Evaluate your business
Assuming you are just starting in your industry, you will anticipate that you will have lower sales in the first few weeks or months of your operation. It’s perhaps due to its novelty or lack of marketing. However, if the low sales is mostly attributed to customers who are unable to pay in cash, it’s high time to consider adding credit card payments to get your business off the ground.
1. Find out which payment processor type is right for you
Your gross sales will be a factor in choosing the type of credit card payment processor. For most online businesses that have monthly sales of less than 3,000 dollars, a merchant aggregator will perhaps make more sense.
What is a merchant aggregator? It is a system in which one master account will process credit card payments from different merchants. This means you don’t have to set up your own merchant account which entails documentation requirements and administrative work. Instead, you will just pay a corresponding percentage, and in some cases, an additional transaction charge.
For stores that are looking at a monthly sale of above 3,000 dollars, a merchant service provider would be more optimal. Although you will have more requirements to fulfill, you get to have your own merchant account. This can provide you with a setup for different criteria in terms of payment currency, location, etc. In addition, it compensates by offering you lower percentage rates compared to merchant aggregators.
2. Choose how you will process your credit card transactions
There are basically four credit card processing methods, namely: in-store, eCommerce, phone, and mobile.
With in-store payments, you will either make use of an existing POS or Point of Sale system which has an integrated software for credit card payments, or you can get a countertop card terminal from your merchant aggregator or service provider. The card terminal hardware can be purchased from your provider or rented with a corresponding monthly fee.
Basically, a customer presents his physical credit card to the cashier who will then process the payment by swiping it to the POS or inserting it into a credit card terminal. When your hardware has Near-Field Communication (NFC) technology, which supports contactless transactions, you simply tap the card thereon. During this process, the acquiring bank (an entity that processes card payments on the merchant’s behalf) will get approval from the issuing bank of the credit card. When approved, you can generate a printed transaction slip while the net proceeds are automatically credited to the merchant account within a given interval.
For online shops, you will need to set up a merchant account and a payment gateway for your website, which are two separate applications. The payment gateway would be a digital version of the credit card terminal. First, the customer inputs his credit card information during checkout. It would then be processed similarly with in-store payments such that the payment gateway will secure an approval from the card’s issuing bank and proceeds will also be credited to the merchant account within a few days.
For phone-in purchases facilitated by customer service representatives, the client provides his credit card details to the agent who will then key them in using a virtual terminal program in his computer. This type of terminal is linked to the credit card processing system of your merchant service provider and goes through the same approval process as eCommerce payments. A good example that uses this payment method would be a home TV shopping network.
Mobile POS systems are for the merchants on the go such as those who sell goods in bazaars, food trucks, or places for a temporary period of time. It operates using an app on your smartphone which will process your credit card transaction just like a traditional POS would. As such, it will require a stable internet connection using your mobile phone data plan or a pocket wifi. You will need a mobile card reader that ideally supports cards with EMV chip, magnetic stripe, and NFC.
When processing mobile payments, you’ll just need to plug in your mobile card reader and insert or swipe the credit card to be used. Once approved, the customer can affix his signature on your touchscreen phone, then, he can receive a transaction receipt via email.
3. Determine all the fees involved
Credit card processor charges may include the following:
This type of fee is based on a given percentage which ranges from 1.7% to 3.5% depending on your card processor. On top of this, a flat transaction fee is also charged. Many payment processors will try to lure merchants with their lower transaction fees, but for the most part, the “discount” they offer is offset by other charges.
This is a monthly recurring charge that would usually cover account maintenance, use of payment gateway and PCI compliance (Payment Card Industry Data Security Standard).
When a card transaction becomes a chargeback during which the charge was essentially returned to the credit card after a successful item dispute initiated by the cardholder, your payment processor may charge what could be referred to as chargeback fee. Then, there are other incidental fees pertaining to supplemental actions such as customer verification, voice authorization, among others.
4. Thresh out as many credit card payment service providers to get the best payment solution
It is always a good idea to shop around before you decide which payment processor you will go with. Usually, what it comes down to is the price of doing business with the service provider. This way, you can assess if fees are justified by the type of service that they can extend to you. You need to learn about the penalties they impose as well, whether they will be manageable or too restrictive to you. It will also help if you ask them their existing merchant clients where you can compare your business with.
5. Read the fine print
It’s not enough that your payment processor has gone out of his way to explain to you their offer. Go past the sales talk and read the accompanying contract before proceeding. You might discover that the provider you are considering might have processing limits or you will be tied up with them for far too long. Perhaps your business can only do with a monthly service instead of being locked up in a contract of 2 to 3 years or more. Also consider the fact that your business can change by leaving some room for flexibility which your processor will be able to accommodate.
6. You’re ready to go!
That first credit card transaction is just a start, which can pave the way to truly grow your business in the months to come. Good luck!