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Best Card Processing Solutions for Small Ticket Merchants
Coffee To Go
Low Ticket Businesses Have Special Needs
Not every successful business relies upon expensive products or up-selling clients in order to increase the total sale per ticket. Many merchants thrive quite well by selling low-cost goods to their customers. Coffee houses are one of the best examples, where average ticket prices are often between $2 and $10. Yet most processing companies are forced to charge transaction fees that consume most or all of the profit from a purchase by artificially inflating the percentage assessed against the transaction.
For higher ticket totals, where the transaction is above $10 and the merchant's profit more than $1, traditional models of bank card processing are viable and may lead to greater merchant savings. Understanding that a transaction of $10 would likely cost the merchant anywhere from $0.30 to $0.60 under typical merchant services agreements, many businesses with these low tickets are unwilling to give up such a large chunk of their profits in order to accept credit or debit / check cards.
Resources in Print
Rates May Vary
Rates and Costs for Debit / Check, Rewards and Business Cards
Often the best choice in processor hinges upon the card types being accepted. In general, small charges are paid for by personal cards linked directly to a checking account. These "debit" or "check" cards remove funds directly from the user's account, making them safer options for processing companies to handle. There is typically less fraud associated with these card types and considerably less risk regarding the payment of funds due, so these card types are cheaper for the processing companies to handle (with lower Interchange rates overall).
Debit transactions used to be preferred by many businesses because the transactions were essentially the same as using an ATM machine, but the costs of these transactions are often prohibitive for small tickets. Under typical processing agreements the Interchange cost for swiped check / debit cards remains $0.22 (as charged by Visa and MasterCard to the processing companies), but this is still lower than what is usually charged for processing transactions as PIN-based debit.
When check cards are not used for these low-ticket transactions, the credit card choices most popular with consumers will often include a mix of very basic bank-issued cards and "rewards" cards that earn points or cash-back. In most "tiered" style processing agreements, rewards cards are processed at a "mid-qualified" rate, which adds a surcharge to the base rate that is assessed against the basic cards. Some merchants may find a high volume of corporate or foreign cards as well, which may process through at the even higher "non-qualified" rate.
Viable Processing Options for Tickets Under $10
The primary considerations for choosing a processing company will include these:
- Amount of ticket sale
- Monthly volume of total sales
- Speed of deposits
- Customer service options
- Types of cards to process
Increasingly, merchants are discovering that mobile solutions offer benefits for these small businesses with low sales tickets. Without the cost of a counter-top terminal or expensive POS system, low-cost or free software options to process over tablets and smart phones has made the entry into bank card processing much more viable for many business owners and individuals.
Most of the software options for processing over a smart phone or tablet are merely third-party interfaces that require traditional merchant agreements and often high monthly fees. There are dozens of these in the various marketplaces and most of them are not a particularly good value. The options that do stand out for small, low-ticket businesses include Square from SquareUp.com and PhoneSwipe (or PayAnywhere, as it is also known) from North American Bancard. The only reason that the list is narrowed to these two options is the removal of the transaction fee. On a $5 charge, the Interchange cost of a Visa or MasterCard credit transaction of $0.10 equates to 2%. A transaction for a check card is likely to cost $0.25, or 5%. These fees are normally on top of the percentage assessed against every sale, so it is easy to see how what is sold to a merchant as a 1.75% "qualified rate" can quickly become a real-world base rate of over 4%, and upwards of 6% when taking into account the increases in processing downgraded card types like rewards and mileage or business signature cards.
Both Square and PhoneSwipe offer plans that dispense with the transaction fee in lieu of slightly higher percentages as their base rate, but the results are startlingly lower over-all costs of processing. I recently sat down with a merchant who did over $20,000 in monthly sales in his street corner cafe. By using Square, he was getting an overall processing rate of just about 3%, compared to the coffee shop he owned across the street with a comparable volume that was costing close to 5% with another processing company. His assessment of the SquareUp service was that it adequately handled his needs and he was entrenched in their iPad-only high-end retail software. He had required relatively little in the way of customer service from Square, though he was dissatisfied that there was no phone number to call for assistance and found it a hassle to have to rely on email for support.
Which brings up the point of comparison between these two services. PhoneSwipe, since it is operated by North American Bancard, is part of a merchant services company that has been around for over a decade and has the required infrastructure in place to handle any issues that arise. It has live tech support and active customer service representatives available to speak with, even if it is just about how to add a product to the software inventory. The biggest complaint against Square is consistently the inability to have problems handled quickly and efficiently by a friendly person on the phone. This is not a big deal, perhaps, for most of Square's occasional users, people who do rare sales events, use it at garage sales or for personal things like having friends pay them back for dinner. But for most real businesses, this is a huge deal and potentially worth a higher cost because of the savings in time, energy and resources. However, PhoneSwipe is generally going to prove less-expensive as well as offering the amenities expected of a full-service processor.
