Nonprofit organizations have never had as many tools at their disposal for raising money as they do today. With all the options out there, you might not think of PayPal as a natural fit for your nonprofit organization, given PayPal’s close association with eCommerce and business enterprises such as eBay. Alternatively, while you might be aware that PayPal offers a Donate button, you may not know about the other PayPal features, policies, and third-party integrations that can facilitate nonprofit fundraising.
With this article, we’ve set out to highlight all aspects of PayPal that can benefit your nonprofit organization — and as it turns out, this encompasses quite a bit! We’ll also detail the main alternatives to using PayPal for nonprofit fundraising.
Why Use PayPal For Nonprofits?
PayPal presents nonprofit organizations with plenty of reasons to use its services to raise money.
- Setting up a donation button to accept online payments is a swift and easy process.
- Accepting donations online — whether one-time or recurring — is incredibly easy once you have your Donate button set up.
- Nonprofits can get a discounted payment processing fee applied to their online PayPal donations.
- Want to accept donations offline or in-person? Maybe even sell nonprofit-related merchandise in-person? PayPal facilitates this as well.
- Sell branded products online on your website using a customizable cart.
- Integrate with countless third-party apps to facilitate charity events, such as auctions, fundraising galas, annual retreats, trivia tournaments — the options are endless!
Disadvantages To Using PayPal For Nonprofits
Of course, PayPal is an imperfect processor — both for nonprofits and everyone else.
Keep in mind that PayPal is a third-party processor (also known as a Payment Service Provider (PSP) or an aggregator). As such, PayPal carries with it an inherent risk of account instability. As opposed to a traditional merchant account wherein each organization or merchant has a separate account, third-party processors combine all their merchants and nonprofits as sub-users under a single umbrella merchant account.
This arrangement means that the sign-up and approval process is nearly instantaneous. It also means that because merchants (and nonprofits) are not vetted before signing up, every transaction gets scrutinized much more heavily than transactions processed by a traditional merchant account provider. This process increases the risk that a completely innocent transaction might trigger an account hold.
You’ll want to review PayPalâs prohibited products and services to make sure youâre in the clear. (Most nonprofits should be perfectly fine, but we make no guarantees, and it’s always important to understand what you are signing up for.) You should also check out our article, How to Avoid Merchant Account Holds, Freezes, and Terminations, to learn how you can minimize the chance of this kind of disruption.
Additionally, some of the PayPal tools you may want to make use of in the course of fundraising are either inadequate or don’t exist. Luckily, there are legions of third-party integrations that can fill in any gaps left by PayPal’s fundraising tools.
PayPal Fees For Nonprofits
One nice perk of using PayPal to accept online donations as a nonprofit is that you can pay a discounted payment processing fee when accepting online payments.
PayPal’s standard processing fee is 2.9% + $0.30 per transaction. However, registered 501(c)(3) charities are eligible to pay just 2.2% + $0.30 per transaction. To do this, you’ll need to do the following:
- Verify your 501(c)(3) status by entering your EIN or providing official documentation
- Provide a copy of a bank statement or a voided check for each bank account linked to your PayPal account
If your nonprofit organization does not yet have 501(c)(3) status, you’ll have to pay the standard per-transaction processing fee.
Note that nonprofits do not pay a special discounted rate when accepting in-person donations via the PayPal Here mPOS app, which charges a 2.7% fee for all swiped transactions. More on PayPal Here later.
What’s more, if your organization typically processes payments of less than $10, you may want to sign up for PayPal’s micropayments plan. Under this plan, you will pay 5% + $0.05 per online transaction instead of PayPal’s regular processing rate, which saves you money on each transaction if you primarily process low-value transactions from donors.
Make The Most Out Of Your PayPal Account With These Nonprofit-Friendly Features
Let’s go through all the ways PayPal can be a boon to your nonprofit fundraising.
Accept Donations Online
Adding a Donate button to your organization’s website and/or fundraising emails is quick and easy. To get the process started, here’s what you do:
- Sign up for a PayPal business account
- Select Nonprofit Organization as your business type
- Select Nonprofit as the category
- Enter your organizationâs bank account information to link it to your PayPal account and transfer funds to your bank account
Note that 501(c)(3) organizations still have to follow the process outlined in the previous section to receive donations at the discounted rate.
To set up your Donate button, you’ll need to follow the steps outlined here on PayPal’s developer page. You’ll be able to do the following:
- Choose your button style
- Display your organization’s name and logo
- Select the currency in which you receive donations
- Choose whether donors can give any amount, an exact amount, or provide three set amounts
- Choose whether to let donors make recurring monthly donations
- Choose whether to collect donor mailing addresses
- Choose whether to let donors send you optional notes with their donations
- Add additional HTML button variables
Another way to solicit online donations is to use PayPal.Me — PayPal’s peer-to-peer payment platform — to send personalized donation links to your donors. It’s a great way to approach your biggest supporters to ask for individual gifts.
One other thing: If you process more than $100,000 in monthly volume, you’ll need to call PayPal to make special arrangements.
Accept Donations In-Person
Nonprofit organizations can accept in-person payments via the PayPal Here mobile POS system. PayPal Here is not as fully-featured as a full POS, but for a mobile system, it certainly gets the job done.
With PayPal Here, you get your choice of three different mobile card readers, two of which are free until June 30th, 2020. With a mobile card reader, you can process in-person donations at big fundraising events, charity galas, trivia tournaments, or wherever else your organization’s fundraising takes you. Do note that the basic mobile headphone-jack card reader is only suitable for organizations processing less than $500 a month.
All swiped transactions processed by PayPal Here are subject to a flat 2.7% fee. Unfortunately, nonprofits cannot pay a discounted processing fee when using PayPal Here. Keyed-in transactions will be subject to a higher 3.5% + $0.15 fee.
Additionally, you can send out invoices via the app. Invoices are free to send, but when you get paid, you’ll be paying the standard 2.9% + $0.30 rate that PayPal charges for standard online transactions. What’s nice about the ability to send invoices is the fact that for substantial purchases — we’re talking four figures or more — you can just send an invoice, thereby creating a paper trail. That can come in handy later!
Additionally, payments from non-US credit cards are subject to an additional 1.5% transaction fee.
Other PayPal Here features include:
- Cash and check recording (yes, you can accept cash and checks with PayPal Here)
- Quick sale mode
- Item library
- Item add-ons
- Item categories
- Custom tax
- Custom tip options
- Discounts
- Refunds and partial refunds
- Recurring billing
- Reporting
- Sub-user accounts
- Support for register setup
- Same-day funding
Sell Merchandise
Whether your nonprofit organization is conducting a charity auction (if this is the case, here are some auction apps that integrate with PayPal) or is selling branded merchandise at a gift shop or other “meet space” location, PayPal Here is a solid option for processing your transactions. And if you need a POS system with more feature depth than that provided by PayPal Here, don’t worry, as PayPal integrates with more robust POS systems as well, including:
- Vend
- Lavu
- Touchpoint
- talech
- Brightpearl
- TouchBistro
- Revel
The 2.7% PayPal rate for swiped transactions will apply regardless of your POS partner, but you will incur additional software fees for the POS system itself.
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I’ll note that PayPal also offers a Virtual Terminal that you can use to process in-person payments (or accept donations over the phone). However, you’ll need a PayPal Payments Pro account to use it, and Payments Pro costs $30/month. Because other platforms offer a virtual terminal for no monthly fee whatsoever, we don’t recommend this as an in-person donation acceptance method. Also, the Virtual Terminal’s 3.1% + $0.30 per-transaction processing fee is higher than PayPal’s standard in-person transaction fee.
Sell Event Tickets
Perhaps your nonprofit holds events, such as annual retreats or charity galas, from time to time. Or maybe you’ve thought about holding a walkathon to motivate donors to give. If so, you’re in luck, as PayPal integrates with Eventbrite for ticket sales. With PayPal’s Eventbrite integration, not only will you be paying a lower processing rate than with a standard Eventbrite subscription, but you can also choose to pass Eventbrite’s fees on to the customer and avoid paying them yourself. Alternatively, you can absorb the fees to keep your donors happy. Your choice!
Eventbrite offers three different subscription packages tailored for event organizers. All three packages include access to the Organizer app for both iOS and Android devices that, when paired with the rental equipment on offer, can transform your mobile device into a box office.
Track Your Income & Improve Your Bookkeeping
PayPal’s reporting tools give you detailed information about the activity associated with your PayPal account and can assist your nonprofit with bookkeeping. Available reports include monthly and annual financial summaries, monthly sales reports, your chargeback/dispute history, transaction history, order fulfillment reports, money management reports, customer agreement details, Payflow gateway reports, and more.
Additionally, if your nonprofit organization processes $20,000 in gross payment volume from sales of goods or services in a single year and processes 200 payments for goods or services in the same year, PayPal will send Form 1099-K to both you and the IRS for that year early in the following year. Your 1099-K will be accessible from your PayPal account as of January 31st of the following year, and it will tally your payment transactions from the preceding year. You can see further details about PayPal’s tax reporting here on its tax information page, including FAQs and a downloadable guide.
Furthermore, PayPal integrates with QuickBooks via the Connect to PayPal data integration app, available from your QuickBooks account. With this app, you can transfer up to 18 months of PayPal transactions into QuickBooks. You can also import your discounts, taxes, customer data, transfers, and PayPal expenses. View detailed sales information, including your PayPal fees, in your sales transactions. The Connect to PayPal app is free for all QuickBooks users.
Check out this article to see how the services QuickBooks provides can benefit a nonprofit organization.
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Alternatives To PayPal For Nonprofits
Let’s walk through the primary alternatives to using PayPal for nonprofits. Let’s start with online fundraising software:
- Fundly: Fundly is an online crowdfunding site with particular appeal for nonprofits as a PayPal alternative, as your fundraising page is completely customizable. You’ll have easy social sharing integrations at your fingertips, intuitive management tools, and the ability to offer perks to donors, depending on their level of support. However, you’ll have to contend with a 4.9% platform fee on top of the 2.9% + $0.30 fee charged to each transaction.
- Qgiv: Qgiv’s online fundraising platform is another PayPal alternative worth your consideration from a nonprofit standpoint. Qgiv’s donation forms are fully customizable (much more so than PayPal’s donation forms) and mobile-responsive. The platform allows for recurring gifts to encourage donors. Qgiv even provides an auction platform and event management capabilities from its app. Qgiv’s pricing and fees both vary depending on the level of service you need.
- GoFundMe: Most people think of GoFundMe as a platform for personal fundraisers, but did you know that GoFundMe supports nonprofit fundraising as well? With GoFundMe, you can launch an unlimited number of campaigns, access basic donor data, and set up team fundraising pages, all without paying a monthly fee or a platform fee (just a 2.9% + $0.30 processing fee). Alternatively, you can use GoFundMe’s CrowdRise software to enhance your fundraising capabilities further. CrowdRise’s Essential package offers more extensive donor data, ticketing and registration features, deductible email receipts, and more. While the Essential package does sport a platform fee of 5%, this package also lets you pass the fees — both the platform fee and the payment processing fee — on to the donor. Read our GoFundMe review to learn more about the platform.
When it comes to using third-party processors to process your donations, PayPal isn’t the only game in town. Let’s explore the other big third-party processor offering nonprofit-specific benefits:
- Square: Square has a lot to offer nonprofits as a payment processor. While Square doesn’t offer a discounted processing fee for nonprofits, its 2.6% + $0.10 per-transaction rate for swiped, dipped, and tapped payments through the Square point of sale app is extremely competitive and cheaper than PayPal’s in-person processing fees (Square’s online processing fee is 2.9% + $0.30). Capturing donor information is easily done right from the transaction screen of the Square POS app, automatically adding your donors to your Customer Directory. Team members can accept donations on your behalf via the POS app as well. And that’s only the tip of the iceberg when it comes to Square’s nonprofit-friendly tools. Read our Square review to get the full scoop, and check out our Square VS PayPal piece for a direct comparison of the two.
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Now, what if you don’t like the idea of using a third-party processor and would rather use a traditional merchant account? While merchant accounts don’t normally come with as many add-on software options as a third-party processor, their laser-focus on payment processing means that you’re much less likely to experience an account hold or termination than with PayPal (or Square, for that matter).
- Dharma Merchant Services: This merchant account provider is quite well-suited to nonprofits, provided your organization takes in more than $10,000 per month. Dharma features transparent interchange-plus pricing, which should see you saving money over a service such as PayPal. And unlike some other merchant account providers, Dharma doesn’t charge account setup fees, annual fees, or early termination fees, nor are there any monthly minimums to worry about. Dharma also provides more comprehensive customer support than you’re likely to get with PayPal. Read our full review of Dharma Merchant Services to see exactly why we like them so much.
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Is PayPal Right For Your Nonprofit?
We can’t guarantee that PayPal is the right payment processing solution for every nonprofit. However, when it comes to accepting online donations, PayPal is the absolute simplest tool out there.
With support for in-person payments, invoicing, reporting, nonprofit-specific discounts, and the fact that PayPal’s massive list of integrations with other platforms means you will almost certainly be able to fill any functionality gaps left by PayPal’s in-house solutions, PayPal is more than capable of powering your nonprofit organization. Alternatively, PayPal makes for a great supplementary payment option if you primarily accept donations via other means.
Check out our article on saving money on payment processing as a nonprofit for more on how to keep your costs down. And if you have experience working with PayPal as part of a nonprofit organization, drop us a comment and let us know about it!
The post PayPal For Nonprofits: How To Easily Accept Donations Online And Other Helpful PayPal Features For Your Organization appeared first on Merchant Maverick.
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Everything You Need To Know About Merchant Services
Being a first-time business owner can be a daunting experience. In addition to having to comply with a dizzying array of legal requirements, youâll also have to have at least a working knowledge of credit card processing, inventory management, and other topics. At one point or another, youâre going to encounter the term merchant services, and youâll want to know what it’s all about.
To put it in the simplest terms, unless youâre only going to accept cash and paper check payments in your business, youâll need to understand merchant services: what they are and where to get them from. Merchant services â and the providers who offer them â are essential to providing your customers with the largest range of convenient and secure payment methods. Signing up through a merchant services provider will â provided you choose the right one for your business â result in increased sales that more than offset the cost of those services.
In this article, weâll explain what merchant services are, and provide explanations of each of the primary products that are available from merchant services providers. Weâll also tell you how to find the best merchant services for your business, and what features you should look for in choosing a provider. Finally, weâll give you a brief overview of the best merchant services providers in the industry for small businesses, and explain which providers are the best choice for certain types of companies.
What Are Merchant Services?
The term âmerchant servicesâ can be confusing, because there are a lot of different definitions floating around out there, and they donât all agree on every detail. For our purposes, weâll define merchant services as the products and services a business needs to accept and process any form of payment other than cash or paper checks. This includes processing services for credit cards, debit cards, eChecks, ACH payments, and the newer mobile wallet services such as Apple Pay and Google Pay. It also encompasses hardware and software, such as credit card terminals, point-of-sale (POS) systems, payment gateways, virtual terminals, and mobile processing systems.
Note that there are also a variety of ancillary services that are often bundled with merchant services, including inventory management software, gift card/loyalty programs, online reporting features, merchant cash advances, and many others. These are not considered to fall under the rubric of merchant services, as theyâre not strictly necessary to enable your business to process credit card transactions. They can still be pretty useful, however.
Where do you go to get merchant services? Why, to a merchant services provider (MSP), of course! Again, the term âmerchant services providerâ is an umbrella term that covers any type of business offering merchant services. However, there are really two main types of merchant services providers: (1) merchant account providers, who offer true full-service merchant accounts with a unique merchant identification number for your business, and (2) payment services providers (PSPs), who offer credit card processing services, but donât provide a true merchant account. PSPs aggregate your account with that of other businesses using their services â a low-cost solution that can be very affordable for a small business thatâs just starting out.
Hereâs a brief description of the primary merchant services that your business will need to accept credit cards, debit cards, and eCheck/ACH payments:
- Credit/Debit Card Processing: Of all the merchant services you might want to add to your business, credit (and debit) card processing is obviously the most important one. If a customer pays for a purchase with a credit card, youâll undoubtedly want some cold, hard cash to make its way into your bank account â and that wonât happen unless you have a service to process the transaction. As weâve noted above, you can get credit card processing through either a merchant account provider or a payment services provider (PSP). In either case, your provider will usually rely on a larger, direct processor (also called a backend processor) to approve and process transactions. While large direct processors such as First Data and Elavon offer merchant services, they arenât good choices for a small business. Popular payment services providers (PSPs) include Square (see our review) and Stripe. Traditional merchant account providers are much more numerous, with Dharma Merchant Services (see our review), National Processing (see our review), and Payment Depot (see our review) among the best choices for small and medium-sized businesses.
