengths and weaknesses, so it’s important to figure out your business needs in order to choose the right one.
Pricing is perhaps the most complicated section of this whole guide, yet one of the most important. Why? Because pricing ranges widely and is varied off of many, many different factors. Remember at the beginning where we talked about all the entities that play a part in one single transaction? Well they also play a part in the prices that you and sometimes even your customer pays.
Typical Pricing Models
Today, we most commonly see three different pricing models offered to merchants: flat rate, interchange plus, and tiered pricing. Knowing what type of pricing model you need for your business is an important part in considering a provider. Here’s the low-down of each model:
A flat rate (or you may hear blended pricing) is probably the easiest pricing model to understand. A flat rate percentage is a fixed percentage that you pay for every transaction run. Being the more simplistic pricing model, flat rate is a great option for new businesses with a lower ticket volume. Square, Stripe and PayPal, along with others, charge a flat rate for processing. Merchants that process with these companies generally enjoy the ease-of-use.
Why doesn’t every company go with a flat rate? Well, because it ends up costing the business much more money in the long run. Instead of providing pricing based on whatever card a customer is using, flat rate simply upcharges the same rate for each credit card. With this, you don’t see discounts like you do with other pricing models. A good rule of thumb is if you’re processing over $8,000 a month in revenue, a flat rate aggregator company might not be the best option for you.
To fully understand interchange-plus pricing, you need to be aware of the two main components – the interchange and the plus:
- Interchange – The fee that comes directly from the card networks. In other words, these are the fees charged by companies like Visa and Mastercard. Payment processors do not control these rates, and every merchant is required to pay interchange no matter what pricing model they are on.
- Plus – The “plus” in interchange-plus pricing is the markup that your credit card processor is charging on top of the interchange fee. This cost comes in the form of a percentage fee and a transaction cost. This fee basically covers the work that the processor does to keep your account up and running smoothly.
Generally, interchange-plus pricing is more favorable for the majority of businesses compared to other pricing models. This is because interchange-plus is not only more transparent (meaning you see your business transaction analytics), but businesses usually end up paying lower processing costs with this model than any other. Now we may be a little biased (we offer interchange plus at Paymentsmith), but it truly is a great payment option for businesses, especially with B2B businesses that can take advantage of interchange optimization, but we will get into that in a little bit.
Tiered pricing, also referred to as bundled pricing, can be looked at as a mixture of flat and interchange, because it allows processors to group interchange fees into general rate tiers which are then charged the bundled interchange rates. Basically, they group the cards into categories of ‘qualified’, ‘mid-qualified’ and ‘unqualified’ and charge the same pricing per tier. The benefit of tiered pricing is that the statements you receive are usually pretty easy to read, however the fundamental flaw with the traditional tiered-pricing model is that it hides the interchange costs and allows processing companies to charge more of a markup.Tiered pricing is a bit of an outdated model and one we usually don’t recommend due to its lack of transparency.
Often times when talking about payment processing pricing, you will hear the term “basis points” being used to describe the amount you will pay. Basis points, otherwise known as bps or “bips,” are a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form.
Now that you have a better understanding of the available pricing models, you can better choose one for your business. If you are not sure what you’re currently on, you can always send your monthly statement our way and we will tell you. To submit your statement for review, click HERE.
Just like so many things today, there are fun “fees” that go along with using credit card acceptance at your business. Most of these fees are for legitimate reasons, but some… you need to be cautious about. The whole reason we started Paymentsmith is because we were a group of business owners tired of all the ancillary and hidden fees that we were being bombarded with by every merchant services company. With that being said, when you are signing a contract with your next merchant services provider, make SURE to read the fine print. This is where hidden fees live. Here’s a list of common “hidden fees” we’ve seen on other merchant statements and what they mean:
Annual fees are an additional charge on your statement essentially meant for payment processors to cover their costs, and it should be a big red flag to any merchant. Payment processing companies already charge a markup to the fixed base rates charged by credit card issuing banks and credit card associations (Visa, Mastercard, etc.). The markup they charge is meant to cover the processor’s costs and ensure they’re making a profit. If the company charges an additional annual fee, they’re hitting you with a junk fee to line their own pockets.
PCI compliance is a real thing. The Payment Card Industry has created a set of data security standards to make sure customer credit card data is handled safely and securely. In layman terms, it means making sure you’re taking the appropriate precautions to prevent people from hacking your customers’ credit card data. This a shared responsibility between you and your payment processor.
Many processors charge PCI fees without providing you any service, simply because they can get away with it.
Some processing companies provide services to help you meet your end of PCI compliance and subsequently charge a PCI fee to cover those services. Other companies charge you a fee and don’t provide any service to help you stay in compliance, simply because they can get away with it. Reputable companies, meanwhile, take the required steps to help keep your company in compliance without charging a separate fee at all.
