Types of Processing

Credit cards allow funds to be transferred to your bank account in less than a week. This can be a welcome relief for businesses that experience a tight cash flow.  In addition, many types of businesses just wouldn't work with an invoice payment system.  With a credit card processing system in place, you can catch impulse buys and have a professional looking website that online shoppers are familiar with. There is much to be said about developing a system and letting an outsourced company do much of the work of credit card processing for you, so you can deal with more important business issues such as product development and customer satisfaction.

Qualifying for an account

Before giving you an account, a services provider will want to make sure that you are a legitimate business that will not leave them liable for fraudulent charges. They will start with a basic background check. This includes a thorough credit history review of the owners or officers listed on the application, in addition to credit references from two to three suppliers.

The most important question that providers want answered is whether your business is likely to have a high incidence of chargebacks. A chargeback is a reversal of a sale that was credited to your account, usually because of an error made by the card holder's bank, a misunderstanding by the customer, or fraud. 

Providers will also consider the type of credit card transactions that your company performs. Swiping customers' cards in person allows for much less risk of credit card fraud or misunderstanding regarding what the customer is purchasing.  Being a higher-risk internet merchant does not necessarily prevent you from getting an account - but it will drive up your costs.

Recurring costs

The primary fee on a credit card processor account is the discount rate, a small percentage the provider charges on each transaction. Banks and larger providers will base this fee on criteria including: your company's evaluated risk, average sales ticket, transaction type, and total charge volume.

Because of the difference in risk, most providers have two different rates, one for card-present transactions and one for MOTO (mail order/telephone order, also includes Internet transactions) or card-absent transactions. 

Another processing fee charged by the bank is the per transaction fee.  There is also a fee to cover the cost of issuing monthly credit card transaction summaries or statements.  In addition to these basic fees, there are other fees that service providers can charge: annual fees, programming fees, internet processing fees, shipping and handling, American Express setup fee, customer support fees, etc.  Make sure you have a complete understanding of all the charges you will incur before making your decision of which one to use. 

Choosing a solution provider

Obviously price is an important factor in choosing a provider - but it should not be the only factor.

Customer support can be essential - problems in credit card processing can quickly impact your bottom line. The best way to learn about a provider's level of customer service is to obtain customer referrals from current clients. 

If you are not using a bank or financial company you recognize, make sure you verify that the company you are investigating is legitimate.  Contact the Better Business Bureau to check the company's status if you are unsure, and if you find a provider on the Web, make sure you get a physical address and phone number.

Internet are used for businesses online. The website is the basis of the business and all transactions are handled therein. These accounts usually have a significant amount of support and security because they are the means for the entirety of the business. Most businesses that have a website can open an internet processor, but it is especially helpful for those lacking a physical presence. This type can be opened using a form online from the bank.

Online are simply accounts that are opened online. These can be opened by most businesses. Merchants that have land based stores and also have online catalogues, benefit from these types of online providers because they enable the stores to receive orders online in addition to the land based activities. This helps internet companies target a broader audience while retaining their regular business status.

High-risk are used for businesses that have a high rate of chargebacks and risk associated with them because they may conduct controversial business activities such as dealing in adult entertainment or internet gambling sites.  Other high-risk companies include travel companies, collectibles companies, pharmacies, and paycheck cashing.  These companies may be required to pay higher fees to account for the high incidence of disputed charges.  See our article on high risk credit card processing services.

Offshore/Overseas are an alternative solution for high-risk companies.  Offshore institutions are sometimes more likely to offer competitive rates because they do not need to conform to the requirements of U.S. Visa/Mastercard regulations.  In addition they afford a business a higher level of privacy from public scrutiny and some tax advantages.  They are also attractive to businesses who do a high volume of business because there are no thresholds they have to stay within.  See our article on offshore merchant accounts for more info.