In the interest of full disclosure, I am an account executive for a credit card processor. While this discussion may seem like a shameless plug for my services, it is also a validation of sorts about my knowledge of the credit card processing industry. There are so many "processing experts" floating around that can only regurgitate company scripts or have never even worked in the industry that I felt like I should lay the groundwork before proceeding.

Now, back to the question at hand: "Are all credit card processors equal?" Credit card processors are also referred to as Merchant Services providers, so the real question is: Who can best service the merchant? Contrary to popular opinion, no one processor is best able to service all merchants all the time. Unfortunately, sales reps in this industry tend to reach out and grab at everyone we can touch and proclaim our superiority without really addressing the questions that need to be asked. This intent of this article is give you those questions.

Question 1: Do I Need Credit Card Processing?

Statistically, most businesses benefit from the ability to accept credit and debit cards as a form of payment from its clients/customers. Everyone expects to able to swipe their card at lunch, give their card number over the phone when ordering pizza or pay their copay at the doctor's office. There are some businesses where it is less obvious, but still clearly beneficial to accept credit cards. The number 1 reason to accept ANY form of payment is dictated by the customer. Do they want, expect or need to pay by credit card? Is it CONVENIENT for them to do so? Are there benefits to the merchant for accepting cards?

Answer: for Most businesses, YES, you should be accepting as many forms of payment as possible.

 There are only a few reasons NOT to accept credit cards. Most processors do not approve merchant applications for businesses they consider "high risk", although there are of course, processors who specialize in these accounts. This may include adult-related accessories, internet businesses specializing in non-tangible goods, firearms, pharmaceuticals.

Another example of not using a traditional processor is a very low-volume merchant where the monthly fee or other costs related to accepting cards do not make it cost effective to justify the service. "What about no monthly minimum" you say? Great question. There are providers out there which state "no monthly minimum", but beware the fine print. While they may not have a monthly minimum, there may be statement fees, junk fees, terminal maintenance, supply fees etc.  There are options out there, just be sure to understand what it will cost you to accept cards. The additional business you will attract by displaying those magic logos may be offset by the costs of accepting cards, which will eat into your profit margin.

 Assuming that your business will benefit from accepting credit and debit cards, the next step to consider is which kind of terminal will MOST SUIT your business.

In order to assess which terminal you need, we need to first look at how you will be accepting cards. Credit card transactions are defined as either swiped (card present) or keyed (card not present, or typed) transactions. When I sneak into a fast food place inbetween appointments and swipe my debit card with my picture on it and it works [magnetic swipe, not approved or declinde :) ], the merchant has just had a swiped, very low risk transaction. Most fraudulent transactions DON'T occur in person. When I get home late, and call for pizza using my fiancee's card (with a girl's name on it) and read off a number, the merchant has just  accepted a keyed, or hand-entered, transaction which is much riskier to the merchant as well as to the issuing bank and V and MC as well. Think, higher risk, higher rate.

If most of your transactions are keyed, then you may benefit  from a mail-order/telephone-order (MOTO) account. While the base-rate charged to the merchant is lower on a swiped account, riskier transactions will trigger the dreaded downgrade charges. Downgrade charges help offest the risk to the issuing bank. Hand-entering a card number on a swiped account will result in a higher cost to the merchant. Mail-order/telephone-order accounts start out with a higher base rate, but do not downgrade for hand-entering the card. They will still downgrade for other categories, if applicable. 

Will a MOTO account always save you money? NO, not always, but thios depends on the card mix.

Next, you need to evaluate which features you require in a terminal. Virtual terminals allow you to use a secure internet connection to process cards without the need for a physical terminal. They can also be integrated into websites, offer shopping carts, can be emailed to customers and can be customer-cafing (they enter the info) or merchant-facing (you enter the info they give you).