This is exactly what it sounds like—it’s when a payment processor charges you a fee to cover the costs for printing and mailing you your monthly statement. Sure, it costs a bit of money to print and mail statements, but this is one of those fees that’s misleading because it’s typically tacked on at the end of your bill without prior notice. By not accounting for those costs in the markup on the rates that they quoted you, the company has misled you and you’re now stuck paying more than you signed up for.
The way payment pricing is structured, your business is typically charged on a per-transaction basis and on a percentage of your monthly transaction volume. This means if you have a good month, then your payment processing company has a good month too.
Unfortunately, some processors will ensure they get paid well even when your business has a bad month. A monthly minimum fee is basically a penalty fee that gets tacked on when you don’t meet a minimum amount of processing fees for the month.
Some payment processors charge a fee when you settle your daily transactions during what’s called the batch-out or settlement process. These fees tend to be low, but remember, your business is probably batching out at least once a day, so all those nickels and dimes add up over the course of a year.
Terminal Fees and Gateway Fees
Terminal fees are often charged to brick and mortar businesses for using payment terminals to accept credit cards. Gateway fees, or internet gateway fees, are the same thing except they apply to businesses that accept payments online. It’s another way that some payment processing companies charge you twice for the same service. After all, they are a payment processing vendor—why are they adding a markup to credit card processing rates and then charging you extra to actually accept credit cards?
Early Termination Fees
Many payment processing vendors require long-term contracts, possibly lasting as long as four to five years. The penalty for cancelling that contract is a hefty early termination fee, and we mean hefty. A payment processing company with a signed contract can charge you for the full amount of fees they expected to capture from your business over the entire course of the contract term. That can add up to be thousands of dollars!
If you get locked in to a long-term contract, the termination fees can easily cost you thousands.
The kicker is that the same companies that charge early termination fees are usually the ones that also charge other hidden fees. The process generally plays out like this: 1) You get a quote for a low credit card processing rate; 2) You sign a contract; 3) You get your first bill and see you’re paying way more than you expected thanks to all those hidden fees; 4) You cancel your contract and get hit with an early termination fee.
These are the 7 most common hidden fees, but there are plenty of others. Regulatory fees, non-compliance fees, data breach fees, online reporting fees, IRS reporting fees, and network fees are several others you’ll see out there. As always, it’s best to be well-informed and ask a lot of questions before signing a contract.
#5: Types of Card Acceptance
You’ve already made the decision to accept cards in your business, but you may be wondering how you want to accept cards. There are several different ways to accept payments, allowing many options for merchants to run their business.
- Accept By Website
- Accept In Store
- Accept By Invoice
- Accept By Mobile
- Accept With Software
You can accept from multiple platforms within you business. It actually just requires some simple integrations to get the job done. Keep reading to learn about integrations.
Let’s say your business is a popular retail boutique. You have a few shops in your area that are buzzing with customers. You have a website that’s got a big online presence, with merchandise being sold on the daily. You also travel and do pop up shops once a quarter. Lastly, you have wholesalers that you work directly with, which requires regular bulk orders of your goods. In this case, you have many opportunities to make money, but finding one company that does it all can be tricky. You need a solution that can integrate all your payment acceptance into one, allowing you to save time and not worry about constantly updating and checking all your different systems.
There are options for you if you accept credit cards in multiple ways. We’ve had clients come to us before with this exact situation that used a different merchant services provider for each part of their business. For mobile acceptance they used Square, for website they used Shopify payments, for invoicing they used PayPal and for in store they used Clover. Yikes! That’s four different companies to deal with, four different statements (payment processing bill) to pay each month and four different support lines to call when sh*t hits the fan.
Streamlining everything into one company, one statement and one support system can make a big difference in your day. It will allow for all your inventory to be up-to-date, your customer information to be synced and a quicker, easier checkout process for all parties involved. Not to mention the professionalism that goes with having all your stuff together.
#7: Discount Programs
Other than receiving a great pricing rate and avoiding fees, you may be wondering about other discounts that are available to youon your processing. Most merchant services companies already make a very thin margin on businesses, but some offer solutions to discount the price you pay even more. Here’s a couple programs we commonly see across the industry.
Remember when we covered what interchange was in the pricing models section? Well interchange optimization is a corporate discount program that builds off of that idea. Interchange Optimization is a system in which a business processes a credit card payment correctly with all of the data required by the card associations in order to qualify for the least expensive interchange rate possible. It is most applicable to B2B (business to business), because they’re accepting business cards more often, which qualify for a lower rate. If your company is eligible for this program, it can potentially save you thousands a year.
A cash discount program relates to the methods merchants are applying in their businesses to pass the costs of accepting credit and debit cards to their customers or cardholders. The merchants raise their prices through simple conspicuous signage in the business location and offer discounts to customers who make cash purchases.