- eCheck/ACH Processing: In addition to accepting credit and debit cards, you might also want to allow your customers to pay by check. While old-fashioned paper checks are rapidly declining in popularity, they can be accepted without the need for a check processing service. However, youâll have to take the check to the bank yourself, wait for it to clear, and hope that it doesnât bounce. eCheck and ACH (Automated Clearing House) payments bring advanced security and convenience to paying by check, allowing you to scan physical checks for processing or accept an ACH payment from a customer on your website. While some providers include these features with every merchant account, itâs more common for them to be offered as optional add-ons. In this case, youâll usually pay an additional monthly fee (typically around $20 – $30) for the service. For more information about these alternative payment methods, see our articles Everything You Need To Know About Accepting ACH Payments and The Complete eCheck Payment Guide.
- Credit Card Terminals: Obviously, youâre going to need some type of physical credit card terminal to accept card-present transactions in a traditional retail setting. Options range from simple mobile card readers that require a smartphone or tablet (and the appropriate app) to function all the way up to complex point-of-sale (POS) systems that also include a variety of software features to help you run your business. While magstripe technology was the only option for many years, today EMV (i.e., chip card) is the standard acceptance method in the United States, Canada, and Europe. We also recommend that you seriously consider investing in hardware that also accepts NFC-based payment methods such as Apple Pay and Google Pay, as theyâre rapidly gaining in popularity and offer a higher degree of security than either magstripe or EMV. We also recommend that you buy your equipment outright. Terminal leases are wildly over-priced and should be avoided at all costs. Buying your hardware directly from your processor is usually the best option, but in some cases, you can save money by buying from a third party and having your equipment reprogrammed by your provider. For an overview of some great equipment options, see our article The Best Credit Card Machines And Terminals.
- Point-Of-Sale (POS) Systems: As weâve mentioned above, a POS system is basically a credit card terminal with additional integrated software services built-in. Inventory management is a popular option, but there are also software add-ons for employee management and scheduling, online reporting, customer information management, and many others. While a POS system is a worthwhile investment for some businesses (such as restaurants), theyâre overkill for others. Beware of sales representatives trying to sell you a POS system if your business doesnât really need one. For more information on how to select a POS system thatâs right for your business, see our article POS 101: Choosing A POS System.
- Payment Gateways: If your business has an online presence and makes sales through your website, youâre going to need a payment gateway to process those transactions. Payment gateways essentially perform the same function as physical credit card terminals, connecting your customerâs payment information with your providerâs processing network to approve the transaction and send you the money from the sale. Because not all merchants need a payment gateway, theyâre often offered as a separate feature (with an additional monthly gateway fee). However, itâs becoming increasingly common for providers to offer a gateway thatâs part of an integrated payment processing system designed to support both retail and eCommerce sales channels. For more information on what to look for in a payment gateway, see our article The Complete Guide To Online Credit Card Processing With A Payment Gateway.
- Virtual Terminals: Used primarily by mail-order or telephone-order businesses, a virtual terminal is a software application that allows a laptop or desktop computer to function as a credit card terminal. Transactions can be manually keyed in or swiped/dipped with a compatible card reader (these usually connect via USB or Bluetooth). Retail merchants should be aware that, in most cases, youâll pay significantly higher processing rates if you manually enter the card data rather than using a card reader.
- Integrated Payment Platforms: One common complaint we hear from merchants is that they often have to sign up with one vendor for a merchant account, another vendor for a payment gateway that has the special features they need, and possibly other vendors for things like online shopping carts or POS systems. Merchant services providers are well aware of this problem, and in recent years theyâve started to offer integrated, cloud-based processing systems that combine all these separate features into a single product. Obviously, they have a vested interest in keeping you tied to their particular ecosystem. However, there are genuine benefits to this approach for merchants as well. You wonât have to worry about compatibility problems or dealing with multiple customer service departments to keep everything humming along. Integrated systems can also (usually) save you money over signing up with multiple service providers. Finally, having all your business data accessible through the cloud is a significant advantage, even for smaller retail-only merchants who donât have a website. At the same time, youâll want to ensure that a vendorâs integrated system has all the features you need for your business before signing up.
- Security & Fraud Prevention Features: Ensuring the security of your customersâ credit card data is essential for any business â retail, online, or a combination of the two. Obviously, you also want to take every step possible to minimize the chances of a fraudulent transaction. Security features such as tokenization and encryption protect your customersâ payment data and reduce the chances of experiencing a data breach. For online companies, fraud prevention features such as Address Verification Service (AVS) and card verification features such as CVV, CVV2, or CVC should be available through your provider at a minimum.
For more in-depth information on merchant services and merchant services providers, please refer to the following articles:
- What Is A Merchant Services Provider?
- What Is A Payment Service Provider?
- What Is A Merchant Account?
High-Risk Merchant Services
Finding a good merchant services provider is challenging enough, but itâs even harder if your business is considered high-risk by the processing industry. What does it mean to be high-risk? Basically, certain business types are considered to be a riskier underwriting proposition by processors, and theyâll either refuse to give you a merchant account or put you in a high-risk account that invariably will be more limited and more expensive than what a comparable low-risk business would receive.
Besides being in an inherently high-risk business type (i.e., vape shops, online gambling, etc.), you can also find yourself in the high-risk category if you have an unusually high chargeback rate or your personal credit isnât so great. Fortunately, high-risk merchant service providers are available to serve your business. These providers usually work with a variety of banks (some of them located offshore) and direct processors to get you approved for an account. Your processing rates will be higher, and the terms of your contract wonât be so generous, but youâll have access to a stable account and youâll be able to accept credit and debit cards without any problems.
If youâre having particular difficulties in finding a high-risk account, you might want to consider an eCheck/ACH-only option. We only recommend this option for merchants who have been truly unable to get a merchant account, as youâll potentially lose sales when your customers find out that they canât use their credit cards.
For more details about high-risk industries and high-risk processing, check out our article Are You A High-Risk Merchant?.
How Do You Find Great Merchant Services?
Over the years, the question weâre most frequently asked is some variation of âWhatâs the best provider for my business?â Unfortunately, the sheer number of variables involved usually makes this question difficult to answer. As a very general rule, the best merchant services provider for your business is the one that offers the best combination of features, low processing rates, reasonable account fees, and favorable contract terms. In many cases, this might be such a close call that several providers might be able to offer you a good deal, without any single one standing out above the others.
One point we continually try to impress on merchants is that the best provider for your business is not necessarily the one with the lowest processing rates â or even the lowest costs in general. The most important thing to look for is a provider that offers the best overall value. Things like high-quality customer service are often worth paying a little extra for in the long run.
As a general rule, weâd also point out that payment services providers (PSPs) are usually a better value for small or newly-established businesses, while merchant account providers are more suited to medium-sized or larger companies that have been around for a while and have an established processing history. Signing up with a PSP is usually a good idea when youâre just starting out, but at some point, youâre going to reach a level where youâll need the stability and security of a true merchant account. It will probably cost you less money as well, as lower processing rates become more important as your monthly processing volume increases.
If youâre looking for a good merchant services provider, the resources available here at Merchant Maverick are an excellent place to start. Weâve reviewed almost all of the major players in the industry, and can give you an in-depth look at the pluses and minuses of each provider. As a starting point, we recommend that you look over our Merchant Account Comparison Chart, which compares several of the top-rated providers side-by-side.
How Much Should You Pay For Merchant Services?
No one likes to overpay for anything, and the merchant services industry makes it all too easy to pay too much without even realizing it. With complicated processing rate plans, highly-variable account fees, and surprise incidental fees that can show up on your processing statement without warning, figuring out whether youâre getting the best deal can be very difficult. If youâre new to payment processing, youâll want to evaluate pricing information and rate quotes from several providers before picking one to use for your business. This is also true if you already have a processing service and are thinking about switching to a (hopefully) less expensive provider.
Below is a quick overview of the various processing rate plans that will be the single most significant factor in determining your overall costs. Be aware that different pricing models will be more cost-effective for some businesses than others. Youâll want to have a good idea of your total monthly processing volume and your average ticket size to make valid comparisons between different providers.
Flat-Rate Pricing
The simplest pricing structure is flat-rate pricing. Despite the name, none of the providers offering this type of pricing actually use just a single rate for all transactions. However, youâll usually have only two or three rates to be concerned with, making your costs stable and predictable. Merchant services providers offering flat-rate pricing typically have a single rate for all card-present transactions, and another rate (or two) for card-not-present transactions. Often, there will be a higher rate charged for card-not-present transactions that have been manually keyed-in, rather than processed over a payment gateway.
Flat-rate pricing works best for very small businesses, mostly because you usually wonât have to pay any additional account fees. Be aware, however, that the flat rates themselves are often significantly higher than what youâd pay under an interchange-plus or subscription-based pricing plan (see below). For this reason, flat-rate pricing is usually not a good deal once your monthly processing volume exceeds a certain amount (typically around $10,000 per month).
Payment services providers (PSPs) usually offer flat-rate pricing as their only processing rate option. Popular providers offering this type of pricing include Square (see our review), Stripe, and PayPal.
Interchange-Plus Pricing
Arguably the most cost-effective pricing method for medium-sized businesses, interchange-plus pricing passes your transactionsâ interchange fees on at cost and also includes a fixed markup for your provider. For example, a typical interchange-plus rate quote might look like interchange + 0.30% + $0.15 per transaction. While the underlying interchange rates themselves can vary wildly, this pricing method is more transparent than others because youâll always know exactly how much of a cut your provider is taking.
Interchange-plus pricing is usually only available through a merchant account provider offering a full-service merchant account. Because these types of accounts also typically have a number of monthly and annual fees, they arenât the best choice for very small businesses. Depending on the provider and the particular details of your business, the threshold where youâll start to save money with interchange-plus pricing can be anywhere from $1,500 to $10,000 in monthly processing volume.
Popular providers offering interchange-plus pricing include Dharma Merchant Services and National Processing, among others. While these two companies offer interchange-plus rates exclusively, many run-of-the-mill providers offer a combination of tiered and interchange-plus pricing plans. Unless you specifically negotiate for an interchange-plus plan, youâll usually be given a tiered pricing plan. Although itâs still the most common type of pricing plan in the processing industry, we donât recommend tiered pricing under any circumstances because it makes it impossible to determine how much of a markup your provider is charging for each transaction. Itâs also the most expensive type of rate plan, in most cases.
Membership (Or Subscription) Pricing
A variation of interchange-plus pricing, membership pricing has only been available for a few years from a small number of providers. Pricing is similar to interchange-plus, except that you donât pay a percentage of each transaction as part of your processorâs markup. Thus, a typical membership pricing quote might be interchange + $0.15 per transaction. However, thatâs not all youâll pay. Membership pricing also includes a monthly membership fee that ranges from as little as $49 per month to as high as $199.00 or more per month. This fee combines all of your other account fees into a single charge, plus includes an extra amount to cover the per-transaction percentage markup that you otherwise wouldnât be paying.
Membership pricing isnât for everyone. The high monthly membership fee makes it particularly unsuitable for very small or seasonal businesses. However, high-volume businesses can save a substantial amount of money over what theyâd pay with a traditional interchange-plus pricing plan. In some cases, these savings can amount to several hundred dollars per month.
If youâre interested in seeing whether membership pricing is right for you, we highly recommend both Fattmerchant (see our review) and Payment Depot (see our review). Both of these companies provide excellent service and a full set of features to fulfill the needs of any business.
Monthly Billing VS Pay-As-You-Go
Most merchant services providers use one of two billing methods: (1) monthly billing, or (2) a pay-as-you-go billing model. With monthly billing, youâll pay a variety of separate fees for each service included with your account. These fees will be deducted once a month, at the end of your billing cycle. The processor will deduct any processing fees before sending the funds to your bank account, but if you have a statement fee, software subscription fees, etc. those will be billed at the end of the cycle. Pay-as-you-go billing, on the other hand, doesnât have monthly fees. Youâll only pay for the transactions that you actually process, and those fees are deducted before the processor deposits your funds in your bank account. If you don’t process anything in a month, you won’t pay anything — which is not true of a monthly billing plan.
If you sign up with a traditional merchant account provider, you can expect to be on a monthly billing plan, regardless of whether youâre on a long-term contract or a month-to-month arrangement. Payment services providers, on the other hand, usually use a pay-as-you-go model. This lowers costs for small businesses and also is the best option for seasonal businesses that arenât running year-round. Despite the additional fees, a monthly billing plan can actually save medium-sized or larger businesses money due to the cost savings of using an interchange-plus or membership pricing plan.
The Best Merchant Services For Small Businesses
As weâve noted above, some merchant services providers are a better fit for certain types of businesses than they are for others. Below, weâll briefly introduce our top picks for the most common types of businesses. Note that if your business falls into one of the categories described below, the provider we list wonât be the only good choice available to you. Rather, theyâre generally the best choice for most businesses that are similar to yours. If youâre interested in one of these providers, be sure to read the full review to learn more about them before deciding to sign up.
| Vendor | Best For | Monthly Fee | Retail Rate | Online Rate | Contracts |
|---|---|---|---|---|---|
| Payment Depot | Mid-sized businesses ($10k-$25k/month) | $49-$199 | 0% + $0.15 markup* | 0% + $0.15 markup | Month-to-month |
| Fattmerchant | High-volume businesses ($25k+/month) | $99-$199 | 0% + $0.15 markup* | 0% + $0.15 markup | Month-to-month |
| Dharma Merchant Services | Non-profits | $20 | 0.15% + $0.07 markup* | 0.20% + $0.10 markup | Month-to-month |
| Square | Micro-merchants & low-volume | $0.00 | 2.6% + $0.10 total | 2.9% + $0.30 total | Month-to-month |
| PaymentCloud | High-risk businesses | Varies | Varies | Varies | Varies |
| PayPal | Online businesses | 2.70% | 2.9% + $0.30 total | $0.00 | Month-to-month |
| Stripe | Tech-driven businesses | N/A | 2.9% + $0.30 total | $0.00 | Month-to-month |
*Markup over standard interchange and assessment rate with interchange-plus pricing (our preferred pricing plan for transparency of fees).
Best For Micromerchants & Low-Volume Businesses: Square
Square (see our review) has been around since 2009, and has quickly become the leading choice for small businesses looking to accept credit cards with a minimum of fuss and paperwork. Square offers flat-rate pricing and uses a pay-as-you-go billing method that doesnât include any additional monthly account fees (unless you sign up for one of their optional services).
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Square
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Visit Site Read our Review |
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Squareâs most common processing rates are as follows:
- 2.75% for all retail and mobile (card-present) transactions
- 2.9% + $0.30 per transaction for all online (card-not-present) transactions
- 3.5% + $0.30 per transaction for all manually entered (also card-not-present) transactions
If youâre looking to minimize your up-front costs, Square offers a free mobile card reader that plugs into your smartphone or tablet. However, itâs magstripe-only. We highly recommend that you upgrade to either the $35 EMV-enabled reader or the $49 contactless + chip reader, which adds NFC compatibility and Bluetooth connectivity.
The company has expanded its services tremendously over the last ten years, and now offers far more features than we can discuss here. However, itâs still an excellent choice for merchants looking for a simple, low-cost solution. Squareâs flat-rate pricing is more expensive on a per-transaction basis than interchange-plus, but you’ll save money overall due to the lack of extra account fees. This pricing structure works best for businesses processing less than $3,000 per month, in most cases.
Best For Mid-Sized Businesses ($10K-$25K/Month): Payment Depot
For larger businesses with a stable processing history that need to upgrade to a full-service merchant account, Payment Depot (see our review) is an excellent choice. The company offers membership-based processing rates, true month-to-month billing, and a full range of products and services for retail or online businesses.
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Payment Depot
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Visit Site Read our Review |
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Membership fees at Payment Depot range from $49 per month up to $199 per month, depending on your monthly processing volume. This single fee covers all your merchant services, so thereâs nothing extra to have to pay. You can also receive a significant discount for paying your membership fees on an annual, rather than monthly, basis.
The companyâs processing rates start at a simple interchange + $0.15 per transaction, and go down with higher monthly processing volumes. There are four basic membership plans, which are tied to your monthly processing volume. For really large businesses, thereâs also a custom pricing option.
As long as your monthly processing volume is high enough that membership-based pricing makes sense for your business, Payment Depot is an excellent choice that will save you a significant amount of money over traditional merchant account providers. Just be aware that the company only serves US-based merchants, and they donât accept high-risk businesses.
Best For High-Volume Businesses (Over $25K/Month): Fattmerchant
Fattmerchant (see our review) also offers a membership-based pricing plan. However, their membership fees are high enough that their pricing structure only works well for an established business with a significant monthly processing volume.
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Fattmerchant
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Visit Site Read our Review |
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The companyâs membership fees start at $99 per month for businesses processing under $500,000 per year. Above this amount, youâll pay $199 per month. Bear in mind, however, that this one fee covers everything the company provides â unlike traditional vendors who nickel and dime you for every âextraâ service they provide. Processing rates start at interchange + $0.15 per transaction, with lower rates available for higher processing volumes.
Because of the steep monthly subscription fee, Fattmerchant isnât cost-effective for small businesses with a low monthly processing volume. However, if your volume is high enough, you can potentially save hundreds of dollars a month under this pricing structure. All accounts are billed on a month-to-month basis with no early termination fee (ETF), so you can always switch processors if things arenât working out.