Physical terminals offer an array of features such as:

• additional memory
• internet and/or phone connections
• quick thermal printing
• wireless (LAN or 3g) options
• touch-screen displays
• ability to process multiple accounts (swiped and MOTO), gift cards checks, pinpads

 Now we can consider different rate structures. [SECRET] There simply isn't one universal rate structure that works best for all merchant, all card types, all the time. Each pricing structure has its advantages and disadvantages, so be sure to read the fine print.

When determining the ideal pricing structure for your specific business, it is important to understand the type of cards you are accepting (debit or credit, rewards cards, government cards, corporate cards, etc), how you accept the cards (all swiped, all hand-entered, 50/50) and other factors such as average ticket, amount of transactions per day/month and total monthly volume.

Some examples of pricing structure include:

Three Tier (also described as qualified, mid-qualified and non-qualified)

• If most of your transactions are qualified, this plan works fine.
• Too many mid- or non-qualified transactions are costing you a lot of money, since you were sold a great base rate, but getting downgraded too much.

 Interchange + (Interchange is the actual cost of each of the different types of cards, the + indicates the profit margin on ALL cards)

• This CAN result in lower overall transaction costs because the profit margin on all of the downgrades will normally be lower.
• These statements are very detailed, sometimes making it difficult to understand exactly what you are paying. This also assumes that you are paying the true interchange cost (you wont always see that on the statement).
• Interchange plus (IC+) also adds the profit margin onto ALL transactions. Therefore, if a majority of your transactions are qualified and you have a cometitive base rate, then the "+" in IC+ may cost you more money.

"What about flat fee plus interchange costs?" you ask. Great question. Again, this will depend on the volume and type of cards. Most businesses are sold on the "this is the lowest possible cost" closing technique. This is only true if you are getting the accurate interchange cost (the correct category for each individual card type), the fee you are paying is less than the profit your processor has built into the account, and there are no other fees involved (read the fine print).

• Ex. $100 plus interchange cost only works if I was going to make more than $100 on your account.

Another important factor to consider is your mix of debit cards versus credit cards. Q1 2009 was the first quarter where non-pin based debit (think Visa^©checkcard) volume exceeded credit card volume. If you pay the credit rate for debit cards, you are paying too much. 

 Can I use my existing terminal?

• Most terminals can be reprogrammed.
• Keep in mind, that newer technologies can provide significant benefits, such as quicker printing, better selection of (cheaper) paper, internet connections saving you the cost of a business phone line
• How does the cost of reprogramming, if any, compare to the cost of a new terminal?
• Eventually, all terminals wear out.

Do I need a new terminal?

• There are many terminals available in the second hand market. Some of the "new" terminals were overstock that have never been sold, but do not reflect current technology and/or features. If they didn't sell in 1999, why would you want them now?
• It is important to make sure that the terminal you are purchasing is compatible with your processor (make, model, memory installed, type of connection etc.)
• How much will it cost, if anything, to reprogram?

Buy or Lease?

This is an individual decision usually centered around total cost and cash flow. Examples below are a bit exaggerated to illustrate the point. 

• It doesn't make sense to lease a $50 used terminal
• A low monthly lease payment is easier to budget for than a $5000 ATM

Watch out for free terminals with monthly maintenance fees, which will go on FOREVER.

Gift Cards, when implemented and marketed correctly, can have a dramatic impact on your business. At the very least, they are a personal endorsement of your business. And, let's face it, who doesn't like a gift?

 Hopefully, your rep didn't sell you a piece of equipment, get your signature and move on to the next prospect. If he did, here are a few other recommendations.

• Review your first statement to make sure you are paying what you are expecting to pay.
• Periodically, review your statement, especially if your business has changed. Very common changes include different mix of card types (growing check average, outside orders such as catering or off-site sales which you are hand-entering)
• Are you compliant? PCI compliant, that is. Are you storing credit card information? Are your truncating your receipts (last 6 digits only)? Are you storing receipts/authorizations or paperwork with credit card numbers on them? If you shred (which you should), are you logging it? Please do not underestimate the value of professional shredding companies. For restaurants and ATM owners, is your software compliant?
• Are you using your credit card processing as a tool or an expense?