A quick example: If you charge 4%, processing fees on all items, the formula will indicate that the services or products you should sell at $100 will retail at $104 unless your customer uses cash. In that case, the customers making cash purchases will be discounted and will only pay the original $100. The totals are reflected on the customer’s receipt.
We’ve heard feedback that customers of businesses who offer cash discount don’t exactly always appreciate this method, but most people will still complete the transaction despite the negative feelings towards cash discount. The fact of the matter is that most people make purchases with credit cards, and they don’t usually carry cash on them either which makes this discount less effective than some of the others listed.
Surcharge or convenience fees are different from a cash discount program. A surcharge is when merchants increase the cost of purchases made by credit card. No cash discount fees or surcharges are allowed on PIN-based debit transactions. It is an option allowed to merchants in most states, however there are limitations and restrictions to consider before surcharging your customers. Surcharging usually leaves a bad taste in customers mouths and it’s not something we recommend for businesses to do. Basically a customer is paying for the expense fees a business is usually responsible for.
#8: Payments by Business Size
It’s true, there’s no definitive rule on how you characterize or define the “size” of your business. Some people refer to small business as one with 10 employees or less, while others define small business as 500 employees or less. In most cases, a business size can be pretty loosely defined by employee count, revenue, sales, investment or a number of additional factors. So, for the sake of clarity, we are going to define how WE categorize small, medium and large business.
Small Business: 120k or less in yearly revenue
If you are doing $120,000 or less a year in revenue, we would characterize you as a small business. We do this because this is a threshold that we see as one that puts you in a category of small payment processing options. This assumption is highly generalized, and you should focus more on your specific business needs and your industry type. However business size is often a pretty quick indicator of where to start your search.
Mid-Sized Business: 120k-500k in yearly revenue
If you’re processing in the $120,000 to $500,000 range, you’ll likely want something much different from a small business solution. In this mid-sized range, the best option is an interchange plus model. No matter what business industry you are in, if you’re processing this much you’re most likely in a more established position. If you’re still using a payment aggregator like Square, you’re paying a high amount for processing.
Often times, businesses in the small and mid-sized range have ambitions to grow into larger revenue businesses. This is achievable by carefully managing and upgrading your payment processing as you cross over to higher levels of revenue.
Enterprise Business: 500k and up in yearly revenue
If you’re in the big kahuna category, you most definitely want to be on an interchange plus model or an interchange optimization model. This will help save you a significant amount of money. It would be crazy to be on a flat rate at this stage…(sorry if you’re reading this and that applies to you… you aren’t the only one!)
#9: Industry Type
Saas & Software
Saas (Software as a Service) or Software are mostly subscription based companies that require recurring billing for their customers. Usually, they need an online shopping cart function as well. This challenge requires an integration system to handle both recurring billing and online payments seamlessly. The revenue-driven goal for software companies is to encourage customers to use the software solutions over time. Because of this need, you will want to make sure your payment provider can handle a customized and highly-configurable billing system.
Also, if you’re a software company, you probably are interested in having an analytical platform for your processing as well. This includes data about your customers, what types of payment methods they prefer, which product or service they choose and more. This data can be a great asset in making future decisions for your company, as well as being able to opt in for more corporate discounts with your processor later down the road.
If customers are investing in your software technology, they will expect the best tech for your payment solutions as well. Finding a platform that gives your customers a frictionless experience is important in sealing the deal. Many Saas/Software companies are also B2B companies, so checking out an interchange optimization corporate discount is probably in your best interest to save even more $$.
Despite the growing popularity of e-commerce, brick and mortar retail stores are alive and well. People still enjoy going out and having the personal shopping experience over ordering goods solely online. With that being said, most retailers want payment processing to give that fun, personal experience as well.
It’s important to have a POS (point of sale) system that remembers your customers, keeps track of your inventory, is quick to add on items (for those last minute purchases), can quickly handle returns and that looks sleek on your countertop. There are a few POS systems that we think surpass the rest with technology, which we will review below. Figuring out which details are important to you will help to figure out what system you need. For example, if you own a mom and pop suit-shop that prioritizes a customized, 1-on-1 experience with your customer, your needs are going to be different from a national discount shoe warehouse like DSW.
You always want a technology and POS system that works well, however , retailers also need something that works fast. One of the biggest deterrents for customers making a purchase in a retail store is the size of the checkout line. A long line is intimidating, and if a retail shop gets a reputation for being slow, it will eliminate shoppers who desire a quicker experience. Line-busting (as we like to call it) is one among many reasons we suggest really taking your time to pick an appropriate payment provider for your retail space.