Fattmerchant is an excellent choice for businesses that are large enough to benefit from the companyâs pricing structure. They offer excellent customer service and a terrific cloud-based integrated payments platform that will have you up and running in no time. However, they donât accept high-risk merchants, and theyâre only available in the United States.
Best For Online Businesses: PayPal
For a newly-established eCommerce business, you canât go wrong with PayPal. Pay-as-you-go billing means that, in most cases, youâll only pay for your transactions â and nothing else. Note, however, that the companyâs virtual terminal comes with a hefty $30 per month fee, so theyâre not such a great choice for a mail-order or telephone-order business.
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PayPal
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PayPalâs flat-rate pricing structure couldnât be any simpler. Online transactions are always 2.9% + $0.30 per transaction, while manually entered and virtual terminal payments are 3.5% + $0.15 per transaction. The companyâs PayFlow Gateway comes bundled with every account, allowing you to quickly and easily integrate it with your website. There are no additional gateway fees, either.
While PayPal is a great choice for a small online business, be aware that the companyâs high processing rates will no longer be cost-effective once your business grows beyond about a $3,000 per month processing volume. At that point, you should seriously consider upgrading to a true merchant account with one of our other recommended vendors. Also, PayPal has relatively limited customer service options and doesnât serve high-risk businesses.
Best For Tech-Driven Businesses: Stripe Payments
If your business is 100% online and you donât plan to ever expand into the retail sector, Stripe Payments is a great choice for your payment processing needs. The company offers simple flat-rate pricing, pay-as-you-go billing with no monthly fees, and a host of developer tools for integrating their platform into your website.
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Stripe Payments
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Compare Read our Review |
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Pricing couldnât be more straightforward. All eCommerce credit and debit card transactions are charged 2.9% + $0.30 per transaction. International cards are also charged an additional 1.0% if currency conversion is needed. ACH payments are charged 0.8%, with a maximum charge of $5.00 per transaction.
As with any payment services provider, account approval is easy and can be accomplished online. However, the chance of later having your account shut down for any number of reasons is also higher. Stripe does a better job than most PSPs when it comes to customer service, offering live chat and telephone support on a 24/7 basis.
Overall, Stripe is a great choice for fledgling eCommerce businesses. Just be aware that your account wonât be as stable as a true merchant account, and the companyâs flat-rate pricing isnât cost-effective at higher processing volumes. Itâs also not available for high-risk merchants.
Best For Nonprofits: Dharma Merchant Services
Nonprofit businesses looking for a full-service merchant account will have a hard time finding a better choice than Dharma Merchant Services. One of our favorite processors, the company seems to be run like a nonprofit itself sometimes. Of course, itâs actually a public benefit corporation (B-corp), something thatâs almost unheard of in the processing industry.
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Dharma Merchant Services
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Visit Site Read our Review |
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Whether youâre a nonprofit or not, Dharma offers full-service merchant accounts that are billed on a month-to-month basis to all its users. There are no long-term contracts and no early termination fees (although you will have to pay a one-time account closure fee of $25 if you close your account). For nonprofits, the company offers special interchange-plus processing rates of interchange + 0.15% + $0.07 per transaction for retail transactions and interchange + 0.20% + $0.10 per transaction for eCommerce transactions.
Dharma offers a full range of products and services, including the popular Clover lineup of terminals and point-of-sale (POS) systems. The company also provides some of the best customer support in the industry. However, be aware that their pricing structure works best for merchants processing over $10,000 per month, and they donât support international or high-risk businesses.
Best For High-Risk Businesses: PaymentCloud
If youâve read this far, youâve probably noticed by now that most of our top choices for merchant services donât support high-risk businesses. Fortunately, if youâre in the high-risk category, there are high-quality vendors out there that specialize in serving the high-risk community and provide excellent services at a reasonable cost. PaymentCloud is one of our favorites due to their reputation for top-notch customer service and because they offer many features that are typically reserved for low-risk merchants only.
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PaymentCloud
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Visit Site Read our Review |
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Unlike many of our other top providers, PaymentCloud doesnât disclose their processing rates or account fees on their website. Because they work with a wide variety of banks and direct processors to get you an account, pricing is highly variable and subject to negotiation. While they have a reputation for fair pricing, you can expect to pay more than what a comparable low-risk business would pay. However, this is true with any high-risk merchant account provider.
The company offers a free credit card terminal with each account, which you can use for as long as you keep your account open. They also donât charge an account setup fee, which also helps to set them apart from most traditional high-risk providers. Finally, PaymentCloud is one of the few providers to offer support to the burgeoning CBD oil industry. However, they only allow CBD products that are applied externally â no food items or other ingestibles. If youâve had a hard time finding a merchant account for your high-risk business, be sure to check them out!
If youâre looking for additional options beyond the providers weâve profiled above, check out the following articles for more great choices:
- The 5 Best Small Business Credit Card Processing Companies
- The Cheapest Credit Card Processing Companies For 2019
- How To Accept Credit Card Payments For Your Small Business
The Final Word On Merchant Services
Merchant services can be a complicated subject, and finding a merchant services provider thatâs a good fit for your business is often a real challenge. Youâll want to carefully evaluate the unique needs of your business, and factor in how much you can afford to pay to add the capability to accept credit and debit cards. In most cases, the added expense will more than pay for itself in additional sales.
All of the vendors weâve profiled above are excellent choices in their particular niche. However, they arenât the only good choices out there. So, we encourage you to look over the articles weâve linked to, and carefully read the full reviews of any vendor youâre considering. Most of the best merchant services providers for small businesses offer a very transparent disclosure of their processing rates and account fees on their websites, so check those out as well.
If youâre still having trouble deciding which company is best for you, youâll want to actually âcrunch the numbersâ and make a more informed analysis of what your potential costs will be. An excellent resource for doing this is our Cost Analysis Workbook, which will walk you through the steps necessary to estimate your overall costs with various providers. The workbook also includes spreadsheets to do the math for you â it couldnât be easier!
The post Everything You Need To Know About Merchant Services appeared first on Merchant Maverick.
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The Truth About Third-Party Payment Processing
So, youâre all set to launch your new business and make your fortune (well, hopefully). You realize that it would be nice if your customers could pay you using their credit and debit cards. Okay, âniceâ isnât nearly a strong enough word to describe how desirable this option is. In todayâs increasingly cashless society, itâs flat-out essential for most businesses to be able to accept credit cards. Without that ability, retail companies will lose out on sales, and eCommerce businesses will have a hard time making any sales at all.
You realize that youâre going to need a merchant account to process your credit and debit card transactions. But where do you find one? Every provider you talk to wants a ton of information about your business, tells you that they have the lowest rates (without mentioning what they are), and tries to pressure you into signing a lengthy contract before youâve even had a chance to read it. Then you hear about Square (see our review). No lengthy contracts. No endless forms to fill out. No monthly fees. Rates that are published right on their website. What kind of black magic is this? It all seems too good to be true.
Square â and other companies like it â are what are known as third-party processors. Rather than giving you your own merchant account, they oversee a giant merchant account thatâs shared by all their users. In this article, weâll explain how third-party processors work and how they differ from traditional merchant account providers. Weâll also explain the advantages and disadvantages of using a third-party processor rather than signing up for a full-service merchant account. Finally, weâll give you some examples of popular third-party processors that are helping businesses just like yours every day.
How Third-Party Payment Processing Works
First, letâs discuss nomenclature for a moment. The credit card processing industry is notorious for using different, non-standardized terminology to describe the various entities youâll encounter when you set up a merchant account for your business. While there often isnât a single, âcorrectâ term that must be used, youâll find certain terms are more commonly used than others.
The most broadly-defined term you need to know is merchant services provider. This is any business entity that can help you process credit or debit card transactions â regardless of how they do it. Breaking this down a little more, there are two types of merchant services providers:
- Merchant Account Providers (MAPs):Â These companies will set you up with a traditional, full-service merchant account. Your account will include a unique merchant identification number that identifies your business to the payment processing networks. There are dozens â if not hundreds â of merchant account providers on the market, many of whom are resellers for a small group of very large direct processors. Examples include Payment Depot and Fattmerchant.
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Payment Depot
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Visit Site Read our Review |
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- Payment Service Providers (PSPs):Â These companies provide you with the ability to accept credit and debit card payments, but donât offer a true merchant account with a unique merchant identification number. Instead, your account will be aggregated with that of other businesses using their service. Although there are relatively few PSPs in the industry, theyâve garnered a large share of the processing market in recent years by offering a low-cost solution to small business owners. Examples include Square, PayPal, and Stripe Payments.
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Square
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Visit Site Read our Review |
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While the term merchant account provider is very commonly used, things get a little fuzzy when it comes to payment service providers (PSPs). Although both Visa and Mastercard officially use the term payment service provider, youâll also commonly hear them called third-party processors, aggregators, and even payment facilitators. You just need to understand that all these terms refer to the same thing: a company that can allow you to process credit and debit card transactions without the need for a full-service merchant account. For a more in-depth look at payment service providers and how they operate, check out our article, What Is A Payment Service Provider?.
Third-Party Processors VS Merchant Accounts
Before you decide that a third-party processor is a good choice for your business, you need to understand how they differ from traditional merchant account providers. Hereâs a rundown of the main differences youâll encounter between these two types of business entities:
- Simplified Underwriting: Traditional merchant account providers need to collect an extensive amount of information about your business before they can approve you for an account. This process can take several days â or even weeks. Third-party processors already have an aggregated merchant account that you can be added to, so they donât need nearly as much information upfront. They can usually approve you in fewer than 24 hours, and in many cases, the application process can be completed entirely online. For this reason, third-party processors are often a great choice for new businesses that donât have an established processing history yet.
- Account Stability:Â The downside to quick and easy approval is that itâs just as easy for your account to be shut down. Square, in particular, has a bad reputation when it comes to account stability. Account holds, freezes, and terminations can happen unexpectedly for a number of reasons. Perhaps the most common cause is when a business attempts to process a single transaction thatâs much larger than what theyâve averaged previously. Similarly, Square will shut you down quickly if they determine that youâre a high-risk merchant.
- No Long-Term Contracts: While your relationship with your processor will always be governed by a contract of some type, Square and other third-party processors don’t require you to keep your account open for a specified length of time. Merchant account providers, in contrast, frequently require you to accept a long-term contract (typically for three years) with an automatic renewal clause that extends your contract for one-year periods and an early termination fee (ETF) that youâll have to pay if you break your contract by closing your account early. While these provisions are more or less the industry standard, theyâre very unpopular with merchants. As a result, there is a growing number of merchant account providers who have ditched the long-term contracts and allow you to maintain your account on a month-to-month basis.
- Pay-As-You-Go Billing:Â Unlike merchant account providers, who typically charge a number of monthly and annual fees in addition to your processing charges, third-party providers usually only charge you for the cost of processing your transactions. You usually wonât have to pay a monthly account fee, an annual fee, PCI compliance fees, or gateway fees. The tradeoff is that your processing rates will usually be significantly higher overall than what youâd pay under an interchange-plus pricing plan offered by a traditional merchant account provider.
- Simplified Processing Rates: Most third-party processors offer simplified, flat-rate pricing for processing your transactions. Everyone pays the same rates, and theyâre published right on the providerâs website. This makes it much easier to know in advance what your overall costs will be so that you wonât get hit with any sudden surprises on your monthly billing statement. However, you should be aware that flat-rate pricing rates are notably higher than most interchange-plus rates, particularly for PIN debit transactions. At higher monthly processing volumes, this can actually make using a third-party processor more expensive than a traditional merchant account.
- Customer Service Options:Â Third-party processors arenât known for offering a full range of ways to contact customer service. Instead, youâll often find yourself rummaging through an FAQ on their website or trying to contact them via email. This situation is gradually getting better, with some third-party processors now offering telephone-based customer support where you can talk to an actual human being.
As weâve noted previously, both third-party processors (or payment service providers) and traditional merchant account providers fall under the term âmerchant services providers,â as theyâre both able to process your transactions and deliver the funds from those transactions to you. However, itâs essential to consider the differences between these two types of entities and to understand how those differences could affect your particular business.
Can I Really Accept Credit Card Payments Without A Merchant Account?
The upshot of the above discussion is that, yes, you can take credit and debit cards without having to sign up for a full-service merchant account. Third-party processors such as Square or PayPal give you the ability to process these types of transactions without the expense and paperwork of setting up a merchant account. For a new business thatâs just getting off the ground, this can be a great option. Youâll save money on fees, and youâll be able to start taking credit card payments much quicker than if you had to go through the full underwriting process that getting a merchant account requires.
However â and we canât emphasize this point enough â third-party processors are not the best choice for every business. Both third-party processors and full-service merchant accounts have their good and bad points, and you need to understand them and determine how they affect your business before deciding on which type of payment processor to use. Below, weâll discuss the advantages and disadvantages of third-party processors, and how you can evaluate which kind of processor is right for your business.
Advantages of Third-Party Payment Processing
Hereâs a look at the benefits of using a third-party processor for your business:
- Quick Setup:Â Square and other third-party processors allow you to sign up for an account online, and youâll usually be approved in little or no time. Just download the Square app and log in, and you can start accepting cards instantly. (Note that youâll need to wait for your card reader to arrive in the mail before you can accept card-present transactions.) This feature is in marked contrast to the underwriting procedure that a merchant account requires, which can take days or even weeks to complete. The flip side is that your account wonât be as stable as a true merchant account, and youâll have to be very careful to avoid any account holds, freezes, or terminations.
- Technology-Driven Platforms: In our experience, there is a fundamental cultural rift between third-party processors and traditional merchant account providers. Third-party processors tend to be established and run by people with computer science degrees and deep tech backgrounds. Merchant account providers, however, are usually run by bankers with business degrees who arenât really experts in modern computer technology. While they offer most of the same software products (such as payment gateways, virtual terminals, etc.) as third-party processors, they often rely on outside contractors to develop them, as they donât have the same level of in-house expertise that youâd find with a third-party processor. This rift is slowly closing, but for now, youâll still find that third-party processors offer products that are more automated, more integrated into cloud-based platforms, and more feature-rich than what most merchant account providers can give you.
- Low (Or No) Initial Setup Costs:Â If you just need a payment gateway or a magstripe-only card reader for your smartphone, account setup with Square is essentially free. Although we highly encourage you to part with a few dollars and purchase the companyâs EMV card reader, this cost is still a fraction of what youâll pay to get started with a full-service merchant account. Application fees, account setup fees, and paying for a credit card terminal can all add up to hundreds of dollars, depending on the provider. Fortunately, competition from third-party processors is forcing merchant account providers to lower (or even eliminate) many of the costs associated with establishing a merchant account.
- No Monthly Fees:Â Perhaps the most attractive feature of third-party processors to small business owners is that they (usually) donât charge any monthly fees to maintain your account. Monthly account fees, statement fees, PCI compliance fees, and annual fees are all eliminated. You also wonât have a monthly minimum hanging over your head every month. This makes third-party processors particularly affordable to very small businesses that donât have a high monthly processing volume. Also, seasonal companies wonât have to worry about being charged during the months when theyâre not operating at all.
- Predictable Flat-Rate Pricing:Â Itâs nice to know in advance what it will cost you to process a transaction, and third-party processors make this easy to do with their simple flat-rate pricing plans. With this type of pricing, you can also more accurately estimate your monthly processing costs, meaning that you shouldnât have any unpleasant surprises waiting for you on your monthly processing statement.
- No Long-Term Contracts:Â Third-party processors only charge you for actually using your account, and you wonât be locked into a lengthy contract. You also wonât have to worry about getting hit with an early termination fee if you close your account. Note that an increasing number of traditional merchant account providers are now beginning to offer this feature as well, so you donât necessarily have to sign up with a third-party processor to avoid getting locked into a long-term contract anymore.
- Free Hardware: When Square first launched in 2009, one of its most attractive features was that each account came with a free magstripe card reader that plugged into your smartphone or tablet. Together with the Square app (also free), you could log in and start accepting credit card payments right away. In contrast, most merchant account providers at the time would either sell you a credit card terminal for a few hundred dollars or sign you up for an expensive terminal lease that would ultimately cost you even more. While Squareâs magstripe reader is still free, itâs also obsolete. We highly recommend purchasing the companyâs EMV-capable reader, which costs far less than a standalone terminal.
Disadvantages of Third-Party Payment Processing
Okay, if third-party processors are so great, why isnât everyone using them? Why are full-service merchant account providers still in business? The answer, of course, is that third-party processors also come with some significant limitations that make them a poor choice for a lot of businesses. Before you rush out to sign up for your âfreeâ third-party account, consider some of the following disadvantages:
- Account Stability Issues:Â Not having to go through the complete underwriting process makes it quicker and easier to get up and running, but it also means that your account isnât as secure as an individual merchant account. While having a full-service merchant account doesnât provide complete protection from account holds, freezes, and terminations, it does make them much less likely. Consider the potential impact of an account freeze on your business before you sign up with a third-party processor. In our experience, these unfortunate incidents usually occur because either (1) the merchant attempted to process a much larger transaction than their average ticket size, or (2) the processor discovered that the merchant was selling something thatâs expressly prohibited by their user agreement. This includes most high-risk businesses, including CBD merchants.
