My father has owned a hair salon for over 25 years and probably from the day he started his “shop” things have hardly changed. Sure there have been some updates to decor and a couple of location changes, hair styles have certainly changed over two and a half decades, and so has the method of accepting payments. However, only over the last few months has he started asking me how to go about accepting credit cards because of the demands of his new found younger clientele, which are being brought in by a templated website I built him in my spare time one weekend.
Finding the right credit card processing solution for your business can be a daunting task. From newfangled card readers that connect to your smart phone to good old fashioned counter top Verifone VX510 how do you know what is right for you? Here are some considerations:
- The up front cost - Sometimes the machines are free (typically on overpriced merchant accounts), sometimes they are $400-$700, sometimes you can buy used ones on eBay for $100, some just require purchasing a magnetic card reader for a labtop (which you can also find cheap on eBay). Other solutions such as Square offer a card reader free with signup that plugs into your 3.5mm head phone jack on your phone. Intuit Payment Solutions sells a card reader you can plug into your USB port of your laptop for about $70.
- The transaction fee - usually Visa/Mastercard is the least 1.5%-2.5% and Discover Card and AMEX is typically higher 2.5%-3.5% although lately Discover Card fees have been edging close to Visa rates to remain competitive. These fees can be even higher when you punch in a card number manually vs. using a swipe reader because there is more fraud when the transaction happens with the “card not present”. That is why businesses typically ask for the CCV 3-digit code on the back because it lower the swipe fee because the assumption is that the card is present.
- The swipe fee - This is usually a specific amount like $0.10 or $0.50 – you may find a company with a very low transaction rate (like 1.5%) but a very high swipe fee (like $1.00) – if your average transaction is $10 that wouldn’t be a very good deal cause the swipe fee is 10% alone. If the average transaction is $100 or $1000 it’s a better deal.
- Other fees - Back in 2007 a business partner and I owned a pizza place and our merchant provider charged us $10 just to send us a paper statement – we could not opt out of paper statements but they charged it anyway. In other word it’s was just another way to make money.
- How often you can batch - with a merchant account you can batch (send the payments and get a deposit) daily. Usually you get paid in 24-48 hours. With others (like square) you might have to wait days.
So if you look at the continuum of providers it goes from High Transaction Cost with Low Monthly Fees to High Monthly Fees to Low Transaction costs. Here are some examples:
Paypal Website Payment Standard – no monthly fee but allows you to accept payments using a website, email, or a smart phone but the transaction costs are as high as 2.9% plus a $0.30 transaction fee. Paypal generally can be deposited within 3 days unless a payment hold is put on your account which then requires 21 days to receive.
Square – Square offers 2.75% rates if the card is swiped or 3.5% + $0.15 fee if the card number is manually entered with no monthly payment. Square holds payments for 21 days before you can have the balance deposited.
Intuit Online Terminal – Allows you to process credit card payments on your labtop with a magnetic card reader. Pricing is 1.9% if swiped and 2.93% if manually keyed in plus a $0.30 “swipe fee” for both. Payments are batched daily and deposited within 1-3 days. The monthly fee is $12.95.
Merchant Provider – Typically used in retail stores where they have the counter top machine or an integrated magnetic card reader in their point of sale system. Monthly fees can be as high as $50-$60 not including transaction costs or swipe fees. Typically rates are lower and swipe fees are $0.10-$0.15 but not always so do your homework.
Hopefully this gives you some basic insight into choosing a credit card processor that is right for you and your business transactions. Remember, in this industry there always seems to be a “gotcha” and it’s your job to vet each provider properly to ensure the solution will make your business more profitable by being able to provide a convenient payment processing solution for your customers.
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