If you’ve ever worked in a restaurant, you know it’s a hot, chaotic, busy and messy place to be. The last thing you want as a restaurant owner is for your payment processing to be a hot mess as well. In our experience, the main challenges restaurants face is system failures, turnover and margins. Let us elaborate…
One of the biggest nightmares in the restaurant industry is when a payment processing system goes down. Everyone on staff is already maximized on their time as is. When a payment processor malfunctions, it causes a paramount amount of stress in the business. At this point in time, most restaurants are forced to manually imprint credit cards with an old-school flatbed swiper aka a ‘knuckle buster’ (because it physically hurts to slide these bad boys), a machine that looks like it’s out of an early 1990’s horror movie. This takes more time, energy, and will definitely make a customer question if your restaurant has it together or not. Some merchant services companies (cough, cough Paymentsmith) allow you to enter card data electronically through their software and run a transaction that way, if anything bad ever happens to your software. (Sorry for the not-so-subtle promotion, but this can truly be a lifesaver.)
Another challenge restaurants face is internal turnover. With new staff coming and going as frequently as this particular industry sees, one of the hardest parts is training that staff on everything to get them up and running at full capacity. A general concern we often hear from general managers or owners of restaurants is, “what does the integration timeline look like?” Generally, switching payment processing companies for restaurants is a breeze. There are really intuitive POS systems available today that will kick-start your business and make managing and integrating new people a breeze.
Last but not least, the restaurant industry margins are by default thinner than other industries. This is not a bad thing and you can still make a killing in the industry, however it is of paramount importance to trim costs where you can. One of the big cost factors with any high volume ticket industry (restaurants) is the payment processing charges. Let’s say you run your restaurant on Square, who charges 2.75% flat rate. You do an average volume of 100 tickets during the week days and 300 tickets on the weekend. Your average ticket amount is around $100. Square charges 2.75% per ticket.
100 x $100 x 2.75% = $275 x 5 days a week = $1,375
300 x $100 x 2.75% = $825 x 2 days (Saturday & Sunday) = $1,650
1 week payment processing costs = $3,025
1 month payment processing costs = $12,100
1 year payment processing costs = $145,200
That’s an astronomical amount of money you could be putting back into your business.
From hotels to cruise lines to sports and concert venues, the hospitality industry is one that makes life just a little more exciting. It’s also one of the biggest credit card payment acceptors out of any industry. And while payments might not be the most thrilling part of the job, it is definitely nice having a payment acceptance platform that simplifies it all. Actually, it’s a must.
You’ve probably heard the term, “The show must go on” a time or two in your life. There’s a lot of truth behind that in the hospitality industry. You have a ton of different key players that are a part of the everyday success — managing each part of that can be difficult. You also have customers that have paid a pretty penny to use your hospitality venue. If your cleaning crew quits or your band decides not to show up, the show must go on. The same thing goes for your payment processing.
Being able to manage expectations and keep a very organized and systematic operation is KEY in running a hospitality business. At the same time, the way you accept payments can transform your customers expectations. It can either be incredibly sloppy or help you be the most organized in the game. Here’s the biggest thing you need to worry about with hospitality card acceptance: smooth integrations.
You have many systems that all need to talk to each other in hospitality. From property management to reservation booking to market items, you need to be able to accept payments online, over the phone, in person and have that all integrate into one major reservation system. You also need to be able to send & receive invoices quickly to pay your vendors and support staff. Making sure that you work with a processing company that is experienced in hospitality processing is a must in getting the right team to make it all happen.
Candidly, B2B (business to business) is one of our favorite industries here at Paymentsmith. Why? While we serve a variety of industries, we specialize in B2B. From our technology to our software to our trained expert integrations, we have a truly innovative platform for B2B businesses. So, with that disclaimer out of the way, we will go ahead and tell you about B2B needs and solutions as unbiased as possible.
Back in the day, a farm owner would trade 1 cow for a diamond ring from a jewler and the deal was done. Well… B2B payments aren’t exactly that straight forward anymore. There’s usually invoicing, recurring payments, software, website API’s, discount programs, corporate credit cards, fund wiring, international trade — the list goes on. Simply put, B2B payments are as complicated as it gets in the merchant services world. 99.9 times out of 100, some form of integration is necessary for a B2B company to accept payments the way they’d like. In the case of B2B, many run-of-the-mill payment companies are not going to be able the customized solution you’ll need. Sorry Square.
Many B2B purchases require a longer sales cycle and a higher price point than many industries as well. With this being said, if you’re putting a lot of work in with hopes to close a handful of big deals per year, the last thing you want to do is mess up when it comes time to send the bill.
We’ve already touched on these points in previous sections, but making sure that you have a highly-configurable payment system, interchange optimization (which we touched on in the section prior) and all your systems integrated into one, you’re going to lessen your chances for human error considerably and save huge amounts of money while you’re doing it.
