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What Small Business Owners Need to Know About Accepting Credit Cards

At the rate by which credit card payments are increasing, having a business not accept them is rare. In fact, credit card payments increased from 103.5 billion to 111.1 billion between 2016 and 2017. The number of e-wallet users has also been increasing over the years.

Credit card payments offer the average consumer convenience, which is a hallmark of most products that thrive in this age. As a small business, the question shouldn’t be if you should accept credit card payments. Your focus should be on how to best accept them. There are a variety of payment processing options to choose from, and all have their pros and cons. Your choice of payment processor will affect the convenience at which you can serve customers and dictate your business' profitability.

Here are some insights on how you can accept credit card payments the right way:

The Benefits and Risks of Accepting Credit Card Payments

Credit card payments will boost your sales. Since credit card companies offer incentives like cash backs and travel rewards, customers are more willing to spend on things using their cards. The fact that using credit cards might only require a customer to provide their card number or swipe it promotes impulse buying. On the flip side, the rigidity of having to go to an ATM or write a check limits impulse buying for cash-based transactions.

Lastly, embracing credit cards can also improve your cash flows. Unlike in the case of writing checks, credit card transactions arrive in your bank account quite fast. Maintaining steady cash flows is essential to run your business smoothly.

However, accepting credit card transactions has a lot of risks. First, data security and fraud incidents could easily ruin your business' reputation. Second, the fact that a dissatisfied customer can initiate chargebacks against your business can be scary. While merchants do win chargebacks cases, the majority of them favor the customers. Last is the processing fee. Accepting credit card payments doesn't come free, and you need to assess the intricate details of your business to decide the best way forward.

How Payment Processing Works

While you don't need to fully understand the intricacies of how card transactions are processed, having a little bit of knowledge can give you an upper hand at handling issues with transactions.

Ideally, you need first to have a way to accept customers' credit card data. You can either use a credit card terminal for in-store purchases or a payment gateway for online transactions. Another option for accepting credit card payments is to have a virtual terminal. The option allows you to turn your computer into a credit card payment terminal, through which you can either input the card data manually or use a card reader.

This data is then forwarded to your payment processor. The processor will check the cardholder's issuing bank to ensure that funds are actually available for the transaction to go through. While the processor will assess whether the cardholder has enough funds in their account for debit cards, they will assess if the cardholder's credit limit allows them to make a transaction for credit cards. The process also includes evaluating the card for any fraudulent activity. If everything checks out, the transaction will be approved.

The debit and credit card transactions done throughout the day are then automatically uploaded on your payment processor's network. The processor will deduct their interchange and markup before your cash can show up in your bank account two or three days later.

The Cost of Processing Credit Card Payments

The cost of accepting credit card payments will be dictated by a variety of factors, though this price has been increasing over the years. For instance, your volume of monthly transactions, how the payment will be processed, and the payment processor's pricing model will all come into play. While some payment processors only base their pricing on your sales percentage, others will use a combination or a sales percentage and a flat rate.

The latter pricing model will work better for businesses that sell big-ticket items than those that have low volume sales. Some of the common fees you might need to pay include:

  • Set-up fee- some companies charge a fee for setting up payments
  • Interchange fees- these are fees that are charged per transaction and often account for 2-3% of the entire transaction. In most cases, payment processors charge online and mobile transactions at 3% and in-person transactions at 2%
  • Monthly minimum fees- payment processing companies have minimum monthly requirements that each merchant has to meet. Failure to meet these requirements will result in you paying the cash difference
  • Monthly statement fees- many payment processors require merchants to pay a fee to receive their monthly statements
  • Early termination fees- if you cancel your contract early, you could have to pay an early termination fee, which typically amounts to thousands of dollars. It is wise to work with payment processors that offer flexible month to month contracts rather than long contracts
  • Fees for owning equipment- some companies will offer you payment processing equipment for free while other will charge for these devices. They offer the option of either purchasing or renting the equipment

How to Ensure the Security of Customer Data

Accepting credit card transactions opens your world up to a whole new risk. Cybercriminals and fraudsters often find small businesses as easy targets since they lack the necessary control measure for protecting credit card data. Small businesses might lack the resources to protect this data, an excuse your customers will not listen to.

If threat actors like hackers are successful in their plots against your business, you are likely to lose customers, get your reputation damaged, and have to pay hefty fines for the incidents. While some small businesses do recover from such attacks, some end up closing shop.

Lucky for you, the PCI DSS exists. These are security standards meant to protect the credit card industry from common threats. Complying with the standard is a sure way to minimize the risk of fraud and data breaches. However, you should go beyond complying with the standard to ensure the optimal protection of credit card data. While PCI DSS compliance is effective at keeping threats at bay, it offers a generalized approach to common threats. Some threats will require a custom approach from your business.

Accepting credit card transactions levels the playing field for you and your competition while allowing you to enjoy the perks it brings. The payment processor you pick should offer not only affordable services but also make accepting card payments easy. Take your time weighing between the different payment processors to choose one who suits your business.



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