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Selecting a Payment Processing Vendor: 17 Essential Questions

By Matthew Hunt |

Are you shopping for a payment processing company so that you can accept credit card payments? Before you sign on the dotted line consider this. Most Canadian small business owners don't know what questions to ask payment processing companies before choose a provider and are shocked by the true costs when bills begin to arrive.

The best way to avoid being surprised is to ask the right questions. This article identifies 17 questions that will make a difference, by arming you with the information you will need to make an educated decision about which payment processing vendor is best for your business.

  1. Merchant Accounts: What are the Visa, MasterCard & Amex Discount Rates?

    Every payment processing provider will have this fee. Discount rates can vary on from as low as 1.59% right up to as high as 5.0%. The discount rate is really not a discount.

    Discount rates are a % of your sales that the credit card companies charges the business owner to be able to offer their customers to pay with their credit card. For example, discount rate & how you are charged: If you did $10,000 in Visa sales in one month and your discount rate was 2.5% then you would pay $250 in fees to Visa that month. Rates vary and are dependent on your business model, business volume, average sale per customer, type of product & service your business offers.

    Rates also vary on the way you process payments for your products/services and how soon your clients/customers receive the products/services: online, telephone, mail-order, or in-store all affect the discount rate your business will qualify for. Usually high-risk business will have higher discount rates (2.5%-5%). High risk businesses are ones that have: (a) higher ticket prices ($1000 plus per sale), (b) Businesses that process more then 40% of their sales through internet/E-commerce, telephone (IVR), & mail-order

    Most merchant account agreements are for 3 years. Do not forget to ask: what would the termination costs be if you were to terminate your agreement early? Most companies charge a $300 early termination fee that is retro-active from the time the agreement started. Also most agreements state that if you do not write them within a certain date of time at the end of your agreement the agreement will automatically renew itself for another 3 years.

  2. Are "keyed in" Visa, MasterCard & Amex Discount Rates at a different rate then swiped?

    Most payment processing providers will have a different discount rate for transactions that are keyed in on point-of-sale terminal instead of being swiped across the POS terminal. However, there are some exceptions for some businesses that have reoccurring billing. Typical "Keyed In" rates are 2.2% to 5%.

  3. What are the Transaction Rates?

    Transactions fees are sometime called IDP transactions. Every payment processing company has at least a transaction fee for debit and usually for credit card transactions too. It is become more common that any transaction that is made on your point-of-sale terminal will be considered a transaction and a fee will apply, whether is it is a void, debit, credit card, refund, batch close, etc. Transaction fees can range from 0.05 cents up to 0.50 cents and can be different for each type of transaction, although typical point-of-sale terminal transactions fees are between 0.08 cents to 0.15 cents. IVR, PC, & E-commerce processing solution transaction fees are usually much higher ranging from 0.35 cents to 0.50 cents.

  4. What is the monthly cost for the Point-of-Sale Terminal?

    Most bank related payment processing companies offer: rental program for point-of-sale terminals. Rental costs can range from $20 right up to as high as $100 a month dependent on the type of point-of-sale terminal your business requires. Private label payment processing companies usually only offer: Lease-to-own or buy options on their point-of-sale terminals. Lease-to-own usually run on 48 month leases with a 10% buy-out option at the end. Lease-to-own point-of-sale terminal prices range from $30 - $80 dependent on type of POS terminal. Buy-out point-of-sale terminal prices, typically run from $999 - $1800 (without taxes) dependent on type of POS terminals.

    Two very important questions to ask before buying a POS terminal: 1. What are the warranty conditions? 2. Is the point-of-sale terminal smart-card ready? When renting a POS terminal if you require a new POS terminal is usually will be fixed or replaced at no cost to you. However, you pay rent forever. If you have been renting a POS terminal for $40 a month for 5 years, then you just paid $2400. If you have been renting a POS terminal for 10 years at $40/month then you just spent $4800 & no asset in your business.

    When you can own a basic POS terminal for as little as, $1000 and now have another asset in your business. In terms of warranties, most private label companies will offer some type of life-time warranty, sometimes at no extra cost, sometimes for an additional fee. Sometimes it is better to pay more for a all inclusive warranty on hardware with free software upgrades then to pay less with a limited warranty.