- No Specified Processing Limits:Â With a full-service merchant account provider, youâll be required to stay within maximum monthly processing limits and maximum transaction sizes. Third-party processors, unfortunately, tend not to specify what these limits are in advance. Youâll only find out that youâve gone over a limit when you actually exceed it and suddenly have your account shut down. While the majority of merchants using third-party processors never experience this problem, itâs still important to consider it before you sign up.
- Limited Acceptance For Specialized Cards:Â Third-party processors generally donât allow you to accept specialized cards such as SNAP/EBT cards or government-issued credit cards. Debit cards are generally accepted, but youâll pay much higher processing rates than you would under an interchange-plus pricing plan offered by a traditional merchant account provider.
- Limited Hardware/Software Options:Â With so many credit card terminals, POS systems, payment gateways, and online shopping carts on the market, traditional merchant account providers go to great lengths to ensure that their accounts are compatible with as many of these products as possible. With a third-party processor, youâll usually be limited to using just the hardware and software products that your processor offers â and these are often pretty generic. This might not be much of an issue for a small business owner, but as your business grows, youâll eventually want to add many of the bells and whistles that are available with a full-service merchant account provider.
- Expensive Flat-Rate Pricing:Â Wait a minute. Didnât we just say that third-party processors were less costly than full-service merchant accounts? Well, thatâs only true in some circumstances. For a very small business owner, youâll usually save money with a third-party processor because you wonât have to pay all the extra monthly and annual fees that come with a full-service merchant account. However, flat-rate pricing is significantly more expensive than interchange-plus pricing, at least on a per-transaction basis. Debit card transactions, in particular, are dirt cheap under interchange-plus pricing. With a flat-rate pricing plan, however, youâll pay the same high rates for debit cards as you will for credit cards. Youâll want to carefully analyze your overall costs under each type of pricing before deciding which option is best for your business.
- Limited Customer Service Options: Square â like many other third-party processors â is notorious for offering limited options for customer support. For a long time, Square didnât even have a phone number that you could call for help! Customer support was often limited to email, which was slow and required a lot of back-and-forth messages to resolve an issue. Merchant account providers, however, usually offer 24/7 telephone support. Unfortunately, the quality of that support can vary widely from one provider to another.
Is Third-Party Payment Processing Right For Me?
By now, it should be quite clear that the choice between a third-party processor and a traditional merchant account will depend on the nature and size of your business. There isnât a single provider on the market that offers a true âone size fits allâ service thatâs suitable for every business. Third-party processors are usually a great choice for very small or seasonal businesses that donât process a lot of credit card transactions, donât have a high monthly processing volume, and donât need any of the fancier bells and whistles that are available with a merchant account.
Ultimately, your overall processing costs will determine whether you should sign up with a third-party processor or go all-in with your own merchant account. Whichever option meets your needs for the lowest cost will, naturally, be the best choice. Unfortunately, it isnât always easy to accurately determine which option will save you the most money. As a very general rule, we usually recommend third-party processors to small businesses and merchants who are just starting out. In contrast, larger, more established businesses will usually save money with a traditional merchant account.
Typically, the single most important factor in making this determination is your monthly processing volume. Unfortunately, there are so many variables involved that we canât provide a specific amount where it makes sense to upgrade to a full-service merchant account. Weâve seen figures from vendors ranging from as low as $1,500 per month to as high as $10,000 per month. The important thing to understand is that this number is highly variable and unique to your business. Youâll have to compare quotes from several merchant account providers and compare them against what youâre currently paying to figure out whoâs offering the best deal. To make this process as simple and accurate as possible, we recommend our Merchant Account Cost Analysis Workbook, which includes spreadsheets to help you automatically compare rate quotes.
Lastly, choosing between a third-party processor and a merchant account isnât entirely a matter of dollars and cents. Sometimes, itâs worth paying a little extra for things like better customer support or more fully featured software. While costs are always going to be important, we recommend that you consider the overall value you receive in choosing a provider. Good luck!
The post The Truth About Third-Party Payment Processing appeared first on Merchant Maverick.
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The Best Free Credit Card Readers For Small Businesses
There’s no such thing as a free lunch.
People like to say that, but if you get a literal lunch for listening to a sales pitch on something you’ve already decided to buy, then that lunch is free. The mobile processing industry, though, typically doesn’t offer free lunches. Instead, they offer free credit card readers. These readers are usually simple swipe card readers or maybe EMV readers if you’re lucky.
Card readers used in mobile processing are typically inexpensive to make, so they are perfect candidates for free giveaways to entice new merchants to sign up. For a small business just getting started, anything free is usually good, especially after looking at the retail price of some of the high-end readers in the market (or even a conventional credit card machine). However, mobile processing isn’t just about the reader. It’s about the suite of services and credit card processing.
So if you are looking for a mobile credit card processing app, don’t make your decision based just on a free reader. Take a look at the app and the extra services provided as well as any upgraded card readers offered by the processor. Compare pricing and features to see if everything truly fits your needs. Even if you do not need any additional services right now, you might need them in the future, so make a plan if you can. Only after you’ve looked at the software and extra features should you take the free card reader into account and make your final decision.
Below, we give an introduction to how these mobile readers work and then talk about some commonly offered free readers. Hopefully, the information will help you make an informed decision for your business.
What Does A Swipe Card Reader Do?
Most people have used magnetic stripe, or magstripe, card readers before. They’re the readers with a slot that you move a card quickly through. This movement allows the device to read the data from the magnetic stripe on the back of the card.
With mobile processing, quite a few of the free readers are magstripe only readers. You may already have seen some around — little white squares attached to phones, popularized by the third-party processor Square, who gives them out for free. To read payment card information, the reader gets inserted into a headphone jack or a Lightning port of a phone or tablet.
There are some disadvantages to using only a magstripe reader. To understand why lets first look at the technology of magstripe readers.
How Swipe Card Readers Work
Not everyone is hungry to learn the science behind every technology. For instance, you the merchant probably don’t care that the magnetic stripe on a payment card has millions of tiny magnets in it. Or that each magnet is affixed in a north or south pole direction so that they can correspond to a zero or a one to make up a binary code to store data. You probably have no desire to learn that there are three strips of information stored in every magstripe. But so you know, the first and second strips store cardholder data, such as the primary card number, country code, cardholder’s name, and expiration date. The third strip stores an encrypted PIN, the country code, currency unit, and the amount authorized.
What you care about is whether the card reader is connected to your mobile device correctly so that the card information gets sent to your card processor. It doesn’t matter to you that a magstripe reader reads information off a credit card much like an old cassette player reads information from a cassette tape. (That’s about how long we’ve been swiping credit cards if it’s any indication.)
You might care, though, that this means that the credit card information on the magstripe can be easily stolen. Under some circumstances, you might get stuck with the loss on purchases made with that stolen card.
Credit Card Swipers Don’t Protect You From Fraud
Back in 2015, to get merchants to adopt the more secure EMV (Europay, Mastercard, and Visa) technology (i.e., chip on the card), the credit card companies decided to shift some fraud liability onto those merchants who hadn’t adopted the technology.
As of October 1, 2015, if a merchant only has a magstripe reader and a customer presents a stolen or fraudulent card with both a magstripe and a chip, the merchant would be responsible for the loss on the purchase. To shift the liability back to the credit card companies, the merchant need only have an EMV card reader.
Admittedly, if you’re just starting your business and do not expect to take a high volume in credit card sales or if you only sell smaller ticket items, assuming liability for taking a fraudulent card might be a risk you’re willing to take. That’s fine, but we at Merchant Maverick do encourage you to upgrade to an EMV reader sometime in the future for your protection. There’s little reason to delay upgrading because some free card readers in this article are combination EMV and magstripe readers, so you can eliminate the risk at no cost to you.
How Do You Get A Free Credit Card Reader?
A free credit card reader is not very difficult to find. Both merchant account providers and third-party processors will sometimes offer a free card reader to entice you to sign up for their mobile processing service.
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A lot of third-party processors are also mobile processors. Their primary offering is usually the mobile app and card reader. Sometimes, they make money not only on processing cards but also on other value-added services related to running a business in general, services such as invoicing and payroll processing. (Yeah, we’re looking at you, Square.) Once a merchant signs up, the processor will try to upsell and cross-sell these services to the merchant. It makes sense for some merchants — the centralized management of their business is an advantage.
Since an expensive reader can discourage signup, third-party processors often offer readers for free. They make it very obvious on their website that you can get a free reader. However, keep in mind that these services are designed for small businesses — they don’t expect you to need a lot of equipment. Your first reader might be free, but you will typically have to pay for any additional readers.
As to merchant account providers, they typically work with more established businesses that can afford (sometimes expensive) countertop registers and credit card terminals. It’s pretty rare to see credit card terminals given away for free. When they are, it’s usually only a “rental,” and you’ll have to return the equipment when you leave the processor. However, as mobile processing becomes more and more popular, many merchant account providers are starting to offer mobile processing services as a convenience to their existing customers. With these mobile processing services, the merchant account providers do tend to give away free mobile credit card readers. Sometimes the information is clearly advertised but not always. You might need to contact your payment processor and ask if you’re interested in adding on a mobile POS and card reader.
Let’s be clear: Just because you’ll get something for free doesn’t mean that you should immediately sign up with a particular processor. There are some negative issues you might wish to consider.
Why You Should Be Wary Of Free Credit Card Reader Offers
As already alluded to earlier, free card readers are generally provided as loss leaders — something provided for free or at a drastically reduced cost to bring in a new long-term customer. Often, this means that the reader will be a lower-cost magstripe reader, with no EMV capability. If that is the case, then you might not be able to recover losses from purchases made with cards using stolen credit card numbers. At this late date, there is very little reason to settle for a reader that doesn’t support chip cards, and doing so can make your business look a bit antiquated.
If you are getting a free mobile card reader (or a “free” device of any kind) from a merchant account provider, be aware that there could be a tradeoff. Of course, a top-rated merchant account provider such as Payment Depot will deal with their customers honestly and fairly and will give a free reader under their usual no-contract deal. Other merchant account providers, however, might require you to sign a contract to tie yourself to them for a more extended period. Read your contract carefully, so you understand which services you’ve signed up for and for how long. You should also understand how to get out of the contract if you’re not happy with the provider.
Despite the negatives and our caveats, all of these free readers will be serviceable. If you need one of these devices to get your business off the ground or for occasional off-premises use (e.g., trade shows), then these free readers should fit the bill.
How To Find The Best Free Credit Card Reader
Below, we will highlight four free readers currently available in the market. But, before we delve into the specifics of each, we want to point out a few benchmarks you should think about when considering any free reader.
- Reader Type: Typically, these readers will read magstripe and potentially EMV cards. It’s unusual to get a contactless (i.e., NFC) reader for free. Keep in mind that a magstripe reader could create a liability issue for you under some circumstances, so it is better to have a reader that can take both magstripe and EMV.
- Connection: There are two types of connections — physical connection or Bluetooth. The physical connectors can break off if you’re not careful, and a reader that uses a Bluetooth connection still needs to be periodically charged. We typically recommend a Bluetooth connection over a physical one since smartphones and tablets seem to be phasing out the headphone jack. For example, all the recent iPhones and the Samsung Galaxy Note 10 do not have headphone jacks.
- Software: A card reader is just a piece of hardware. Without its supporting software, the reader is useless. Each business is different, however, so its software needs are different. Some businesses will prefer a no-nonsense basic mobile processing app. Others might want additional functionalities, such as inventory tracking. Be sure to think through your software needs before you decide on a free reader.
- Battery Life: Battery life applies to Bluetooth and/or EMV readers. Ideally, you want something that can last you at least one day, so you can process credit card charges without interruption.
- Peripherals: A basic, pocketable magstripe reader that plugs into a headphone jack or Lightning connector won’t have any peripherals, but Bluetooth and/or EMV readers need cables to charge them up. Other nice-to-have items include carrying cases, docks, clips, and even lanyards that allow the user to carry the reader without losing or damaging it.
Now, let’s look at four simple readers that are available for free. For ease of reference, we’ve put the card reader comparison information into a table:
| Payment Depot Swift B200 | Square Magstripe Reader | Shopify Chip & Swipe Reader | PayPal Chip & Swipe Reader | |
|---|---|---|---|---|
| Reader Type | EMV, Magstripe | Magstripe | EMV, Magstripe | EMV, Magstripe |
| Connection Type | Bluetooth | Headphone jack (for Android) or Lighting connector (for Apple devices) | Bluetooth | Bluetooth |
| Processing Software | SimpleSwipe | Square Point of Sale | Shopify Lite or Shopify POS | PayPal Here |
| Battery Life | 420 transactions | Not applicable | 400 chip or 700 swipe transactions | “all day” |
| Peripherals | Micro USB charging cable; mounting sticker | None | Stand, micro USB charging cable, mounting sticker, travel case | Device clip, micro USB charging cable |
There are plusses and minuses to any free card reader. Ultimately, the “best reader” is the one that fits with the specific needs of your business.
Swift B200 From SwipeSimple
The Swift B200 from SwipeSimple is a Bluetooth magstripe and EMV reader. The parent company, CardFlight, makes two models of readers: the B200 and the B250 (which we review here). The B200 is the less expensive of the two readers, and it lacks the NFC card reader function in the B250.
The B200 can pair with both iOS and Android devices. It uses a rechargeable battery that lasts about 420 transactions. There’s a battery indicator LED light on the device, and the box includes a USB cable. You also get a lanyard and a carrying case.
SwipeSimple’s mobile processing app is available through several providers, but we recommend Payment Depot. Payment Depot is one of our top-rated providers because of its great customer service and fair, transparent pricing. The company also offers a mobile processing plan exclusive to Merchant Maverick readers, which includes the B200 reader for free (you can upgrade to the B250 for $25). You’ll pay $10/month plus 2.6% + $0.10 per transaction with no monthly minimums or additional fees.
We like the SwipeSimple app, and you can find more details about the app in our review. The app takes care of all your credit card processing needs without the clutter of too many extra features. If you’re a no-nonsense kind of person, this might be the app for you.
SwipeSimple Swift B200 Fast Facts
- Reader Cost: Free (when you sign up through Payment Depot)
- Payment Types Supported: magstripe, EMV
- Companion Software: SwipeSimple
- Connection: Bluetooth
Square Magstripe Reader
The Square Magstripe Reader is, as its name says, just a magstripe reader. This reader has been Square’s trusty free reader for many years, and it hasn’t evolved much. Of course, when Apple stopped providing headphone jacks on its phones, Square had to adapt to come up with the Lightning connector for its reader. (Soon, it will have to adapt again for Android phones, as Samsung seems to be phasing out headphone jacks too.)
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Square
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The Square Magstripe Reader does not need charging, and it’s small enough to fit in your pocket to be carried around. There’s a certain elegance in that sort of simplicity, even though it’s only a magstripe reader that can open the merchant up to liability from fraudulent cards.
Square does offer a tradeoff for that liability, and, for some, the risk might be worth it. The Square magstripe reader works with the very robust (and free) Point of Sale app as well as opening up the rest of Square’s highly-rated (and value-added) services to you. In addition to processing cards at 2.75% per transactions, the Point of Sale app can also track inventory, manage employee hours, keep track of appointments, and do much more. So before you rule Square out based solely on its magstripe reader, we encourage you to think about your company’s future needs and see if Square might be a fit for you after all. Here are our full Square review and our Point of Sale app review to help you make a better-informed decision.
If you decide you want to upgrade to one of Square’s other devices later, Square offers financing for all hardware purchases starting at $49 — conveniently, the price of its Contactless + Chip card reader.
Square Magstripe Reader Fast Facts
- Reader Cost: Free (additional readers $10)
- Payment Types Supported: magstripe
- Companion Software: Square Point of Sale
- Connection: headphone jack or Lightning connector
Shopify Chip & Swipe Reader
Shopify is better known as an online shopping cart and eCommerce platform. With its free POS software and credit card reader, though, it appears to be branching into stores with physical locations. The Shopify reader is of a proprietary design. It’s a magstripe and EMV reader that comes with a charging cradle. Packaged in a neat little carrying case, you’ll also find a micro USB charging cable, mounting hardware, and everything else you need.
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Shopify Lite
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Shopify’s Chip & Swipe Reader connects to a mobile device through Bluetooth. The reader can process 400 chip transactions or 700 swipe transactions on one charge. It works with Shopify POS, which runs on both iOS and Android devices. If you subscribe to any of Shopify’s eCommerce plans, the POS app and hardware are included as part of your service. However, if you’re just interested in the mobile app and some tangential eCommerce features, you can opt for the Shopify Lite plan, which goes for $9/month and 2.7% per transaction. It doesn’t include access to all of the advanced features, but as a mobile offering, it’s quite serviceable.
Be sure to check out our detailed review of the Shopify Chip & Swipe Reader. We have reviewed Shopify’s eCommerce plans as well as its Shopify Lite plan and Shopify POS software. Take a quick look at the reviews and see if Shopify is a good fit for you.