E-Commerce by far is one of the fastest growing industries today. With the website builders available along with all the other online resources, it’s becoming easier every day for someone to start an online business and work and make money from anywhere in the world (not to mention the appeal of that, right?) E-commerce is a booming industry, but with the quickness of growth and opportunity also brings challenges. These challenges are: 1. How to get around the predisposed payment pages set up by your website provider into a more customized solution and 2. How to make sure it’s secure. Here are our answers:
E-commerce payment options
Most popular website builders like WordPress, Shopify, Square, etc come with their platform’s predetermined payment processing. If you’ve gone rouge and built a website from scratch, then you have to figure out which processor you would like to use. Either way, you have the ability to manually integrate whichever processor you like into EITHER platform (pre-built or rouge) by using a payment processing API (Application Program Interface) plugin.
A payment API plugin is essentially code that you input in the back-end of your website that tells the payments what to do. You can still design the look of your site however you like, it is essentially just a face-less coding mechanism that does all the ‘behind-the-scenes’ operations of your payment facilitation. Choosing which payment API plugin you want to use can be difficult, so it’s good to first and foremost become familiar with the different options.
Let’s take Shopify, the most popular e-commerce website builder for example. Shopify comes with its own suggested pricing plans, but you can always opt out for an outside payment provider whenever you like. You are presented with monthly and yearly payment options, and although you can upgrade or downgrade your account at any time for no charge, I would consider going with the monthly plans to start out. This way, you don’t get stuck in a yearly cycle if you need to modify the plan or completely stop using Shopify. There are cheaper options than Shopify payments, but most users go ahead and start out with them because of the ease of use. Below are the available Shopify payment plans:
- Basic Shopify Plan – $29 per month + 2.9% and 30¢ per transaction
- Shopify Plan– $79 per month + 2.6% and 30¢ per transaction
- Advanced Shopify Plan – $299 per month + 2.4% and 30¢ per transaction
- Shopify Plus – pricing plans start around $2000 per month + 2.15% per transaction
Depending on how large your volume and ticket size is, each Shopify platform presents its own pros and cons. It’s pretty much common sense. If you’re new to the e-commerce, a basic shopping plan would suffice. If you’re on a mid-sized level, shopify or advanced shopify might make more sense. If you’re an enterprise, shopify plus would probably be your best play.
Many website builders have their suggested or partner payment gateways, but you should always look into the options available and decide what makes the most sense for you and your business.
2. Online security
Security is a concern with every business and that includes their payment processing. We purposely left out security with most of these industries, because it’s a big enough topic to cover on its own. With the rise in fraud and hacking in online businesses, security is one of the largest factors in setting up online payments for an e-commerce platform.
Among the top reasons why a customer abandons their shopping cart is because of concerns regarding payment security. Most online consumers are knowledgeable about cyber scams because many of them have dealt with it first hand or had it happen to someone they know. This is why you need to have the necessary components in place to make sure your customers and your business stays safe and hackers are kept at bay. It is also good practice to have multiple payment options at checkout if possible. Having multiple payment methods available will help increase sales substantially, giving customers options on how to complete their purchase.
Aside from processing with a quality, trusted provider, there are different website security softwares that we recommend purchasing. Some features to look for in a website security software are an intrusion detection platform, a firewall, an incident response support team, secure remote storage for backups, and performance optimization. We like Sitelock, Rapid 7 and Sucuri for their cloud based security systems, but there are tons of options out there. This will help you and your customers stay safe, along with abiding by payment security regulations which we will cover more in depth in Chapter 11.
Grocery stores are some of the most challenging point-of-sale environments in the credit card processing industry. From national supermarket chains to corner stores, all grocery locations need to keep lines moving quickly, accept every form of payment, encourage shopper loyalty, minimize fraud, track inventory, and manage employee hours. On top of that, they need it at the lowest possible cost. Grocery stores often take longer integration periods, so it’s important to get it right the first time, because switching over everything is not something you want to repeat every year if possible. Here’s a list of things to look for in your grocery store payment processing:
Interchange plus pricing
With the amount of volume this industry does, it would be insane to be on any other pricing model. It makes the most sense to get every discount you possibly can, and this is only possible on an interchange plus pricing model.
A feature-rich platform
You have a lot to manage, so make sure you have a rockstar platform that you can trust to handle it all. Many grocery stores are open 24 hours, 7 days a week. Making sure that your platform works quickly to help bust down lines, accepts every form of payment, encourages returning customers, tracks inventory and manages employees will help you run a prosperous store.
Security can be a larger issue in grocery stores. We’ve all heard the stories of people paying with fraudulent methods, which can really hurt your business and cause a serious headache between you, the customer and the credit card companies. Being able to mitigate this risk means making sure you have card swipers with encrypted pin pads, so that you’re gaining an extra layer of security needed to make sure your card payments are safe. These small things can save your business millions in lawsuit money – it’s definitely worth it.
