If you’re a small or medium sized business or charity and thinking of accepting credit cards, there are some important things we think you need to know before you go too much further.
The first of these is that very soon you will end up feeling like Dorothy after she got dropped into Oz. You will be in a strange new world with its own language, its own rules and its own dangers. You may even encounter creatures without a heart or brain, but you won’t want those guys for travelling companions.
To provide you with some context here, take a quick couple of minutes and go read the story of my friend’s epic fail. It’s not the most fun story you’ll ever read, but it sure is a lesson – and one of the reasons why I’m so passionate about helping YOU understand all the pitfalls and perils that await you if you stumble into the credit card world unprepared.
Accepting Credit Cards May Be More Than You Think
The first thing you need to be aware of is that accepting credits cards may be more expensive than you’ve been led to believe. I see a lot of websites on the internet that like to throw out percentage costs for processing the “average” or “lowest” % credit card transaction. Usually, they use a range of around 1.25% to 3.0%. They never seem to tell you where that average comes from. Does that average include the big box stores that have so much volume they can 
drive their cost down to the absolute minimum? Is their lowest for
Is their lowest for only pin based debit cards?
Are they also averaging in flat fees like their monthly charges, the monthly cost of a terminal or payment gateway, the monthly assessments from MasterCard and Visa, or some annual fees you may not know exist? (They’re probably not, by the way.)
If you’re a small merchant, additional fees of even $50 every month are going to have a lot more impact on you than on one location of a national chain.
The websites frequently also don’t tell you that the low end of that average starts with only one or two of the over 100 different types of transactions that the Credit Card Associations (MasterCard, Visa, Discover, etc) have created, and they likely don’t tell you that the type of business you are in may raise your costs. If you are anything other than a brick and mortar location where customers swipe their card, you are probably looking at the higher end of the “average” to begin with. (See our post: Lowest Credit Card Processing Fees! The Rate is the Bait for more on this topic.)
Salespeople Might Not Be Salespeople
The second thing you should know is that the salesperson who walked into your shop off the street may not be an employee of a merchant services provider or credit card processor. The salesperson probably works for what the industry calls a “reseller”; basically an independent sales agent or ISO. Now that’s not necessarily a bad thing. Resellers often work with more than one credit card processor and may be able to customize a better deal to your specific needs. The credit card industry is a game of numbers, and the fact is that direct salespeople for credit card processors may be focused on higher volume operations than you have right now. Of course, one might stop in if they are in the neighborhood or if they have similar merchants in the area. So come right out and ask the salesperson who they are employed by or who they represent.
Don’t Rush to a Decision without Many Facts
The next thing I’m going to tell you is the same thing I tell my kids: “Don’t be in too much of a hurry to grow up.” Most credit card processors have a minimum monthly transaction dollar amount their customers have to meet or they get charged a fee. This helps the processor maintain their income if the merchant closes shop for a month or two or sales slump. The minimums are usually something like $1200 or $1500 in credit card transactions. Find out! If your business isn’t consistently producing the kind of volume that meets that processor’s monthly minimums to get the best rates, you may want to consider other options.
There are alternatives that will let you process credit cards with a lower volume. Yes, their per-transaction rate may be higher but you probably won’t encounter all the fees involved with a normal merchant account. You also won’t have to be aware of all the rules and regulations. Probably the best known example of what I’m talking about is PayPal. (I’m not endorsing them, and there are many similar organizations that could fit the bill, if that’s the direction you end up choosing.) We offer similar programs ourselves.
Start By Asking Questions About Credit Card Processing
If you think you want to open up a merchant account and start accepting credit cards, first read everything you can 
about the credit card industry and its pitfalls. (Our site in particular has some good resources for you to explore.) Then go talk to your peers (more than one) – the other merchants in the area – and see what processor they use and what experiences they’ve had. Talk to everybody you can that has a business that operates the same way you do. Then call at least three of the processors your peers liked and talk to them. Listen to what the salespeople say and ask pointed questions. If you can, try estimating what their costs will be based on your current volume. Don’t sign anything you are given until you are sure what it says and means, and don’t just take the salesperson’s word for it. Show it to a lawyer or even salespeople from other companies (or our customer service team) and have them explain it to you.
If you read the complaints on the internet about credit card processors, you’ll find that an awful lot of them have to do with merchants not realizing their contract allowed the processor to do or charge something. (After you’ve read them, discount most of them because a lot of the web reviews are bogus; you can read our blog post on that very topic to learn more.) The very best place to check on a company’s credibility and responsiveness is with the Better Business Bureau. Their rating criteria, and their complaint and resolution tracking, are unmatched and unbiased.
Small merchants or businesses just starting out fall prey to a lot of tactics used by many in the credit card processing industry. Be cautious. You and what you know are the best edge you have for getting a deal that’s right for you – and avoiding one that could kill your business. Accepting credit cards doesn’t have to be a “gotcha.” It can be a great experience, and you can build a relationship with your processor that lasts for years.
Finally, if you didn’t click over before, go read the true story of one start-up non-profit that got led down the primrose path by a customer service rep at their bank. It’s sobering.
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