Shopify Chip & Swipe Reader Fast Facts
- Reader Cost: Free
- Payment Types Supported: magstripe, EMV
- Companion Software: Shopify POS (with eCommerce plan or Shopify Lite)
- Connection: Bluetooth
PayPal Chip & Swipe Reader
PayPal first made its name as an online payments processor. These days it’s more of an all-in-one solution for businesses, including its free mobile software, PayPal Here, and the free card reader that comes with it. Like most other free readers in this article, the PayPal Chip & Swipe Reader is a magstripe and EMV reader that connects to a mobile device via Bluetooth. The reader comes with a micro USB charger and a clip for attaching the reader to the mobile device.
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PayPal Here
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According to PayPal, the reader has enough battery to last all day. However, a little digging in the comments section of reviews and tech support messages suggests that some people have issues with the battery life. So you might want to proceed with caution if long battery life is important to you.
PayPal, like its closest competitor, Square, used to offer a free basic card reader. However, it discontinued that offer and implemented account restrictions on merchants who use the basic magstripe reader (see our PayPal Here review for more information on that). The free Chip & Swipe reader is a nice alternative to this policy. The mobile app is free to use, with transactions processing at 2.7%.
Signing up with PayPal gives you access to all its payment-related services. Make sure you understand the full scope of PayPal’s business as you consider whether or not to get the PayPal Chip & Swipe Reader. And if you do want a mobile card reader with contactless support, check out the PayPal Chip & Tap reader.
PayPal Chip & Swipe Reader Fast Facts
- Reader Cost: Free
- Payment Types Supported: magstripe, EMV
- Companion Software: PayPal Here
- Connection: Bluetooth
As you look through the reviews, don’t forget to look at the upgraded readers available from each provider. You might wish to take these readers into account, so you’ll know how much more it might cost you in the future to upgrade.
Don’t Be Fooled By The Promise Of A Free Card Reader
Mobile card readers are usually loss leaders used to entice merchants to sign up with a particular card processor. The free readers tend to be a simple piece of hardware without a lot of extras, and they tend not to be able to read NFC signals, so customers won’t be able to tap to pay. For the card processors, free readers are merely a way to introduce you to their other services.
Before you sign up, it’s important to research the processing company to make sure the mobile software and other features are worthwhile and that the pricing works for you. Otherwise, while you might get your free card reader, you will suffer the administrative headaches or reduced profits that come with choosing the wrong credit card processing company.
Lastly, don’t forget to read our article, The Best Credit Card Readers For Your Small Business, for a truly comprehensive discussion on the best card readers in the marketplace today.
Have you used any of these free readers? If so, what’s your experience with them?
The post The Best Free Credit Card Readers For Small Businesses appeared first on Merchant Maverick.
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Everything You Need To Know About eCommerce Payments
It’s hard to beat the convenience of selling products over the internet. Not only do you not have to worry about paying the overhead costs of a brick and mortar store (unless you want to), but you can sell to customers that live far from your local market.
If your experience taking electronic payments has been limited to swapping cash with friends via Venmo, you’ve probably got a lot of questions about how to get started. In truth, it’s probably both more and less complicated than you think.
So let’s dive in and try to teach you everything you need to know about eCommerce payments.
1. There’s No One-Size-Fits-All Solution
First, some disappointing news. There isn’t one single “correct” way to handle eCommerce. The right payment processing solution will depend upon a number of factors. Take a business website, for example. Do you currently have one that you’d like to start selling products through? Or are you content to use a premade shopping cart template? If you’re a relatively technical person, you can integrate solutions into your site with software APIs or plugins. If you’re not, you’ll probably want to consider a service that provides that functionality upfront. While you can potentially save money doing it yourself, you’ll need to make sure that you’re keeping your customer’s information secure and reducing your own liability.
You’ll also want to consider the nature of the payments you’ll be accepting. Are your customers just buying a product one-off, or are they subscribing to a service that will require recurring monthly payments?
And of course, you’ll need to take stock of your budget and figure out how much you’re willing and able to spend on payment processing and any additional software services.
2. You Need A Payment Processor And A Gateway
A common point of confusion for people new to eCommerce is that there are actually two components to taking payments online. You need both a payment processor and a gateway. These services may be offered together as a package (PayPal, Square, and Stripe, for example) or separately. If you do end up going with a payment processor that doesn’t include gateway access, you’ll need to get it from a separate service like Authorize.net.
- A payment processor provides an account that allows your business to accept credit cards and receive credit card payments. It’s also used to deduct fees and processing charges associated with the transaction. After the payment gateway successfully processes a transaction, your payment processor receives the information.
- A payment gateway stands in for what would be your point of sale (POS) interface in a brick-and-mortar transaction. It allows you to securely process payments online by relaying the transaction information from your site to the processor, which then requests the payment from the customer’s bank before releasing funds to you. A payment gateway is also responsible for most of the security features associated with online payments as well as offering services like recurring payments and a credit card vault.
Types Of Payment Processors
Because nothing is ever simple in the world of payment processing, you won’t just need to think about getting a payment processor, but what type of payment processor you need.
The safest option is to go with the tried-and-true merchant account. Think of your merchant account as a holding area where all the busy work of receiving a credit card payment happens. Unlike, say, a business checking account, you don’t have direct access to your merchant account or the ability to directly make deposits and withdrawals to it. Instead, it automatically transfers payments to your business bank account, typically a day or two after receiving the transaction.
Merchant accounts are generally stable and you’re unlike to encounter holds, freezes, or terminations unless you have a sudden spike in chargebacks. Because of the underwriting process, merchant accounts are somewhat slow to establish–you’re probably looking at three days or so to get it up and running, though if you are negotiating or your business is particularly complex, it could take longer. The biggest drawback is that they often have minimum credit card transaction thresholds you have to meet; $5,000/month is typical but some expect you to handle at least $10,000/month in credit card sales. Pricing models with merchant accounts vary, and not all of them are great. We recommend interchange-plus pricing because it’s the most transparent and easiest to compare.
So what do you do if your new business isn’t doing that kind of sales volume?
You can turn to a third-party processor (aka payment services provider). Instead of having your own, unique merchant account, a third-party processor puts you in a pooled account with other merchants, from which fees are deducted in a similar manner to the merchant account. Signing up for a third-party processor is typically faster and easier than for a merchant account (you can start accepting payments the same day), but puts you at greater risk of account holds and terminations. Still, they provide an entry point for new businesses, or established ones that want more predictable pricing. Most third-party processors use a flat-rate pricing model where you’ll pay the same fee regardless of the card type; for eCommerce, that rate is commonly 2.9% + $0.30.
3. You Can Accept More Than Just Credit Card Payments
While credit and debit cards will probably make up the bulk of your eCommerce transactions, they aren’t the only way to make payments online.
It seems like every few years a new tech company rolls out their own digital wallet. We’re talking about services like Apple Pay, Google Wallet, PayPal, Venmo, and Cash App that allow you to link one or more payment sources to a single app account. In person, mobile wallets (a type of digital wallet that lives on your phone) allow you to make near field communication (NFC) purchases at terminals that allow tap-to-pay. In most cases, mobile wallets directly debit a linked credit or debit card while other digital wallets tend to store a balance, which can be used to make payments or be deposited into a bank account.
Many of these services can be used to make payments online as well. If your payment gateway doesn’t support mobile payments out of the box, it probably won’t be that big a deal since the customer can still just pay with the card attached to their mobile wallet. But if you want to go ahead and support mobile payments, you may have to add some code to your store.
The other type of payment you may want to think about isn’t cutting edge. In fact, it’s been around since the 70s: the automated clearing house (ACH). ACH transactions cut out the credit card company middleman and instead establish direct transfers between bank accounts. ACH payments can be one-time transactions, but if you’re using them in a retail context, you’re probably more interested in using them for recurring payments.
ACH is a bit more laborious to use at the point of sale than credit/debit cards, but it is a much less expensive way to process transactions and less prone to fraud and chargebacks. Most payment processors don’t offer ACH support by default, but a number do offer it as an add-on. Failing that, you may need a supplemental service.
Do You Want To Sell Globally? Prepare To Pay More
The internet is a miracle of the modern age, connecting people together and granting you easy access to markets abroad! Right?
While it’s true that you can theoretically sell anywhere in the world, it introduces some additional complexities. For starters, there’s the matter of different currencies. Someone’s got to turn those euros into dollars! Some service providers, like Stripe, will handle currency conversions for you. Keep in mind that this service will usually come at a premium; in the case of Stripe, you’re looking at an additional 2% charge on your transaction.
And of course, you might want to convey the price of your goods to customers in their local currency. This feature usually goes hand-in-hand with automatic currency conversion, but you might need to enable this feature if you want to attract global buyers.
You’ll also need to take local taxes, customs, and duties into account, which means familiarizing yourself with foreign concepts like the value-added tax (VAT), which is used in Europe, Canada, South America, and Africa, as well as China and India. Here again, there are services that can take care of most of this complexity for you, but be prepared to pay for the privilege.
4. You Need To Be PCI Compliant
If you’re doing eCommerce, you’re going to be handling people’s money, and that means security concerns. And yes, yet another acronym.
The Payment Card Industry (PCI) has established a set of guidelines called the PCI Data Security Standard (PCI DSS) designed to minimize the risk of data being compromised by bad actors. So far so good, but PCI compliance is complicated by the fact that it’s actually a set of four different standards. The standard that applies to you is based on the number of debit and credit card transactions you process annually. Risk level four is considered the lowest risk, while risk level one is considered the highest. The fewer transactions you process, the lower risk you are unless there’s a data breach, at which point you’ll probably be considered risk level one regardless of your volume.
It gets a bit complicated, but what this means in practical terms for you is that you want to make sure your payment processor is PCI compliant and that you’re following the guidelines laid out by your PCI-compliant payment processor.
Payment Security Is Important
It can be a headache, but payment security will ultimately help protect your business and save you from costly chargebacks and account freezes. EMV chips have helped to reduce in-person credit card fraud, but unfortunately, that means online transactions are the new low-hanging fruit for fraud.
In addition to maintaining PCI compliance, security features like AVS (Address Verification Service) and CVV (Card Verification Value, that short number you’re asked for sometimes) provide extra layers of verification would-be fraudsters have to work through. Programs like Visa’s 3D Secure are also constantly evolving to make the changing payment security landscape.
How To Find An eCommerce Payment Provider
Got all that? eCommerce payment processing has a lot of moving parts that can confound even the tech-savvy. Having a sense of the functionality you need in advance will make it much easier to select a payment processor and gateway that can handle the transactions your business depends on. But you should also keep in mind how much of a budget you have for the monthly services required to keep your eCommerce setup running, what you can expect to pay for payment processing, and whether you’re going to need some technical assistance in building out your system.
If you’re ready to get started, we recommend checking out our list of the best online credit card processors. This will give you the rundown on some of the best options in the industry. If you want to learn a bit more about online payments before you get started, our article How To Choose An eCommerce Merchant Account is another great resource.
The post Everything You Need To Know About eCommerce Payments appeared first on Merchant Maverick.
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The Complete Guide To Finding An Internet Merchant Account
So you’re looking to take advantage of everything that online commerce has to offer and enter the world of ecommerce? Good for you! Of course, this will require you to be able to accept online credit card payments. To do this, you’ll need an internet merchant account.
Sounds simple enough, right? If only! Not all merchant accounts are created equal. When choosing an internet merchant account for your ecommerce business, you’ll need to understand how a merchant account interacts with the other elements necessary for selling online, like payment gateways, payment processors, and shopping carts (not the kind you push around). Some services combine one or more of these elements, but it’s still important to distinguish these elements from one another.
Confused yet? Don’t worry — we’ll spell it all out for you!
What Is A Merchant Account?
A merchant account is a specific type of business account into which your customers’ money is deposited after they use their credit or debit card to make a purchase from you. After these payments are verified, the money is transferred to your own business bank account, which is entirely separate from your merchant account. You have no control over the merchant account — it is merely the middleman between your customers’ money and your business bank account.
So, why include this middleman at all? Wouldn’t it be easier to simply accept credit and debit card payments directly and get the funds deposited directly into your business bank account?
Unfortunately, credit card processing doesn’t work that way. When your customer pays you, the transaction ultimately still involves two other major parties: the issuing bank (which grants the customer cards and is responsible for collecting any payments from the customer) and the acquiring bank (which requests and then collects payments from the issuing bank and then releases them to the merchant). Because the payment process is so complicated — the acquiring bank has to ask for the funds from the issuing bank, which has to verify that the customer has those funds available and then transfer them — the merchant account essentially functions as a holding space or even as a sort of line of credit.
Merchant Account VS Third-Party Processor
When selecting a service to process your customers’ card payments, you’ll be choosing from between two different categories of services: direct processors (the providers of merchant accounts like the kind described above) and third-party processors (also called aggregators) like PayPal, Stripe, and Square.
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Setting up an account with a third-party processor is simpler and less time-consuming than setting up a merchant account. This is because third party processors don’t set you up with your own unique merchant account. Instead, the third-party processor aggregates all of its merchants into one enormous merchant account.
What do these differences mean for you, the merchant? For starters, the merchant accounts offered by direct processors typically provide you with a higher level of account stability. This is due to the extensive underwriting and risk assessment you have to undergo to get your merchant account. With third party processors, you are subjected to very little underwriting beforehand. Therefore, the processor scrutinizes your activities much more intensely, making it more likely that you’ll experience an account hold or termination.
The flip side of this is the cost advantage of third party processors. These services typically feature flat-rate pricing and pay-as-you-go agreements. There are few (if any) monthly or annual fees to pay, and you don’t need to meet a monthly minimum in card transactions, making it easy to start taking credit card payments with no established business history.
With direct processors, you’ll be paying monthly and potentially annual fees, you’ll need to be processing at least $5,000 to $10,000 per month in card transactions, and the pricing is not normally flat-rate — your rates may vary depending on the nature of your business model and your industry. Many merchant accounts still require you to sign a multi-year contract. (That said, many of the best processors in the industry have done away with these 3-year contracts and early termination fees in favor of month-to-month agreements, and we recommend that you not settle for a multi-year contract until you’ve explored all your options.) Still, above that $10,000/month mark, merchant accounts do offer cost savings and as your volume increases you’ll qualify for even more discounts.
For more on third-party processors and how they stack up against traditional merchant accounts, check out these articles:
- The Best Online Credit Card Processing Companies
- The Truth About Third-Party Payment Processing
What’s A Payment Gateway?
We’ve established what a merchant account is, so let’s move on to payment gateways.
While a merchant account is the account into which your payment processor sends your customers’ payments before they are transferred to your business bank account, a payment gateway connects your online store to your payment processor, facilitating your customers’ online transactions.
Payment gateways enable online transactions like so: the gateway integrates with your ecommerce store to securely capture the payment details for customer transactions. The gateway then routes that information to your payment processor or acquiring bank, which assumes control of the payment process. The gateway will then send an approval or decline message back to the merchant based on whether or not the processor/acquiring bank accepts the payment.
When you use a third-party processor, a payment gateway is typically included in the service. With direct merchant accounts, a gateway service may or may not be included for an additional fee. Some processors do offer gateways as part of their services, at no additional cost. Ultimately you’ll need to check with the processor to find out.
PCI Compliance With Online Merchant Accounts
What is PCI compliance, and how do you achieve it?
PCI compliance refers to a set of safety practices established by a council (the Payment Card Industry, or PCI) sponsored by the major credit card companies to ensure that a consumer’s payment information is secure when making a purchase using a credit or debit card. These standards, which apply to all businesses that accept credit and/or debit cards, are meant to standardize the securing, processing, and transmission of cardholder data.
If your merchant account provider deems you to be PCI non-compliant, you’ll be subject to a PCI non-compliance fee of around $30 per month until your account is compliant. What’s more, if your non-compliance results in a data breach, you can be fined anywhere from $5,000 to $500,000!
You’ve probably gathered by now that it’s a good idea for your business to be PCI compliant. For most small businesses, that means being Level 4 PCI compliant. Level 4 is the PCI standard that applies to businesses up to a certain size — it’s essentially the lowest bar to clear. Larger businesses must comply with higher PCI standards, with Level 1 standards applying to both the largest businesses and businesses that have suffered a data breach.
When choosing a payment processor, you’ll want to make sure your provider offers features such as PCI compliant processing hardware and software, quarterly network vulnerability scans, and assistance with completing and filing a Self-Assessment Questionnaire (SAQ).
Most third-party processors handle the entire process of PCI compliance for you, but with a merchant account, you should be expected at minimum to have to complete the SAQ.
If you’re running a brick-and-mortar business with no ecommerce component, you might think PCI compliance has nothing to do with you. However, if your business accepts credit cards, it almost certainly utilizes the internet to do so at some point in the process, so you’ll still need to be PCI compliant. It’s easier for physical-only businesses to establish PCI compliance than it is for online businesses, though.
Some PCI best practices are no-brainers. For instance, you don’t want to store your customers’ card data on your own hard drive or server, you should never use default passwords, and you’ll need to use a firewall on your network and computers. There’s more to PCI compliance than these obvious measures, however. For a detailed explanation of what PCI compliance means for your business, I highly recommend reading our comprehensive article on the subject, The Quick Guide To PCI Compliance For Small Businesses.
How Much Does An Internet Merchant Account Cost?