When we say professional services, we mean businesses that exist in many different industries. These could include lawyers, advertising professionals, architects, accountants, financial advisers, engineers, and consultants, dentists, doctors — among many others. Basically, professional services can be defined as any organization that offers customized, knowledge-based services to clients.
Usually what we run into with professional services business owners is this: you’re extremely busy. Most are highly-educated, highly-motivated and are working their butts off running their business. A lot of times, what we’ve experienced in the past, is professional service members that signed up for a payment processor without really reading the fine print (which is kind of ironic considering some of these culprits have been lawyers 😉), leaving them unhappy with their provider. Who can blame them – they don’t have the time!
So, if you’re a professional services member, here are some quick tips to help you decide on the best processor for your practice:
What does the invoicing look like?
You want invoicing solutions to be easy to read, easy for your customer to pay, and make the whole payment process a breeze. No one likes waiting long periods of time to get paid, so make sure your invoicing platform is solid to avoid this.
How quickly do you get your money back?
This is a big one for professional services. Many times, there can be a month or longer lag time between when you perform the service and when you actually receive the money for your services. In the meantime, you have other clients to service, which means you probably need cash flow to complete your next job. Having a processor that puts money back in your bank account the next day is a huge help in making sure your finances stay on track.
Does it integrate into QuickBooks?
When your payments integrate directly into QuickBooks, it’s going to save you or your accountant a ton of headache and stress during tax season. And money. And time.
Does it give you analytics?
A lot of times, professional services organizations are a small group of people, sometimes even one person. With that being said, you’re doing many jobs at once. Having the correct financial analytics to make business decisions is a necessary commodity in running a successful business.
Salons and spas run their business entirely around the customer experience. It’s a place for individuals to come, relax and leave feeling amazing about themselves. Having a proper payment gateway to facilitate this feeling is more important than one would think. For salon and spa industry members, these are some important aspects to make sure your payment software provides:
A frictionless payment experience
Many customers come in thinking they want one thing, but end up leaving with a completely different service. Along with that service, they might pick up some hair product on the way out! Having a system that can easily add on services and products is necessary in this industry.
In this business, it’s very very easy to churn customers. Whether it’s one bad experience, or an outcome that they didn’t expect, or just timing that doesn’t fit their schedule – customers know they have options right around the corner and aren’t scared to make the jump. With that being said, making sure the customer’s expectations are managed is absolutely key. From making sure their pricing is transparent to appointment reminders and easy booking options, it all plays a factor in client retention.
An easily editable platform
Unfortunately, salons and spas have a high chargeback rate. We will cover the topic of chargebacks in the next chapter, but for now it’s important to understand the basics. Many people end up unsatisfied from their services at a salon or spa, while we understand that misunderstandings occur, ‘the-customer-is-always-right’ response method is usually the best way to react in these situations. Therefore, you need a system that is going to be easily editable when the customer needs their money back.
I’ve seen too many businesses in this industry that use a platform that makes them call in and sit on hold every time they need to issue a refund. This is a huge time-suck and a very stressful process, as it takes longer for a customer to receive their money back. Mitigating this by being able to access your system 24/7 and make changes directly is a great way to keep customers happy and avoid negative reviews of your business.
A company is considered a high risk business based on two conditions: it operates within a high risk industry and/or a risk of financial failure exists. Undoubtedly, both circumstances might affect your company’s ability to acquire financing, insurance and merchant accounts.
Many business types can be considered a high-risk merchant. Contrary to popular belief, even businesses such as flower shops can be considered high-risk because of a high chargeback rate that occurs. High risk is more prevalent than people think, but the problem is often finding a company to back you financially.
If a financial institution believes that your business is more risk than it’s worth, they will be reluctant to work with you. In addition to this, high-risk accounts can be substantially up-charged to mitigate their side of the risk. With this being said, high-risk businesses have limited choices for their payment processing. Here are some things to look out for if you’re a high risk merchant shopping around for payment processing:
You need to find someone that knows what they’re doing. What we mean by this is that you have to work with a company that is willing to give guidance and education around your account to support you in the best way possible. We see so many high risk accounts come through that have been told inaccurate information by their previous provider. It’s stressful enough having to deal with a high-risk business – don’t pick a processor that has no ability to properly process your account.
With high risk, you’re susceptible to more fees. This is because, like we mentioned earlier, businesses are mitigating their risk in taking a chance on your business. However, there’s a point where the fees just become excessive. Ask questions about each fee you’re paying and why – make sure you get a clear, straight answer. Also, it’s always in your best interest to shop around and compare rates, and don’t ever underestimate the power of negotiation. If you’re confident in your business, let them know why they should be as well.
We understand that there are more industries out there that have not been covered. With new and emerging industries, it can be tough to find a payment solution that fits your unique needs. That’s why we always advocate for our customers truly finding a customized solution that works to grow and scale their business. If you’re in an industry that didn’t match up to what we’ve covered in this section, feel free to reach out to us and we will help guide you towards a solution that’s right for you. At Paymentsmith, we believe payments is not a one-size-fits-all service. That’s why we work to help business owners like you every day realize their potential through an educational lens.
