What you need to know about Payment Processing

9 steps to start accepting credit cards

These are the steps you are going to go through as a merchant to accept credit cards, whether you are switching providers or setting up for the first time.

01

Create a shortlist of payment processors

You will research the different providers that exist in the market. It won’t be difficult to get a list. There are a ton of them out there. Almost all payment processors will offer a merchant account, payment gateway, and hardware terminals. If you have specific needs, like recurring billing for example, ensure the shortlist of providers have it.

02

Contact the payment processors

You can either call or fill out an online form to get in touch with the payment processors. If payment processors do not have a phone number to contact them, you might want to be aware of the level of customer support you will get from them.

03

Double check they have the right products

Sometimes websites don’t have all the information about the products, so need to verify they have the specific features and functionality you want (if you have specific needs – most merchants don’t have too specific needs).

04

Get a rate quote

The conversation will quickly move to pricing. If you already have a merchant account, it is possible they will offer to do a rate comparison of what you would pay if they were doing the processing for you. If you don’t already have a merchant account, you should ask what your effective rate would be. Most processor pricing is roughly the same. There are some processors out there that will do some deceptive pricing, but this is becoming more rare. Some key points you should ask about: is there a cancellation fee, am I locked into a contract, what happens with my data if I change processors, are there any other fees we haven’t talked about (i.e. hidden fees), how do your customers rate your customer support?

05

Compare the shortlist of processors

Now you have an idea of the products, pricing, contract termination fees, and customer support level. You’ll choose one to move forward with, probably one without a termination fee so your business can remain flexible.

06

Fill out the application

Next you’ll fill out the application form that details you and your business. You’ll likely be able to sign this application electronically. Most processors take anywhere from 15 minutes to 3 days to approve your application. The more complex or high risk the business, generally the longer it takes. What the processor is doing is assessing the risk (i.e. underwriting process).

07

Receive your online tool

The moment you are approved, you will get access to an online tool (i.e. payment gateway) that will give access to reporting and some payment methods: APIs for eCommerce, virtual terminal, recurring billing, etc. This will allow you to start taking payments immediately.

08

Receive your payment terminals

Your payment terminals (if you need them) will be shipped directly to your business with overnight shipping. Generally, there is a pretty simple step-by-step guide to plug in your hardware terminal and get it working.

09

Receive your first billing statement

At the end of the month, you will receive a statement with your processing amount and your fees. Double check them to make sure it’s what you expected.

Type of Credit Cards

Merchant account providers generally combine Visa, MasterCard and Discover as a standard offering. American Express deals directly with merchants to create an account, but we can help set that up too.

There are, of course, other credit card networks even though the “big four” are the majority. Cards like JCB and Diners have millions of cards in circulation and credit cards like UnionPay (aka China UnionPay or CUP) are growing.

There are around 3 billion credit cards out there in the world, 365 million credit cards in the USA, and 75 million in Canada. That’s a big market. In fact, the average North American has over 3 credit cards in their wallet. In the end, to accept any credit card, you need a merchant account if you are processing more than $100,000 per year.

Merchant account fees; how they work

Fees are charged when using a credit card. Merchants pay those fees, which are typically 2% to 4% of the amount charged on the credit cards, depending on the type of card a consumer is using and how it is processed (eCommerce vs in-store). How fees are charged and the amount that is charged varies across merchant account providers, making it difficult to compare rates.

If you already have a merchant account and you want to know your fees, the best way is to check your effective rate. Just take the total fees you have been charged and divide that by the total dollar volume of credit card sales. That’s the best way to do a rate comparison – if you’re shopping around for a new merchant account, find out what fees, and the effective rate, you would have been charged with the same volume, card types, etc on the new provider.

Interchange

Interchange is the rate that credit card networks (i.e. Visa, Discover, etc) charge as a fee to use their network. These are non-negotiable costs that are publicly announced. As an example,Visa, Discover, and MasterCard charge approximately 1.5% to 2.5% of the credit card sale amount.

AMEX generally charges 2.5% to 3.5%. In general, the fancier the credit card, the higher the percentage fee. So, those travel rewards cards are on the more expensive side for merchants. You can view the exact interchange rates (fees) by card type on the following documents:

Risk & Compliance

Risk is a common term used in the credit card industry. Some industries are considered higher risk than others, for example gas stations are considered low risk and furniture stores are considered high risk. This is based on historical processing data, the amount of chargebacks, and amount of fraud. It is more difficult to get a merchant account in high risk industries.

Risk & Compliance

Merchant account providers are financially responsible for merchant losses. This is why risk is an important consideration. Merchant account providers assess a merchant through a process called underwriting to determine the risk level. The underwriting process takes into consideration the age of the business, historical financials of the merchant, the industry they are in, etc.


A merchant account provider has a few ways to reduce their risk when providing a merchant account to “riskier” merchants. First, there may simply be higher fees, second, there may be a reserve. A reserve is an amount of dollars kept on hold for a certain time period. For example, it may be structured that 20% of all credit card sales are held for 4 months.
When a company in a high risk industry gets a merchant account, the fees are generally higher due to the risk.

PCI Compliance

If you are handling credit card numbers, you do need to care about PCI. PCI is a standard set by an organization that exists to ensure security in the payment card industry (PCI). These standards are for all companies involved with credit cards, including merchants.
There are a number of standards set by PCI, however it essentially means that all merchants 1) need to remain compliant – at the most basic level, complete a Self Assessment Questionnaire (SAQ) annually, 2) merchants cannot store the 3 or 4 digit security code or PIN, and 3) if credit card data is being passed or stored by merchants, they need to meet security levels.

What are chargebacks?

Chargebacks are a hot topic in the industry. It is a feature of credit cards used to protect consumers. Consumers have 6 months after the purchase to dispute a charge. If a consumer disputes a charge on their credit card, those funds are removed from the merchants bank account. Merchants then have to prove that it was a valid purchase before they will see those funds back. That is a chargeback. There is a fee to merchants for chargebacks. Merchants with a history of chargebacks are considered higher risk. For a merchant, chargebacks are bad.

What is a personal guarantee?

A personal guarantee is quite common in the industry. It is a way to align the risk between the merchant account provider and the business owner. This ensures that both parties have an incentive to deliver on the products and services sold by the merchant.

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