When choosing a merchant account, it’s important to know the different pricing models offered by payment processors:
- Flat-Rate Pricing: This pricing model has the advantage of being predictable. You’ll pay a fixed rate for each transaction, making it easier to predict your processing costs. While you’ll usually pay more on a per-transaction basis than with other pricing models (and you donât know how much the processor is making off a transaction), you probably won’t have to pay monthly fees or other types of fees charged by processors offering other pricing models. Third-party processors like PayPal, Square, and Stripe use this pricing model. To learn more about flat-rate pricing, check out our flat-rate credit card processing explainer.
- Interchange-Plus Pricing: Also known as cost-plus pricing, interchange-plus pricing is the pricing model preferred by Merchant Maverick. Why? Because it’s the most transparent model and it makes rate comparisons between processors easy. With interchange pricing, the processor passes on the interchange fees (fees charged to the merchant’s bank account and paid to the bank that issued the card) and assessments (fees paid directly to Visa or Mastercard etc.) while charging a small markup above that (often a percentage and a flat fee). Check out this article for more on how interchange-plus pricing works and why we prefer it.
- Membership Pricing: This is the pricing model used by subscription-based payment processors like Fattmerchant and Payment Depot. Under this pricing model, you’re charged a single monthly subscription fee instead of the assortment of fees other pricing models feature. You’ll also likely pay a flat fee of between $0.08 and $0.15 per transaction as well as interchange fees. Higher-volume businesses can find themselves saving money under this pricing scheme.
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- Tiered Pricing: Tiered pricing is an older pricing model not commonly used by modern businesses. We don’t recommend it. All transactions are grouped into two or three tiers of transactions, ranging from the lowest-priced transactions to the highest-priced transactions. Essentially, the problem with tiered pricing is that processors can categorize transactions assumed to be in a lower-priced tier as higher-priced transactions, thus charging you more and leaving you little recourse. You should avoid tiered pricing arrangements.
For most small businesses, using a third-party processor with flat-rate pricing like Square or PayPal may be more affordable than using a full-service merchant account. Of course, this entails a much greater risk of having your account frozen or terminated, which is, in itself, a very costly thing to happen to any business.
One thing that affects what your internet merchant account will charge you is the fact that CNP (card not present) transactions, including online purchases, cost more to process than do in-person transactions. This is due to the fact that the chance of chargebacks and fraud is higher with transactions where the card is not present, and this is factored into the cost of processing the payment.
Other fees you may (or may not) have to pay include PCI compliance fees, payment gateway fees, and fees for ACH acceptance if you want to offer customers the ability to pay with their bank accounts in addition to cards. To learn more about the complex and relatively opaque world of internet merchant account pricing, read through our Complete Guide To Credit Card Processing Rates & Fees.
Features To Look For In An Internet Merchant Account
Let’s go through some of the features that may be included in your internet merchant account package.
Included Gateway
One benefit of third-party processors like Square is that a payment gateway is included as part of the service so you won’t have to go looking for one yourself. Of course, third party processors have their drawbacks as well, so you’ll be glad to know that some direct processors include a payment gateway in their services as well.
Remember, if you plan to do business online, whether it be through selling goods, offering SaaS, or what have you, you’ll need to be able to accept online credit card payments. To do that, a payment gateway is an absolute requirement.
Multiple Payment Methods
We’ve established that you’ll want to be able to accept credit and debit cards. However, there are other payment methods your customers may want to use, and you want to be able to accommodate them. From mobile wallets like Apple Pay on the web to ACH payments, the more payment methods your payment gateway (and payment processor) supports, the better.
Global Payment Support
With some merchant accounts, you can only accept payments in USD. If you expect to be able to attract any international business, that’s obviously not going to be good enough. Thankfully, many merchant account providers can set you up with a multi-currency ecommerce merchant account so you can expand your global reach. Just be aware that you’ll likely pay currency conversion fees (if they aren’t passed to your customers). PayPal and Stripe do very well in this regard, and Stripe actually supports many localized payment methods across Europe and Asia.
As an added note — some processors offer a feature usually referred to as dynamic currency conversion or localized currency displays. This means that your website will automatically convert the price from USD (or your default currency) to whatever currency is most common in the customer’s region. This can improve the shopping experience for international customers and potentially increase your sales.
Included Shopping Cart (Or Other Software)
An online shopping cart integrates with your website to facilitate ecommerce. The shopping cart enables your customers to look through your available products, select different options for each product (size, color, etc.), select the quantity of the products they want to order, and more.
Most merchant accounts can be integrated with major shopping carts, but if you can find one that includes a good shopping cart already, that’s even better, as you’ll be saving money.
Other handy features to look for include a customer credit card vault that allows you to securely store your customers’ card information while keeping it off your own equipment and subscription tools that let you create and manage customer subscriptions. Stripe is an example of a processor with built-in subscription tools and a card vault. However, you can also opt for a third-party provider to get recurring billing functions.
Developer Tools
Processors with integrated developer tools, like Stripe, allow developers to use APIs (application programming interfaces) to integrate the payment platform using a variety of different programming languages. For the business with developer talent, integrated developer tools can help you build custom solutions for your ecommerce outfit.
Customer Service
Good customer service and availability is critical in an internet merchant account. Your ability to do business is reliant on all your systems working correctly 24/7, so reliability and quick response times are crucial. Do some research on merchant account providers to weigh the experiences of other merchants when dealing with any issues that pop up, and make sure that the available support channels jibe with your preferences.
How To Choose The Right Provider For You
That was a lot to take in, wasn’t it? If you’re feeling overwhelmed, don’t worry! Merchant accounts are Merchant Maverick’s original specialty, and we’re here to help you delve into the nitty-gritty of merchant account pricing, features, and provider options.
Here are some links to help you learn more about merchant account options, features, and more:
- The Best Online Credit Card Payment Processing Companies
- How To Choose An eCommerce Merchant Account
- The Complete Guide To Online Credit Card Processing With A Payment Gateway
- How To Accept Credit Cards Online
The post The Complete Guide To Finding An Internet Merchant Account appeared first on Merchant Maverick.
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ACH VS Wire Transfers: Which Payment Method Is Right For You?
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Here at Merchant Maverick, we usually focus on the many ways a business can take in money from customers. In this article, however, we want to discuss a little about how a business can pay money out (to vendors, for example).
Often, for smaller items like office supplies, you can use a business credit card or even cash. However, for larger ticket items such as manufacturing equipment, inventory, or even payroll, you might have to use checks, ACH transfers, or even wire transfers. This article focuses on the difference between ACH payments and wire transfers. Read on to find out more.
How Banks Transfer Money Between Accounts
In order to understand the difference between ACH payments and wire transfers, it’s useful to understand how banks transfer money between two accounts. Note that this general method has been in use since the 1600s. In recent decades, the process has been automated so that the information can be transmitted over privately maintained and secure computer networks.
Transfers Within The Same Bank
The simplest type of money transfer occurs between two bank accounts located at the same bank. For example, maybe Joe and Steve bank at the same bank, and Joe wants to transfer $10 to Steve. The bank merely makes a ledger entry in the two accounts to show that $10 has been moved from Joe to Steve.
If Joe and Steve do not bank with the same bank, however, then there are two ways to transfer the money.
Transfers Between Two Different Banks
The first method involves two banks that have bank accounts with each other.
Let’s say Joe, who lives in Los Angeles, banks with Super Bank, which is also located in Los Angeles. Joe wants to pay Steve $10. Steve, who lives in New York, banks with Mega Bank, which is also located in New York. Super Bank and Mega Bank have bank accounts with each other. So, Super Bank makes a ledger entry to take $10 from Joe’s account and places it in Mega Bank’s account located at Super Bank. Now Mega Bank has an extra $10.
Back at Mega Bank in New York, Mega Bank makes a ledger entry and pays $10 to Steve. Mega Bank now no longer has an extra $10. The practical effect is that Joe has paid Steve $10 even though no bag of money moved from Los Angeles to New York.
Transfers Through A Central Bank
What if Super Bank and Mega Bank do not have bank accounts with each other? But maybe there is a third bank–let’s call it Central Bank–where they both have bank accounts.
So, when Joe asks $10 to be transferred to Steve, Super Bank tells Central Bank to move $10 from Super Bank’s account at Central Bank to Mega Bank’s account at Central Bank. Once Mega Bank is notified that it has an extra $10 in its account at Central Bank, it pays Steve the $10 “sent” by Joe. Again, the practical effect is that Joe has paid Steve $10, but only a ledger entry was made at the Central Bank. No money physically moved anywhere.
Batching For Efficiency
With modern commerce, this sort of transfer could happen millions of times a day back and forth between people who bank at Super Bank and Mega Bank. It would be silly for Central Bank to move, say, $10 between the banks’ accounts back and forth all day long, every time a transfer order is made. So, to be more efficient, banks traditionally hold all the transfer orders until the end of the day, so they can total up the transfers and do only one transfer on the net change. This is called batching. While batching traditionally happens at the end of each business day, there’s no reason why this couldn’t happen several times a day or even once every several days.
The Central Bank
As for our hypothetical Central Bank, each country in the world usually has its own version of a central bank. In the US, that bank is the Federal Reserve. US domestic money transfers between banks usually go through the Federal Reserve. For international transfers, banks usually have to have direct accounts with each other, or they have to find a bank to act as the central bank.
What Is An ACH Payment?
Once you understand how banks transfer money between themselves, then it’s easy to explain an ACH transfer. The ACH transfer is simply a money transfer using a specific type of code. The code is set up and governed by an organization called Nacha (previously NACHA, which stood for the National Automated Clearing House Association).
When money is transferred domestically within the US, the code is transmitted over a computerized network called the ACH Network using the Federal Reserve as the central bank. When money is transferred internationally, the ACH code is usually transmitted over the SWIFT network (a privately owned computer network usually used for international money transfers) to a bank outside the US that takes ACH codes. That international bank can receive the money directly or act as a central bank.
ACH Transfer Fees
It’s important to separate the concept of the physical computer network from the ACH code. As mentioned above, for US transfers, the ACH code is transmitted over the ACH Network. The ACH Network is owned by several large banks, and together they charge a fee for messages transmitted over that network. The fee can range from $0.20-$1.50 per transaction or 0.5%-1.5% of the total transaction cost. In any event, the fee is relatively small so that some US banks do not even charge their customers for making ACH transfers.
For international transfers, the ACH code is usually transmitted over the SWIFT computer network. The SWIFT network charges differently than the ACH Network, and it usually charges more. If you wish to make or take international ACH transfers, we recommend you speak to your payment processor or your bank first so you can understand the charges involved.
ACH Transfer Times And Dollar Limit
ACH transfers are done in batches for efficiency. Typically, the batch is sent out once in a 24 hour period, usually at the end of the day. Nacha, however, is working to increase the number of batches processed per day and hopes to perform up to three batches per day in 2021.
ACH transfers are typically for smaller amounts because there is a per transaction limit of $25,000 for same-day transfers. However, by March 20, 2020, that limit will be raised to $100,000 to better serve the needs of business-to-business (B2B) companies.
Types of ACH Payments: Debit VS Credit
There are two subtypes of ACH payments: credit ACH payments and debit ACH payments. Credit ACH payments tend to be one-time payments while debit ACH payments tend to be recurring payments.
- ACH Credit Payments: With an ACH credit payment, the sender of the money must authorize each payment before money is transferred out. The recipient of an ACH credit payment first gives the sender his bank account number and bank routing number. The sender then sends the bank information along with instructions to its bank to pay a certain amount. The payment information is batched and then sent to the central bank for settling according to a daily schedule. Once the transfer is settled, the money shows up in the recipient’s account. This type of payment is better suited for payroll or occasional bill payments where you want to control when and how much to pay.
- ACH Debit Payments: With ACH debit payments, money of varying amounts is taken from an account according to a set schedule. This type of payment is better suited for recurring bills such as utility payments. With ACH debit, the payor sends the information to the entity where payment is due (e.g., the utility company). The information includes account number, routing number, and a payment authorization to pay on a certain date of each month. On that date, the recipient of the payment sends a payment request to its bank. The bank batches the information and sends the information through the central bank to the payor’s bank. The payor’s bank checks for previous authorization and for sufficient funds in the account. If there are sufficient funds, then the payor’s bank tells the central bank to release the money.
If you wish to accept or receive ACH payments on a regular basis, we have an excellent article covering the basics. Talk to your payment card processor to find out the details on the costs and setup.
For high-risk businesses, ACH payments might seem like an ideal alternative to credit card processors, which typically charge much higher fees with more stringent requirements. The first thing you should know is that not all ACH payments are handled in the same way because of how check payments are regulated. We have an article covering this subject in detail, but the bottom line is that depending on your business, it could be a good option. However, in some cases you’ll still need to meet underwriting requirements similar to what credit card processors require so you may need to look for a processor that specializes in working with high-risk businesses.
What Is A Wire Transfer?
A wire transfer is a traditional way banks transfer money using the method described earlier in this article. Wire transfers predate computer networks. Originally, banks simply transmitted the money transfer messages over telegraph lines. In today’s computerized world, however, domestic US wire transfer messages are transmitted over the Fedwire network or the CHIPS network. International wire transfer messages are usually transmitted over the SWIFT network.
With a wire transfer, a bank transfers the money right away without batching. Depending on the business relationship between the sending and receiving banks, they could transfer the money by simply adjusting their account ledgers (when they hold accounts with each other) or use a central bank. With international wire transfers, either method can be used, but with domestic US wire transfers, the Federal Reserve usually acts as the central bank. Because wire transfers are specific, one time transfers, they can be ordered and effectuated whenever the sending bank, the receiving bank, and the central bank are all open for business.
The Cost Of A Wire Transfer
Wire transfers typically cost much more than ACH transfers. For domestic US wires, it usually costs between $10-$35 to send a wire, though often it’s free to receive one. International transfers often cost more.
It’s not difficult to understand why banks charge more for wire transfers. These transfers are done individually without batching, so there are no savings from efficiency. The Fedwire, CHIPS, and especially SWIFT network all charge more than the ACH Network. Finally, with a wire transfer, the process is not automated, so a bank employee must initiate and confirm the transfer, thereby adding more cost to the transaction.
How To Make A Wire Transfer
In order to make a wire transfer, you must know the account and routing number of the recipient. After that, you must contact your bank and ask them to make the transfer. You can specify the date of the transfer, but you cannot specify the computer network the bank uses to send the transfer order.
There is no monetary cap on a wire transfer. Unlike ACH transfers that can be scheduled for recurring payments, wire transfers are one time only transfers that are irreversible once made. Wire transfers, therefore, are not well-suited for regular payments such as payroll or utility bills. Instead, wire transfers are typically used to pay for one-time equipment purchases or large inventory.
Wire Transfer And High-Risk Merchants
Lastly, there seems to be no reason why high-risk merchants cannot use wire transfers to send or receive payments. However, because wire transfers are expensive, it may not be cost-effective if the purchases are for smaller amounts.
One last thing to note: while some people use the term wire to refer sending money through Western Union or other person-to-person transfer services like Venmo, these are not true wire transfers. They use a different business model and messaging network. It is, therefore, important that these money transfer services should not be confused with true bank-to-bank wire transfers.
How Secure Are ACH Payments & Wire Transfers?
When it comes to security for ACH and wire transfers, there are a number of fairly obvious points of vulnerability. Money transfer messages can be hijacked in mid transfer, or fraudulent transfer messages can be initiated by criminals.
On hijacking messages, the networks used for these transfers are usually private networks with controlled access. The messages transmitted are encrypted, so the messages are relatively secure. There have been several instances of the SWIFT network being hacked (through malware infections) and money being stolen. However, the losses are assumed by the banks. You, as the merchant, are unlikely to have to be responsible for these unauthorized transfers.
From a merchant’s standpoint, you should keep bank account information secure by observing best practice security procedures. Typically, money transfer information can be stolen through social engineering methods such as hijacking a corporate officer’s email to order a money transfer to the hacker’s account, posing as a vendor and asking the payment to be routed to a different account, posing as an employee and asking payroll to be sent to the hacker’s account, or pretending to be a party in a mortgage closing and sending “updated” account routing information to steal the closing funds. Be sure to educate employees who handle money transfers to be aware of these vulnerabilities and scams so that both ACH and wire transfer account information can be kept safe.
Dealing With Disputes For ACH Payments & Wire Transfers
What happens if you make an incorrect wire transfer or realize a business deal is in dispute and you wish to withhold an ACH payment? With wire transfers, the transfers are final, so you cannot reverse the payment. With ACH payments, a transfer can be reversed under three very limited circumstances:
- Transaction was never authorized and authorization was revoked.
- Transaction was paid on a date earlier than authorized.
- Transaction was for incorrect amount than authorized.
ACH transaction disputes must be filed within 90 days of the transaction (60 days after statement sent to account owner). If you wish to learn more, our article on ACH payments includes a detailed explanation of the ACH dispute policy.
Should You Use ACH Payments Or Wire Transfers?