Square and PhoneSwipe Rate Comparison and the Secret Request Merchants Must Make
Honestly, the rate comparison between Square and PhoneSwipe is so marginally different as to almost not be an issue. Yes, PhoneSwipe has a lower qualified rate than Square: 2.69% vs Square's 2.75%. And both services have a higher "non-qualified" rate that may be assessed, of 3.69% and 3.75% respectively, with an additional transaction fee of $0.19 or $0.15 tacked on, though these are reserved under most circumstances for manually entered transactions (as opposed to swiped cards). It should be noted that PhoneSwipe charges the higher rate for business / corporate cards, where Square may not, so if the business primarily takes those card types (i.e., the majority of clientele are writing the purchases off as business expenses), then Square might be the more appealing option. If those cards are less popular, it will still most likely be cheaper to process over PhoneSwipe, but here is the key: request that the agent assisting you with the application processes rewards cards at the Qualified Level. Without that request, the set up might send rewards cards through at the higher rate, too.
Having no transaction fee means that no matter what the individual ticket sales are, at the end of the month the total for processing should be close to 3% and quite possibly lower. And it should never exceed 4%, even with a moderate mix of non-qualified charges. (Whether it would exceed 4% with a majority of non-qualified charges will be determined based upon the actual individual ticket sizes because the transaction fees would have to be totaled and calculated to figure into that percentage.)
What Is the Risk to the Merchant?
The best thing about either Square or PhoneSwipe is that the accounts can be set up with zero commitment from the business owner. That means, there is no requirement to process a certain amount in any given period (most processors require a $25 monthly minimum) and there is no fee for cancelling the account. This means that, with either option, a merchant can have it available to use as wanted or needed, but without any requirement to do so. No contract translates to fewer headaches and offers small businesses the chance to test how accepting credit cards affects their bottom line. In some cases, I have had clients who used Square as an entry position contact me to "upgrade" their service in order to save money or increase efficiency. Many of my new clients are set up with PhoneSwipe as a no-risk way to assess their needs and determine what the best next step would be. But one of the best things about PhoneSwipe is that its card reader (by RoamPay) is fully PCI-compliant, which means that it is digitally secure from the swipe to the deposit in the merchant's account. Square's little cube is not digitally encrypted, which won't mean anything to the vast majority of merchants, but to a few of them it means their stolen or hacked devices won't cause compromises for their business.
Software and Device Comparison
There are a few issues that stand out between Square and PhoneSwipe. While Square's high-end retail POS system for the iPad is truly excellent, the rest of their free software is much less robust. PhoneSwipe's software for any supported device, including Android and Blackberry in addition to Apple's iOS, is full-featured, with a detailed catalog system for inventory (including photographs), tip lines, geo-tax, optional integration with QuickBooks and more. Both solutions allow for giving receipts for cash transactions, as well, and offer online portals for viewing transaction statements.
Square promises to initiate deposits within 36 hours, while PhoneSwipe promises to complete them within 48; either way, you are looking at typically getting your money in 2 business days. What is not readily apparent is that Square will generally hold amounts above $1,000 per week for up to 30 days. There is a professional upgrade available for high-volume merchants to allow this to be waived (as in my example with the merchant who did $20,000 monthly), but this is generally not available to new businesses with no processing history. PhoneSwipe, on the other hand, can be set up by an agent who will take a merchant's individual needs into account and offer sufficient parameters that would allow for all funds to be deposited in a timely manner, regardless of how expensive the sale. I have had clients with PhoneSwipe whose tickets are in excess of $10,000 (for a single sale) and as high as $23,000 with no issues getting their funds within the 48 hour period. If sales are going to fluctuate, possibly even dramatically, PhoneSwipe offers the flexibility to let that happen without delayed funds.
PhoneSwipe also offers far more device options. Square has software for iOS and Android, with its flagship POS on the iPad, but PhoneSwipe services Blackberry devices as well. As stated before, the PhoneSwipe software also offers the same rich features on all devices. Merchants should check the info on their device before setting up an account with either service, as not all phones and tablets are supported. Most of Apple's products do work (even the iPod Touch from the 3rd generation on), but the other platforms have not benefited from the exacting hardware standards that Apple adheres to. Lists of approved devices are constantly evolving, and many new phones are never fully tested, but ultimately this is still a no-cost to try situation, with the benefit being that devices are progressively less expensive and easier to upgrade than every before.
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This is my blog on issues both business owners and processing agents encounter in the merchant services industry. There is information on many types of processing options and services.
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