In the world of financial services, data security is a huge raised question from consumers. Whether they are utilizing a large bank or a smaller Fintech company or some combination of the two, consumers want to be sure that their money and identity is in safe-hands. With the ever changing world of technology, security gets stronger – but so do hackers. With press about corporations being hacked in the news weekly, there is a stronger need than ever for best security practices for consumers and for businesses. Here’s 7 security features you should look for in a payments provider:
Mandate compliance to PCI-DSS
The requirements within the PA-DSS (Payment Application Data Security Standard) are designed to ensure that vendors provide products which support merchants’ efforts to maintain PCI-DSS (The Payment Card Industry Data Security Standard) compliance and eliminate the storage of sensitive cardholder data.
Use P2P encryption payment systems
P2P, otherwise known as point to point encryption, is important for businesses to understand because it speaks to the security of the data flowing from the customer to the credit card processing company.
Take a cost effective back to basics approach
This is to protect a business’ most sensitive data. This can be achieved by classifying all data and encrypting all data deemed sensitive. No matter the breach, this would ensure all sensitive data in unreadable in the wrong hands.
Build a secure network and maintain a firewall configuration
This protects cardholder data. Cardholder data must also be protected at rest and just as importantly, should be encrypted when in transit across open/public networks.
Develop and maintain secure systems (including anti-virus) and applications
Whilst regularly updating the software to fully manage vulnerabilities, this is a huge step in protecting hackers from entering your network. Applying restrictions on what employees can download can help protect against this as well.
Implement strong access control measures
This includes the restriction of physical access to cardholder data.
Utilize SIEM and PAM Systems.
Security information and event management (SIEM) systems have become integral to enterprise security management. These systems process and correlate the alerts coming from various security systems. However, there are limitations with SIEM tools. They rely on being fed only by system log messages, and they lack the contextual information on privileged user activity.
In the wake of a breach, PAM (privileged access management) tools can help to promote incident management competence by adding information sources which are able to detect and analyze privileged user based attacks. Swift investigations and making rapid, well-informed decisions can prove challenging for organizations and require data in real-time to make clear the context of a suspicious event.
These tools also provide risk-based alerting as well as searchable, easy to interpret records about user activities. This way, analysts can quickly find the root cause of a problem. A PAM tool provides a fast return on investment (ROI) in the challenge of incidents related to privileged accounts. They can be easily and seamlessly integrated into security operations center (SOC) environments, making security operations much more successful.
In the financial industry, you will often hear the term “chargebacks.” It’s one of the top-five pain points for most businesses, because it feels like you’re basically just handing your money out for free. That’s why often times, chargebacks are referred to as ‘friendly-fraud.’
Chargebacks happen in all industries, but are especially prevalent in online or e-commerce industries today. In fact, 60-90% of all online merchants routinely report friendly-fraud cases. On top of this, online merchants are expected to lose $28 billion dollars towards these friendly-fraudsters in 2020, according to Payment Fraud Outlook.
How many times have you heard the phrase, “The customer is always right” in business?
Sometimes, the customer is truly right and a chargeback is in order. We understand and appreciate the ability our system has to recover what’s been lost. But when statistics show that chargebacks are being routinely reported in 90% of businesses and money lost by U.S. merchants is in the billions and growing daily, something isn’t right. Unfortunately, many friendly-fraudsters have become knowledgeable about their power in the “customer is always right” mentality and choose to abuse that power.
We’ve found that most of the time, business owners we talk with don’t take the time to even fight most chargebacks, because they believe it’s a lose / lose situation. This is, however, not always the case. So if you’re fed up dealing with chargebacks, payment disputes, friendly-fraud, B.S. or whatever else you call it under your breath, we are here to help you learn how to win a chargeback.
What Is a Chargeback?
A chargeback, also referred to as a payment dispute, occurs when a cardholder questions a transaction and asks their card-issuing bank to reverse it. When a chargeback happens, the disputed funds are held from the business until the card issuer works things out and decides what to do. In essence, the customer has all the power to decide whether the business gets paid or not.
A chargeback usually occurs when there has been a dispute regarding a purchase. As a seller, if a customer decides to file a dispute against you, it will be in your hands to provide enough evidence to prove that the transaction was legitimate. If the issuing bank is not convinced by your evidence and concludes that the transaction was indeed fraudulent, the amount of the purchase will be taken from your account and given back to the customer. You will probably also have to pay an additional fee of up to $100 or more, depending on the bank. Some ISOs like Paymentsmith, do not charge for chargeback disputes.