ACH Payments and wire transfers each have their uses. If you wish to send or receive smaller payments that can be scheduled and paid out automatically, ACH is likely the way to go. However, if you have larger, one-time transfers that are time-sensitive, then wire transfer is pretty much your only choice. ACH costs much less than wire transfers, but a large part of that is because ACH is an automated process requiring no human intervention while a wire transfer requires humans to send and receive the payment.
At the end of the day, no business can survive by paying with or receiving only ACH payments or wire transfers. While understanding these payment options can add to your normal payment card processing options, unless you do business only with other businesses, it would be difficult to require your customers to pay only with ACH or wire transfers. It would make better sense to merely add ACH and wire transfer as a payment option.
The post ACH VS Wire Transfers: Which Payment Method Is Right For You? appeared first on Merchant Maverick.
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Modernize Your Business With A Good Restaurant Ordering System
What if there was a way to reduce wrong orders, increase customer trust, and make your restaurant feel trendy and modern? Well — lucky you — there is! The solution: rethink your restaurantâs ordering system. With a modern restaurant ordering system, you can have online orders sent directly to your kitchen display system, servers can send orders from the floor with handheld tablets, and dine-in customers can pay at their table without having to wait for the server to go run their credit card. And those are only a few of the many cool things you can do with a good restaurant ordering app.
What Is A Restaurant Ordering System?
A restaurant ordering system includes any and all features that allow you to accept orders in person, over the phone, or online. As such, there can be a lot of moving parts and several different ordering processes, depending on your setup. Ideally, your ordering system should be as streamlined as possible and linked through your point of sale system. Sometimes, online ordering is separate from the main POS, supported via a third-party app like DoorDash, Postmates, or Grubhub—though many restaurant POS systems offer seamless integration with these apps.
A key aspect of the POS in a modern restaurant ordering system is that it should be tablet-based. At the very least, the POS should work with tablets in addition to a traditional terminal. Why is that? Tablets mean mobility, and they put powerful technology at the disposal of your servers—and your customers. The optimal configuration varies according to the restaurant type; for example, a casual quick-service restaurant system might include self-ordering kiosks or even just a single tablet register equipped with a credit card processing app, while an upscale bar and restaurant setup might have servers use handheld tablets to take orders and payments.
12 Features That Take Your Restaurantâs Ordering System To The Next Level
Now that you’re considering a revamp of your ordering system, it’s time to decide which features are important to you.
The most basic tablet POS consists of a cloud-based POS app installed on an iPad/touchscreen register. But even with a lightweight, single-iPad setup, you might be surprised at all the features a cloud-based system can offer, from online menu management to targeted email marketing campaigns. Your system may also include other additional hardware and accompanying functionality, described in more detail below.
Keep in mind that even if all of these features are available, you only have to use whatâs relevant.
Kitchen Display System
A digital kitchen display system, or KDS, is a lot better than kitchen ticket printing. This allows servers to send orders directly from a tablet to the kitchen, with the ability to prioritize orders, check on cook times, and so much more. The result is a fast, accurate, streamlined ordering process. What are some more advantages of a kitchen display system? Read What Is A Kitchen Display System? for a more in-depth breakdown.
Online & Phone Ordering
With phone orders, the operator may manually key in payments, noting the type of order (call in for pickup vs. delivery) and other transaction details. A smartphone ordering system can save these details for easy re-ordering the next time the customer calls in.
With an online ordering and delivery system, online orders are sent into the queue with the rest of orders (again, this is where KDS comes in handy). Note that online ordering and delivery functionality can be a built-in function of your POS that integrates with your restaurant website, or your POS might support third-party online ordering apps like Grubhub, Uber Eats, etc.
Modifiers & Prompts
A POS system with a menu that allows for modifiers allows for easy order customization. Even better is a POS that prompts servers to ask for choices instead of assuming the customers want the default meal. A handheld tablet ordering system can prompt servers to upsell on the spot, and input the customers’ choices for sides, dressings, level of spice, etc. All of this information is relayed to the kitchen via a KDS or ticket, with no need to ask for a special order.
Seat & Table Management
Using a POS with seat and table management, you can easily assign orders, split items, reassign items to different people, and more. Table management can also include support for reservations, via an add-on or integration (more on reservation management below).
Menu Management
Menu management makes adjusting menu items easy and keeps your offerings up to date. Usually, you can do this with a back-office function online. You might also update your menu to include special time-sensitive offers and daily specials, or manage several different menus for different locations or days of the week. With integrated raw ingredient tracking, menu options stay in sync with ingredient availability.
Pay-At-Table Function
An emerging trend flips the traditional restaurant payment system on its head, bringing the POS to the customer at their table. Servers simply swipe/dip the card in front of the customer and voila! The customer can sign their receipt on-screen, or the POS may have a mobile receipt printer. The system can also prompt customers to leave an on-screen tip, with percentage suggestions.
Clover Flex and Square Terminal are both examples of mobile POS devices that allow customer payments at the table. These nimble, cordless terminals include both a card reader and receipt printer.
Self-Service/Kiosk Mode
It can be a big investment, but some POS systems give you the option to place tablets at every single table. This lets customers enter their own orders, summon servers, and even split the check themselves. This is typically seen at casual dine-in setups. For example, Chili’s and several other casual restaurant franchises use self-ordering kiosks at tables. Some fast-food chains, such as McDonald’s and Wendy’s, also offer self-service ordering, from touchscreens located at the front of the restaurant.
Customer Relationship Management
Have a takeout restaurant with regulars? A good CRM system keeps track of what they order so if they want to call in âthe usual,â you can plug it in without having to remember it. Customer data can also be used for targeted marketing—for example, sending emails about discounts, promotions or events. Additionally, CRM can include a loyalty program for in-person transactions, which rewards frequent customers with discounts, free entrees, etc.
Server & Customer Notifications
A POS system can include different types of notifications for both servers and customers. For example, some restaurant POS systems can alert servers when orders are ready with an in-app notification sent to their handheld device, or even with a text-message— SMS alerts are probably more effective if servers use a smartwatch to receive these notifications. Customers can also receive texts letting them know when their takeout order is ready, or alerting them that their table is ready. Again, the best way to use notifications all depends on your restaurant’s setup.
Mobile Payment Support
More and more restaurants accept contactless NFC (mobile) payments like Apple Pay and Google Pay. Mobile device payments require the customer to be present, so you usually see this at casual eateries where customers pay at the counter. However, a sit-down restaurant can also accept mobile payments, if you opt to bring the POS to the customer with pay-at-table functionality.
Email Receipts
Giving customers the option of email receipts for their orders is beneficial for both you and your customer. Customers can track expenses and past orders, and you can reduce receipt paper costs. Email receipts can also contain CTAs customers can click on, such as surveys or prompts to follow you on social media. Once you have a customer’s email address, you can additionally send them promotional offers in the future.
Depending on the POS system, you use, you might not even have to ask the customer for their email address. For example, Square lets you send automatic receipts to any customer who has already opted into receiving Square email receipts from another vendor.
Online Reservations & Waitlist
When your waitlist and reservations are automated, your staff is freed up to focus on the bread and butter of your restaurant: food orders! While not too many POS systems offer native support for reservations, many restaurant POS systems now integrate with a reservation or waitlist app, such as Waitlist.me or OpenTable, which also serves as a marketplace where new customers can find your restaurant online, similar to Yelp.
Yelp also now has an online waitlist app that, when integrated with your restaurant management system, lets customers hop on your waitlist before they even leave the house. Customers can view their approximate wait time, see how many parties are ahead of them in line, and receive a text when their table is ready.
4 Ways The Right Restaurant Software Will Improve Your Business
Okay, we’ve covered the features to look for in your POS—but we haven’t discussed why these assets to businesses. What are the high-level impacts and how will they change your business? Let’s delve in!
Tableside Ordering Means Fewer Errors
Back to modifiers and promptsâif servers enter orders at the table, they are less likely to forget or make a mistake. This improved accuracy results in less waste and fewer unhappy customers. Even if mistakes are made, they are quicker and easier to fix with a digitized system that allows for easy modifications and instant reordering.
Pay At Table Means Better Data Security
A card leaving a customerâs sight is a liability due to the possibility of credit card skimmers and identity theft. In some cases, you can reduce this risk with a pay-at-table feature and also with mobile payment acceptance. Additionally, the option to pay at the table means no waiters walking away and taking forever to bring the card/check back.
Better Efficiency Means Faster Turnarounds & Happier Customers
All of these features ultimately lead to one thing: a more efficient restaurant. Less time transpires between orders being taken and orders being placed, and less time is needed to complete payment transactions. Tables turn faster, resulting in more customers. And even more important than the faster turnaround is that you’ll have happier customers who arenât stuck waiting. This should also lead to better tips and happier servers!
Updates & Integrations Add Even More Functionality
All of the popular tablet POS systems integrate with other apps. This gives you the potential to extend your system’s functionality ever-further with each new integration that comes out. For example, there are restaurant apps for liquor inventories, tip tracking, social media management, and much more. Web-based systems are also updated frequently to add and improve features, meaning that the system you buy today could be even more powerful with next month’s update.
Cost Is The Biggest Hurdle To A Good Ordering System For Restaurants
There isnât really a disadvantage to having a POS with a solid ordering system. But there is an obstacle: the cash investment required. Some cost considerations for investing in a new restaurant POS:
- You need multiple tablets so servers can use them.
- You need the space and equipment to charge tablets.
- You need additional card readers if you offer pay-at-table.
- You need a reliable internet connection, either with cellular data plans or WiFi that reaches across the entire premises. Some POS systems set up local networks as a backup to keep the system functional during internet outages. No matter how you approach it, your internet infrastructure is going to cost money.
- Depending on your setup, there are also additional hardware costs such as a KDS, kitchen printers, self-service kiosks, even a digital menu board.
- Monthly POS software costs can add up if you have a lot of add-ons or third-party software integrations, e.g., $50/month add-on for loyalty program, $99/month add-on for delivery management, etc.
Whatever you do, donât try to cut costs by leasing POS/credit card processing hardware. This ultimately costs way more and involves contracts. Buy the equipment outright instead. Also, when choosing a restaurant POS system, make sure any system you’re considering offers competitive pricing for payment processing (if in-house payment processing is included) or integrates with a merchant account that offers interchange-plus pricing.
If you need to finance your POS system, this is possible with small business loans. Make sure you research the best options for small business loans for restaurants.
Is It Time For You To Upgrade Your Restaurantâs Ordering System?
Your existing restaurant POS might already support some of the tech-forward ordering features I’ve described in this post. Are you using them? If not, it might be time to consider trying them out. If your POS doesnât support these features, but they sound interesting, it’s probably time to switch to a new POS system. Start shopping around!
So what are the next steps toward implement a faster, more efficient, mobile restaurant ordering system? Talk to your POS provider and learn how to implement existing features you haven’t taken advantage of yet. Or, check out some top restaurant POS providers to find a system that does support the modern ordering features you want and need to make your restaurant all that it can be.
The post Modernize Your Business With A Good Restaurant Ordering System appeared first on Merchant Maverick.
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Everything You Need To Know About Using A Credit Card Imprinter
Here at Merchant Maverick, we try to stay on top of the latest trends in point of sale technology and present that information to you, the reader. This, however, will not be one of those blogs. Instead, we’ll be looking at a device from another era that still stubbornly holds onto a small niche in contemporary face-to-face retail.
That’s right, we’re talking about the good old credit card imprinter.
Why, you might ask, would anyone want to look into something so… well, antiquated?
Power outages and internet outages happen. When they do, your business can be left without a way to process payments — turning customers away, and possibly ensuring they never come back. Having a backup can be very important.
In addition, some businesses still operate in locales that don’t support power or internet. At your friendly local Renaissance Faire, for example, you’ll likely see several of the artisans and merchants who accept “Lady Visa” & “Lord Mastercard” use a credit card imprinter. The old-fashioned vibe still fits with the event but allows businesses to make sales to customers who might have run out of cash or come unprepared to step back into a truly low-tech world.
What Is A Credit Card Imprinter?
If you’re over 35, you’ve probably seen one and would recognize its distinct two-part pop-swish sound. If you’re younger: this is what credit card processing used to look like in the bygone analog days.
There are a few design variations, but the most common one, lovingly dubbed “the knuckle-buster,” looks like flat metal slabs with a raised plastic or metal grip that slides over the slab on rails. There’s another version that looks a bit more like a pump or a cross between a stapler and paper cutter.
Regardless of the design, the purpose of these devices is to take a (you guessed it) physical imprint of the customer’s credit card for further processing later. The imprinter captures all the vital information on the card, and much more quickly than you could by copying it by hand. These things were all the rage in the 70s and 80s.
You may have noticed the raised numbers and letters on most credit cards and wondered why they were designed this way when ink would serve just as well for the human eye. Turns out, those little nubs allow credit card imprinters to work their magic. It also means that some modern cards that don’t have bevels may not work with imprinters.
A credit card imprinter essentially uses a miniaturized version of printing press technology. Your card is secured in place along with a paper of some kind; carbon paper can be used, but isn’t always necessary. Typically three papers are imprinted at once, allowing you to provide a copy to the customer and card issuer while keeping a copy for yourself. Old school card imprinters usually came with a custom plate with your business’s information on it, which would be imprinted alongside the card information.
Depending on the model, you will then either slide the roller across the slab, paper, and credit card twice, or press the pump down until you hear a confirming click.
What Do You Need To Process Payments With A Manual Credit Card Machine?
You need three things, at minimum, to process credit cards with a manual credit card machine:
- The machine/imprinter itself
- Paper for receipts and imprints
- A way to process the transaction — that is, a merchant account with the appropriate software or hardware.
The machines aren’t that hard to come by, even today. Credit card imprinters are still being made and they’re not particularly expensive. The knuckle-buster models start around $16.50 and mostly top out around $60. Pump-handle imprinters are bit more expensive, running from around $60 t0 $120. Such is the cost of protecting your knuckles. If you’re really fancy, there are even electric ones that come in at over $200. Your best bet for buying one is probably online. They’re easy to find on Amazon or through sites like POS Supply Solutions.
Since these are mechanical devices with moving parts that can wear out with heavy use, make sure to read the user reviews to make sure you’re buying a durable model. You’ll also want to take size into account for portability and storage.
Credit card sales slips for imprinters vary widely in price, ranging from $4 or $5 for 100 to around $40 for 100. The only point of caution here is that you’ll want to get papers that align nicely with your machine’s dimensions for easy imprinting.
When you’re ready to process the transaction, you’ll have to key it in through a terminal, gateway, mobile POS, or virtual terminal.
Will Manual Credit Card Payments Cost You More?
Not if everything goes well.
If your business takes credit cards, you may have noticed that certain transactions incur a higher processing fee than others. When you take credit card information over the phone, or through the internet, it’s considered a card-not-present (CNP) transaction. The higher cost reflects the greater fraud risks associated with processing a card payment without directly capturing that card’s information, as well as a higher risk of human error.
Normally, processing a transaction as card-present (CP) involves POS hardware reading a magnetic strip or an EMV chip to capture the card’s information.
But wait! Aren’t you capturing the card’s information with the imprinter? As it turns out, yes, an imprinted transaction counts as card-present and should be processed at lower cost. Be aware, however, that most POS service providers don’t see a ton of these transactions these days and probably won’t assume you’re working with an imprinter when you enter the information.
You’ll want to make sure you’re working with a reputable processor, and one that has policies in place to give your old-school efforts their due. If they won’t, it may be time to switch processors.
Other Concerns With Credit Card Imprinters & Manual Credit Card Transactions
Making a nearly complete copy of a customer’s credit card information introduces some security concerns you normally don’t have to worry about.
There are no fancy encryption and two-factor security features here. You’re literally making a physical copy of the customer’s credit card information for later processing. You won’t have to worry about your slips being hacked, but they can be stolen or copied by hand. Any security involved in the process will need to be directly provided by your business practices. You’ll need to store the slips securely until such time as you can process them, making sure only authorized personnel have access to them. To ensure you and your customers are protected, you should adhere to the PCI DSS (Payment Card Industry Data Security Standard). As we touched on earlier, imprint-captured transactions can be considered card-present even though the information isn’t immediately being transmitted, but check with your processor to be sure.
You’ll likely want to hold onto the receipt for the 180 days or so during which the customer can dispute the sale. When the receipts are no longer needed, make sure they’re promptly and completely destroyed.
And, of course, when it comes time to process the slips, you’ll be dependent upon the security features of whatever program or medium you’re using to submit the information. You also need to make sure that you are keying in the transaction properly — both the card number and the transaction amount. An incorrect amount could cause a dispute, while an incorrect card number could be a failed transaction.
You should also be aware that using an imprinter means you won’t know if you’ve accepted a declined card until you attempt to process the transaction. The imprint does provide precious evidence in your favor should a chargeback investigation be conducted, but it can’t do much with a failed transaction. That does mean you’re at risk of losing the cost of any inventory associated with the sale as well.
Alternatives To Using Manual Credit Card Machines
Still not excited about going back to the 20th century when the internet goes down? Fair enough.
POS service providers like Square allow retailers to process transactions in “offline mode.” Assuming your service offers this feature, you may still be able to capture card transactions with your local terminals and mobile devices. When your connection is restored, you can process the backlog. If you’re using a cellular-data-ready mobile device to process the payments, you may not even need to wait; services like Square allow you to transmit data over the cellular network.
