3 Credit Card Processing Mistakes You Want to Avoid

3 Credit Card Processing Mistakes You Want to Avoid

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Figuring out which credit card processor to go with is a big decision and shouldn’t be made on a whim. There are literally hundreds, if not thousands, to choose from and it can be extremely overwhelming to make sure you make the right decision. The credit card processing industry isn’t very regulated and because of that, small businesses are often taken advantage of.

Considering credit card processing fees can add up and take a big chunk of your revenue from you, it’s crucial to make sure you do thorough research to find the best credit card processing option for your business. Lucky for you, we’ve put together a two-part series of Dos and Don’ts when it comes to selecting your credit card processor that will set you down the right path and hopefully simplify your decision making process.

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In Part One, we’ll go over three common mistakes business owners tend to make when choosing their credit card processor. Come back next month and we’ll fill you in on three things you absolutely should do when accepting credit cards in your store!

1. Don’t avoid accepting credit cards to avoid paying fees.

A lot of small business owners prefer not to deal with fees associated with accepting credit card payments. Seems like an easy way to save money, right? Wrong. The Federal Reserve recently did a study and found that businesses that don’t accept credit cards miss out on an average of $7,000 in sales annually. I know I’ve walked into stores or restaurants only to walk away without making a purchase when I realize they’re cash only.

Think about it. How often do you make purchases using cash? We’re betting it’s not too often. A growing number of people these days use credit cards or even their phones to make purchases both in stores and online. Studies even show that people spend 12-15% more when paying with credit cards versus cash. And that’s only the most obvious of the many reasons to accept credit cards.

Having a ton of cash on hand makes your business more vulnerable to theft by both thieves and employees. Less theft = less lost money. On top of that, credit card transactions mean there’s a digital paper trail that’s a lot easier to keep track of. By accepting credit cards, you’re also reducing the number of checks you accept, which ultimately leads to fewer checks being bounced.

2. Don’t lease your terminals and pay a monthly fee.

From time to time, credit card processing companies sales reps will try to convince you that it’s better to lease their hardware and pay a monthly fee. “We’ll replace your terminal if it breaks,” they tell you. “You won’t have to pay for hardware upfront,” they’ll continue. It’s expensive enough to start or run a business and saving at the beginning sounds like the smart way to go.

Take it from me, it’s definitely not as good as it seems. Leasing terminals will end up costing you significantly more than if you just buy the hardware in one shot. Think about it. You’re paying to lease the machine. They’ll probably sell you on insurance for the terminal. At the end of the lease, you have to return it! The amount of money you spend leasing the equipment is enough to purchase at least one terminal.

3. Don’t fall into the bundled pricing trap.

Bundled pricing is a type of pricing structure that bundle together the various rates associated with different card types into one simple rate. These processors pay both the interchange and assessment fees on behalf of the business, thus simplifying the process. Seems like a great option, right? And on its surface, it is! Bundled pricing seems simple and transparent.

While there are some benefits to bundled pricing, the drawbacks shouldn’t be overlooked. There are three components that determine your credit card processing rate: interchange fees, assessment fees and markup. Both interchange fees, which are paid to the issuing bank, and assessment fees, which are paid to the card brand, are fixed based on the type of transaction. What changes is the markup cost.

You see, different transactions are considered more or less risky, depending on the type of card used, and the way that transaction is done. Depending on how risky the transaction is, you get charged a different fee. So the fee for every single transaction can be vastly different.

In bundled pricing the fixed rates are concealed and because you’re paying one single rate for all kinds of transactions, you don’t really know how much you’re being charged for each transaction. This can result in tons of unnecessary overpayment to the credit card processor.


I’d like to think we’re off to a pretty good start here. Knowing what not to do is only half of the battle. Let all that information sink in and come back next month to find out my top three “do’s” when it comes to accepting credit cards in your store.

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About the Author — Hiro Taylor is the Founder of HeroPay, dedicated to helping merchants navigate the complex world payments and compare credit card processing. Formerly The Visa Country Manager of Myanmar, Hiro led Visa's business entry into the country, creating over $300 million in commerce from zero, despite the country's antiquated telecommunications and banking infrastructure. During Hiro's tenure, Myanmar was Visa's fastest growing market globally. Hiro Taylor is a CFA® charterholder. Website: www.heropay.com Twitter: @myheropay Google Plus: https://plus.google.com/+Heropay

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