Whether the chargeback dispute was legitimate or not, having a high volume of chargebacks can be really damaging for your business. In fact, if chargebacks account for over 1% of your total transactions, you could be classified as a “high risk business” by payment processing companies which could lead to incurring high costs, fees and financial companies refusing to work with you.
How Do You Win a Chargeback?
Chargebacks happen and you’ll lose some. In 50% of successful cases of friendly-fraud, the same perpetrator will file again in the next 90 days. For this reason, merchants should do everything possible to reduce the risk of getting disputes in the first place by improving customer service, setting expectations upfront, and implementing a secure payment acceptance to ensure less fraudulent chargeback possibilities. Here’s how to win a chargeback:
Maintain accurate payment records
It is extremely important to maintain accurate and detailed records from the very beginning. Carefully documented transactions are crucial for winning a chargeback dispute – confirmation emails, automated invoices, and follow-up emails with the relevant tracking details once the purchase was processed are a must for maintaining a compelling record to present during the dispute. Upon delivery, always ask for signature – if the seller isn’t able to prove that the item was shipped, he is much less likely to win the dispute.
Other evidence that might be favorable for winning a dispute includes any communication (email, phone, etc.) between you and the customer concerning the transaction, the customer’s IP address and download time and date (if the service is digital), and proof that the customer lives or works at the delivery address, among others.
Set terms and conditions
This is particularly big for online or E-commerce businesses. Being able to dominate your terms and conditions is huge for minimizing chargebacks. Like we said previously, chargebacks are very common in online businesses.
Let’s say that you provide a service that charges a customer monthly and in exchange for your service or information and the customer buys a years worth of your business. Three months in, the customer decides they’ve reaped all the benefits already and want to not pay out the rest of their term. Having a contract in place that holds them accountable for such actions will help you win any friendly-fraud that comes your way.
Implement EMV Technology AKA “The Chip & Dip”
Have a brick and mortar business? If you’re accepting cards in person, a technology that will save you time over time is an EMV chip reading payment processor. This lessens your chance of chargebacks drastically because an EMV is a security layer that validates a credit or debit card.
“We see this happen all the time to business owners without this security technology. It seems excessively prevalent in nightclubs and bars. Business owners could literally have security camera footage of a customer paying and smiling as they do it. Without EMV compliance it can still land in the customer’s favor if they dispute that they didn’t make the charge.” -CEO of Paymentsmith, John Norton
What Do I Do Once a Chargeback Has Been Filed?
Check the reason behind it
When a new chargeback has been filed against you, the first thing you need to do is check the reason code. Reason codes provide you with valuable details on the reason why the customer decided to file a dispute in the first place. It is important to know that each card network (MasterCard, VISA, Discover, AMEX, etc.) has developed its own reason code system, which is why you need to check carefully the card that was used for the transaction.
A lot of times the reason code will not actually provide accurate details on the true motif behind a chargeback, but the dispute will be based on it. Therefore, as a merchant, you need to be familiar with the reason code in order to argue effectively against it.
Once the dispute has been filed, you will have a very limited time to gather your evidence and prepare a winning response. Take note of all applicable deadlines, format your documentation properly according to the requirements, study carefully the reason code, and prepare a chargeback rebuttal letter to accompany your evidence. It might be helpful to have a response template with all the general information ahead of time, and just fill in with specific-case evidence when a chargeback happens.
Chargebacks suck. They can brutally hurt a business and cause headache after headache for the business owner. That’s why learning how to win a chargeback is important, but even more important is keeping the friendly-fraud from happening in the first place. Taking these measures in your business to protect yourself is an easy way to save yourself a lot of time and money. Talk to your payment processing company to see if you’re doing everything you can to protect yourself!
Many people are under the assumption that once they set up payment processing, they won’t ever have to deal/think about it again. While this would be lovely, it’s not usually the case. Most companies interact with their payment processing company on a monthly basis. This means that choosing a payment processing company with a helpful support staff is something that needs to be considered as well.
The world of payment processing is complex, and this guide barely scratches the surface. Hiring a team of experts to support your business through the complexities is key in having a successful business relationship. Before pulling the trigger on a company, review your specific needs and how you’d like to interact with your processor. Are you a company that needs constant in-person support? Are you someone that likes to DIY with helpful online resources?
Being able to answer questions like these about your own needs will help you navigate which support system is the best fit for you. Don’t be afraid to ask tough questions when interviewing different payment processing companies for the job! Like anything else, the more effort you put in at the front end qualifying the right company, the less time you’ll spend managing it in the long run. If your company requires larger amounts of integration and configuration, you should consider the level of support you will need.
In conclusion, business owners have a ton of options for payment processing. The hard part is navigating through which processor is the best fit for your company. We hope this guide has ultimately addressed some of your biggest questions about payment processing. Like always, we are here to fanatically support you and answer any other questions you may have. If you are curious about learning more, please reach out to us directly at [email protected]. Thank you for joining us!