  5. What are the Set-up Costs?

    Every payment processing company will have set-up fees, some more then others. Set-up fees can range from $50 - $300. Usually the set-up fees are one-time only set-up fees for Visa, MasterCard, Amex, & debit cards usually around $25 per card. Some companies also charge an initial set-up fee for programming the point-of-sale terminal or a fee for initial training. Set-up fees can greatly vary from company to company.

  6. Are there any Application fees?

    Not all payment processing companies have an application fee, however, some companies do. This is usually a non-refundable fee, whether your business is approved or not. Applications fees can vary from non-existent to $300.

  7. Is there a Statement Fee?

    Not all payment processing companies have a statement fee, however, some do. The average statement fee is usually around $5 or free if you are willing to receive your statement coming to you via e-mail. (I am not sure if this is a nickel and dime fee or if it is companies trying to go green? I let you decide!)

  8. Is there a Settlement Fee?

    All payment processing companies have a settlement fee. Settlement fees can range from 0.05 cents 5 dollars.

  9. Is there any Minimum Processing Fees?

    All payment processing companies have minimum processing fees, ranging from $5 - $25. Often there are minimum processing fees for each type of card you intend to have processed. Basically, what this means is if you do not do enough business to have high enough fees you will still pay a minimum every month.

    For example: Let say your discount rate 1.85% on Visa and your do a $1000 worth of sales on Visa that month and your minimum processing fee is $10. Well, 1.85% X 1000 = $18.50 in fees that month on Visa. Therefore, you have cleared your minimum of $10 and you have nothing to worry about. Now if you take the same rate and minimum, but you only made sales $250 that month on Visa. Well, 1.85% X 250 = $4.62 in fees that month on Visa. Therefore, you did not make you minimum and would be required to make the difference up of $5.38.

  10. Is there a Gateway Fee?

    Most payment processing companies usually have a gateway fee, but usually only for IP POS terminals, PC, & e-commerce payment solutions. Gateway fees can range from $5 to $45 a month.

  11. Is there a Monthly Maintenance Fee?

    Some payment processing companies have a monthly maintenance fee others do not. If they have it, it is usually a fee that is associated with IVR, PC, & e-commerce solutions however, some companies have it on POS terminal solutions too.

  12. Is there an Added Value Fee?

    Some payment processing companies have a monthly added value fee and some do not. This fee usually ranges from $5 - $10 a month.

  13. Is there a Low Achievers Fee?

    Most payment processing companies have a monthly low achiever fee. Low achiever fees can range from $5 - $20. This is why it is important to get your monthly/annual estimate of total business volume correct on your Visa, MasterCard, & American Express applications. Most merchant account providers have 25%-35% error lenience. If you are not sure it is always better to under estimate your monthly/annual sale amounts when applying for credit card merchant accounts.

  14. Is there a Chargeback Fee?

    Most payment processing companies have a chargeback fee. Chargeback fees can range from $10 - $50. A chargeback is when a card holder holds a dispute on a Visa or MasterCard or Amex transaction that came from your business. If the card holder wins the dispute, they will be refunded their money and you will be charged a chargeback fee, a similar fee to bouncing a cheque. It is always the merchant burden of proof to prove that the card holder had used or bought the product or services from your business. This is why is so important to check that on credit card purchases that the signature matches the back of the card holders credit card and if it does not to ask for photo ID.

  15. What are the Technical Support Service Hours?

    Most payment processing companies have a help desk/technical support. However, not all are 24/7 and some are better then others. The best thing to do is to get the help desk number and give it a call a few times through out a day to see what kind of service you would get.

  16. How soon can you have a new Point-of-Sale Terminal in my Business if my POS Terminal is not working & can be fixed via the phone?

    Payment processing companies can vary on this. Some can have one to you within 24 hours others can take 2-4 weeks before they have a new POS terminal to you. The question you have to ask yourself is how long can your business run without one in your business? Sometimes it is better to pay more for better services.

  17. How long does it take to initially get set-up with full services?

    Most payment processing companies usually take at least 2 weeks (sometimes as long as 4-6 weeks) to have your application processed, merchant accounts set-up, point-of-sale terminal programmed and shipped to your business ready to use. However, there are a few payment processing companies that can have one ready in your business in as little as five business days. These are usually private label payment processing companies.

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