By Brian Kieley
Every company needs to get paid, whether it’s with cash or by accepting payment cards like Visa, MasterCard, American Express and Discover. Selecting the right partner to help you manage payments, however, can come with some pricing and service surprises.
The role of a payment services provider
There are many companies, including some banks, that have built businesses processing payments on behalf of merchants, big and small. These processing companies are called “merchant acquirers” and they sit between you, as the merchant, and the payment networks.
At a minimum, merchant acquirers provide two things:
- Point-of-sale devices that accept both magnetic stripe and chip cards (and may support “tap and go” contactless payment options using a card or a smartphone), and
- Payment routing services that, once the payment is received, will get the payment to the right payment network for authorization.
Many merchant acquirers also offer a full suite of services to help you manage your payments, such as fraud tools, reporting, disputed transaction management, etc.
Merchant acquirer fees
Because merchant acquirers offer a broad range of services, it can be difficult to do an accurate comparison of what you’re getting for the fees being charged. In general, merchant acquirers charge fees in several ways:
- Fixed monthly fee based on purchase volume. This is often the easiest model for a small business to manage. If you know the approximate amount of sales you’ll process on payment cards each month (remember to consider seasonal changes), you’ll know exactly how much you’ll pay every month. As your sales volume grows, so too does your monthly charge, usually on a decreasing scale that has been given to you as part of your contract with the acquirer.
- Variable monthly fee based on the mix of cards your customers use and the merchant acquirer services you select. This is more complex to manage, but you only pay for what you use. In this model, each purchase transaction can result in a different fee, depending on the card your customer uses. For example, a premium credit card will have a higher merchant discount fee than a basic debit card. The merchant discount fee is the amount that is deducted from the price you charge your customer to cover the acquirer network and interchange costs. For example, for a $100 sale you may receive $97 from the merchant acquirer; the $3 difference is the merchant discount fee. In addition to the merchant discount fee, you may also be charged separately for reporting, fraud management tools, dispute handling and other services.
- Combination of fixed and variable fees. Some merchant acquirers offer a mix of a flat monthly fee that covers basic services (payment routing, reporting, point-of-sale devices, etc.) and then a variable fee that is based on the total sales volume and the types of payment cards that your customers use to buy your products and services. These service models are often the most difficult to compare because the services covered by the fixed fee can vary, as can the ancillary services provided at additional cost.
Some of the newer merchant acquirers (PayPal, Square and Stripe, for example) have developed solutions to make accepting card-based payments much easier. Ask your bank if they provide merchant acquirer services; you may be able to get discounted pricing because you bank with them. Ask your friends who have small businesses who they use and who they like. Check out online reviews. A quick Google search for “merchant acquirer reviews” provides a long list of companies and reviews. Talk to your SCORE Austin mentor to get additional help in finding the partner who can help you manage your payments and keep your business growing.
About the Author
Brian Kieley is a mentor in the Austin chapter of SCORE. He has a long career as an executive in payments, customer service, operations, social media, and product development.