Be careful, though. You’ll want to have an idea of the number of transactions your POS service allows you to cache; if you’re doing a lot of business with your connection interrupted, you could run into problems.
Now, if you’re unlucky enough to have your power go down as well, and you’ve drained your battery-powered devices arguing about the election on Facebook, you may need to go cash-only (or if your customers are adamant, throw up your hands and break out the manual processor). That, or just take the day off.
Do You Really Need A Credit Card Imprinter?
With the ability to process transactions in offline mode, most businesses probably can sleep soundly at night without a credit card imprinter in their closet. That said, there are outlier cases where certain businesses may find them useful. If you do a lot of business at markets, fairs, or outdoor flea markets where you don’t have easy access to electricity and/or make occasional credit card sales, a knuckle buster can fill the gap. Just be aware of the risks — and be prepared to do a little bit more work.
The post Everything You Need To Know About Using A Credit Card Imprinter appeared first on Merchant Maverick.
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The Merchantâs Guide To Recurring Payments And Billing
Photoshop. Dropbox. Microsoft Office 365. Netflix. These are just a few of the products and services Iâve used in the last few days that require a monthly or annual subscription. There are several others that Iâm paying for as well but havenât used recently. If youâre old enough, you might remember the bad old days of personal computing when software came in big, shiny boxes that held a thick manual (that no one ever read) and a stack of 3.5â disks that youâd have to feed one at a time into your computer just to install the program. A year or so later, the company would come out with a new version, and youâd have to buy it and repeat the installation process all over again — if you wanted the latest and greatest, at least.
Today, many major software applications are available over the internet at the click of a mouse, and they donât come in a box at all. Instead, theyâre offered via a monthly subscription service. For a few dollars a month, you can download the software onto your computer in minutes, and it will update automatically whenever a new version is released. Subscription-based software is very convenient, and it can seem like a real bargain to pay $9.99 per month for an expensive program such as Photoshop rather than shelling out $500 for a stand-alone product.
The subscription-based model of selling products and services has proven so successful that you can now get a subscription to just about anything. Subscription box services such as Birchbox and Loot Crate deliver random trinkets you didnât know you needed every month. Other services, such as Hello Fresh and Blue Apron, solve the âwhat do you want for dinner?â riddle by dropping pre-packaged meal kits right on your doorstep.
If youâre a merchant looking to increase sales and ensure a steady stream of revenue, you might wonder how you can enable multiple, recurring (and automatic!) payments from your customers. Thatâs where recurring billing comes in. This service allows you to set up repeating payments without your customers having to authorize each payment separately or enter their credit card information more than once.
In this article, weâll explain what recurring payments and recurring billing are and give you a rundown of the types of businesses that use them. Weâll explain the advantages and disadvantages of using recurring billing, and weâll show you important features to look for in finding a provider that supports it. Finally, weâll show you how several popular merchant services providers implement recurring billing and how much it will cost you to set up this popular feature.
Our Top Picks For Credit Card Processing
| heading | Payment Depot | Fattmerchant | National Processing | Dharma | Square |
|---|---|---|---|---|---|
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Payment Depot |
Fattmerchant |
National Processing |
Dharma Merchant Services |
Square Payments |
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Get Started Review |
Get Started Review |
Get Started Review |
Get Started Review |
Get Started Review |
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Availability |
US-based businesses |
US-based businesses |
US-based businesses |
US-based businesses |
US, Canada, UK |
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Serves in-store, mobile, and eCommerce |
â |
â |
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No early termination fee |
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Compatible with most POS systems |
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Rate matching / negotiable |
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High-quality sales and customer service |
â |
â |
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Interchange-plus |
Interchange-plus |
Interchange-plus |
Interchange-plus |
Flat rate |
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Monthly fee |
$49 |
$99 |
$10 |
$20 |
$0 |
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Standard retail rates |
0% + $0.15 markup |
0% + $0.08 markup |
0.20% + $0.10 markup |
0.15% + $0.07 markup |
2.75% total |
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Good for higher volume (over $20K/month) |
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Good for mid volume ($10K-20K/month) |
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Good for lower volume (under $10K/month) |
â |
â |
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Get Started with Payment Depot |
Get Started with Fattmerchant Payments |
Get Started with National Processing |
Get Started with Dharma Merchant Services |
Get Started with Square Payments |
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Each of these companies provides excellent customer service and fair pricing.
What Is A Recurring Payment?
Recurring payments are quite simple to understand. Instead of making a one-time purchase of goods or services, the customer signs up for a subscription where products or services are delivered on a recurring, prearranged schedule. This schedule could be monthly, weekly, annually, or whatever is appropriate under the circumstances. Monthly subscriptions are the most common, but just about any other period is also possible. For example, Amazonâs Subscribe and Save feature allows customers to reorder common household products on a recurring schedule, with the interval being determined by how often they need to replenish the product in question.
To establish a subscription, the consumer needs to provide a card on file. This is any valid payment method (e.g., credit card, debit card, or bank account number) from which all payments will be made. In establishing a card on file, the consumer agrees to authorize both the initial payment and all subsequent payments as well. Most subscriptions are open-ended, meaning that the consumer will continue to be charged indefinitely until the subscription is either canceled or the submitted card on file is no longer valid.
Because most subscription-based services require online payments, recurring billing features are usually offered as part of a providerâs payment gateway. However, retail merchants can get in on the action too, as long as they use a payment gateway or virtual terminal to process the recurring transactions. For example, almost all of the wineries in the area where I live offer a wine club membership that automatically ships several bottles of wine to participating club members according to a predetermined schedule.
What Kinds Of Businesses Use Recurring Payments?
Weâve already given several common examples of businesses that offer their products or services on a subscription basis, but there are many others as well. Software and cloud backup services use recurring billing almost exclusively, and health clubs wouldnât be able to stay in business without it. Just about any type of business could, in theory, use subscriptions and recurring billing to sell their products or services to the public.
Although most subscriptions are open-ended, recurring billing can also be used to spread a large, single bill over a more extended period. Attorneys and wedding planners, for example, could use recurring billing to allow a customer to spread a single, expensive bill over several months.
Advantages To Recurring Payments
Recurring billing offers several benefits to both consumers and merchants. For the consumer, the convenience of having recurring bills paid automatically is perhaps the primary advantage. Thereâs no need to track when the next bill is due or to have to fill out and mail a paper check on time. The âset it and forget itâ nature of recurring billing ensures that consumers donât have to worry about any interruptions to their services. At the same time, itâs all too easy to keep a subscription going long after youâve stopped using it. Gym memberships are (ahem) the most obvious example of this situation.
Recurring billing also saves time for merchants, as thereâs no need to generate and send out multiple invoices whenever a subscription payment is due. Transactions are processed automatically, requiring no action on the part of the merchant unless thereâs a problem (expired credit cards are the most common reason for a recurring authorization to fail). Subscriptions also provide a steady, predictable source of income over time. Naturally, theyâre not 100% foolproof. Youâll have to offer top-notch products or services at a fair price all the time to avoid a surge in subscription cancellations.
Disadvantages To Recurring Payments
The advantages of recurring payments generally outweigh the disadvantages, but there are a few downsides that you should be aware of in using them. Payment security, while always extremely important, is even more critical when youâre accepting multiple payments over time from the same customer. This means protecting your customerâs sensitive payment data and protecting yourself from fraud. Your provider can help you implement a strong PCI compliance program that will safeguard your customerâs data according to established industry standards. Many providers also offer fraud detection and prevention measures that can protect you from unscrupulous consumers. The impact of someone submitting a fraudulent payment method will be much higher with multiple, recurring transactions than for a single, one-time purchase.
Storing card-on-file information requires additional work on your part, but most providers offering support for recurring billing include features to automate this process. Nonetheless, you will have more paperwork to deal with if you use recurring billing.
Another minor disadvantage of recurring payments is that it can be more difficult to correct a billing error. If a customer is charged in error, youâll have to issue a refund. For this reason, we recommend that you use a recurring billing service that allows customers to change their payment information or cancel a subscription directly from your website. Otherwise, youâll have to make these changes yourself before the next automatic payment is processed.
How To Choose Recurring Billing Software
These days, just about every merchant services provider on the market offers support for recurring billing, usually as a feature of their payment gateway. However, not every business needs it, so in most cases, itâs an optional add-on to the companyâs basic payment gateway. Optional add-ons are rarely free, so you can expect to pay extra to enable recurring billing as part of your account. Each provider has a different method of charging you for recurring billing. As weâll see below, you might pay an additional monthly fee, or you might pay a higher processing rate for each recurring transaction. In some cases, you might pay both an extra fee and higher processing rates. If you need recurring billing support, itâs critically important that you understand how your provider charges you for this service. You should compare multiple providers before signing up for an account.
Features To Look For In Recurring Billing Software
Features of recurring billing services vary from one provider to another. While some are bare-bones and only offer the most basic functions, others are more robust and allow you to customize virtually every aspect of your subscription service. Here are the most important features to look for in selecting a recurring billing service:
- Billing Intervals:Â Not everyone bills on a once-a-month basis. Your service should provide the ability for you to bill on whatever interval you need.
- Support For Metered Billing:Â If your subscription service charges by actual use rather than a flat fee, youâll need the ability to track your customersâ usage and automatically generate a bill from that data.
- Support For Free Trials:Â Many businesses offer a free trial period before the customer has to start paying for the service. Your recurring billing service should be able to support providing a free trial period of whatever length you specify. Customers should also be able to opt-out at the end of the free trial period rather than being charged automatically.
- Security Features:Â Tokenization and encryption are usually standard features of payment gateways today. Theyâre even more important when you have recurring, automatic transactions.
- Customer Information Vault:Â This is another feature that usually comes standard with a payment gateway. It allows you to store your customersâ payment data securely, so they donât have to re-enter it every time they shop on your site. To greatly simplify your PCI compliance requirements, this data should be stored on your providerâs server — not on your computer or your websiteâs server.
- Automatic Card Updater:Â This feature automatically pulls updated card information from your customerâs issuing bank when a replacement card is issued, allowing a subscription to continue without interruption. Note that this feature wonât work if your customer switches to a different credit card altogether.
Merchant Services Providers Offering Recurring Billing
Below, weâll look at how several popular merchant services providers handle recurring billing. Some providers are significantly more affordable than others, so it pays to shop around before settling on one choice.
Square
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Square
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Visit Site Read our Review |
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Square (see our review) offers recurring billing through its Square Invoices add-on service. Like most of Squareâs offerings, recurring billing charges on a pay-as-you-go model — there are no additional monthly fees. However, you will pay higher processing rates for recurring transactions. Recurring credit or debit card transactions are charged 2.9% + $0.30 per transaction, while card-on-file transactions will cost you 3.5% + $0.15 per transaction.
Although the higher processing rates will cost you more, Squareâs lack of monthly fees makes this a very cost-effective alternative for a small or newly-established business. Although itâs very affordable, the recurring billing feature of Square Invoices doesnât have the robust feature set found in some competitors. For example, you currently cannot integrate Squareâs recurring billing feature into an API for in-app recurring billing. However, the company is planning to introduce this feature sometime in the future.
Stripe Payments
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Stripe Payments
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Compare Read our Review |
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Stripe Payments is a popular ecommerce-only merchant services provider that powers a lot of the webâs most well-known online retailers. Recurring billing support is available through the Stripe Billing feature. Like Square, thereâs no additional monthly fee to use this service. Recurring transactions process at a flat rate of 2.9% + $0.30 per transaction for your first $1 million in sales and then Stripe will begin adding a 0.4% transaction fee as well. Most merchants will find that Stripe is less expensive than Square, especially if you process a lot of card-on-file transactions.
PayPal
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PayPal
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Compare Read our Review |
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PayPal is another payment services provider (PSP) thatâs very popular with small business owners and ecommerce merchants. The company charges the same flat rate of 2.9% + $0.30 per transaction as Stripe for recurring transactions. However, they also charge a $10 monthly fee to enable recurring billing on your account. To make matters worse, its recurring billing feature is only available if you use either PayPal Payments Pro or the PayPal Virtual Terminal. Both of these features cost an additional $30 per month. In other words, it will cost you $40 per month just to use recurring billing.
Unfortunately, PayPal is by far the most expensive option weâve found for getting access to recurring billing. Unless you have another compelling reason for using either PayPal Payments Pro or the PayPal Virtual Terminal, we canât recommend using them for this purpose.
Dharma Merchant Services
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Dharma Merchant Services
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Visit Site Read our Review |
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If your business needs a full-service merchant account, Dharma Merchant Services (see our review) is one of the best choices available. The company offers competitive interchange-plus pricing, low monthly account fees, and a month-to-month billing system that doesnât lock you into a long-term contract. They also offer recurring billing as an optional feature of their MX Merchant integrated payments system. While the MX Merchant system is included as a standard feature of all Dharmaâs merchant accounts, support for recurring billing is an optional add-on, and it will cost you $10 per month. However, youâll pay the same interchange-plus rates for recurring transactions as you would for one-time purchases. If you process a lot of recurring transactions, the savings on processing rates should more than make up for the additional monthly fee.
Final Thoughts
Do you need recurring payments for your business? The answer will depend on your business type and how you make your sales. Many retail-only companies will not need recurring billing at all, while online businesses that sell via a subscription model wonât be able to function without it. As weâve seen above, selling products and services via subscriptions is becoming more popular all the time. If you think your business could benefit from using a subscription model, youâll need to add a recurring billing feature to your merchant account to make it happen.
If youâve determined that you need a recurring billing service, youâll want to make sure that it includes all the features you need, without paying an additional premium for them. Features such as the ability to store cards on file, customize your subscription intervals, and support free trials are all things to look for in selecting a recurring billing service.
Because recurring billing support is offered as part of a payment gateway, youâll want to be sure to select a high-quality gateway thatâs a good overall fit for your business. To learn more about payment gateways, and how to choose a good one, check out our article The Complete Guide To Online Credit Card Processing With A Payment Gateway. For more information about specific gateway providers, our article The Top 5 Payment Gateways For Online Credit Card Processing is an excellent resource. Finally, our Payment Gateway Comparison Chart allows you to compare popular gateways side-by-side. Good luck!
Our Top Picks For Credit Card Processing
| heading | Payment Depot | Fattmerchant | National Processing | Dharma | Square |
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Payment Depot |
Fattmerchant |
National Processing |
Dharma Merchant Services |
Square Payments |
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Get Started Review |
Get Started Review |
Get Started Review |
Get Started Review |
Get Started Review |
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Availability |
US-based businesses |
US-based businesses |
US-based businesses |
US-based businesses |
US, Canada, UK |
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Serves in-store, mobile, and eCommerce |
â |
â |
â |
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No early termination fee |
â |
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Compatible with most POS systems |
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Rate matching / negotiable |
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High-quality sales and customer service |
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Pricing model |
Interchange-plus |
Interchange-plus |
Interchange-plus |
Interchange-plus |
Flat rate |
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Monthly fee |
$49 |
$99 |
$10 |
$20 |
$0 |
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Standard retail rates |
0% + $0.15 markup |
0% + $0.08 markup |
0.20% + $0.10 markup |
0.15% + $0.07 markup |
2.75% total |
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Good for higher volume (over $20K/month) |
â |
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Good for mid volume ($10K-20K/month) |
â |
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Good for lower volume (under $10K/month) |
â |
â |
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Get Started with Payment Depot |
Get Started with Fattmerchant Payments |
Get Started with National Processing |
Get Started with Dharma Merchant Services |
Get Started with Square Payments |
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}#footable_61005 td.ninja_column_0 { text-align: center; }#footable_61005 td.ninja_column_1 { text-align: center; }
#footable_59578 td.ninja_column_0 { text-align: center; }#footable_59578 th.ninja_column_0 { text-align: center; }#footable_59578 td.ninja_column_1 { text-align: center; }#footable_59578 th.ninja_column_1 { text-align: center; }#footable_59578 td.ninja_column_2 { text-align: center; }#footable_59578 th.ninja_column_2 { text-align: center; }#footable_59578 td.ninja_column_3 { text-align: center; }#footable_59578 th.ninja_column_3 { text-align: center; }#footable_59578 td.ninja_column_4 { text-align: center; }#footable_59578 th.ninja_column_4 { text-align: center; }
#footable_50184 th.ninja_column_0 { text-align: center; }#footable_50184 th.ninja_column_1 { text-align: center; }
#footable_50279 th.ninja_column_0 { text-align: center; }#footable_50279 th.ninja_column_1 { text-align: center; }
#footable_49479 th.ninja_column_0 { text-align: center; }#footable_49479 th.ninja_column_1 { text-align: center; }
#footable_50571 th.ninja_column_0 { text-align: center; }#footable_50571 th.ninja_column_1 { text-align: center; }
#footable_50282 th.ninja_column_0 { text-align: center; }#footable_50282 th.ninja_column_1 { text-align: center; }
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Each of these companies provides excellent customer service and fair pricing.
The post The Merchantâs Guide To Recurring Payments And Billing appeared first on Merchant Maverick.
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