Credit Card Processing for Merchants 101

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June 01, 2010
Guest Post By Stella Fayman, Project Manager, TransFS

Credit card processing is a big mystery to most merchants, and we answer a lot of questions regarding merchant accounts and rates from users. Here are some answers to the most common questions:

1) I just got some rates from processors. What do they consist of?

First of all, make sure that you were quoted interchange plus pricing and not a tiered pricing rate. Tiered pricing is prone to abuse because the “downgrade” rates (which are much higher than the quoted rate) are not always disclosed and the precise rules of what triggers a downgrade are never disclosed (processors freely admit that they make more money this way by confusing customers).

There are lots of different pieces that make up the cost of processing, the largest of which is interchange, the amount that the credit card processor (also called a merchant account provider) collects from the business accepting credit cards. They then pass the cost along to Visa and Mastercard, who then in turn pass most of interchange along to the banks that issue credit cards. Credit card processors deserve a reasonable markup over the price of interchange. They provide all the customer service, maintain the computer networks that send the transactions around, handle all the billing, etc.

Beyond those costs, any other fees (such as a statement fee or a cancellation fee) is unnecessary and should be negotiated.

2) So how do I interpret the rates? How much should I be paying?
For interchange plus pricing, the quote will consist of Interchange +Processor Markup+Per Transaction Fee. That should be it.
With tiered pricing, however, there is usually one rate quoted (called the qualified rate). What they do not tell you is that ALWAYS, there is something called a downgrade, where a large portion of your transactions will be classified as a Midqualified or Nonqualified rate. To learn more on this topic, check out the TransFS blog .

In our opinion, a reasonable markup over interchange, depending on the size of your business, is 0.10% to 0.50% of volume, plus 0.05 to 0.20 per transaction. If you are paying more than that, you might want to consider finding a new credit card processor.

To get the best deal on credit card processing, make sure to comparison shop at least five processors. An easy way to comparison shop is to use TransFS.com.

3) What about a gateway? What is that anyway?

Think of a gateway like an electronic credit card terminal which your customers virtually swipe through when they’re paying with a credit card. The biggest and most obvious gateway is Authorize.net.

The gateway sits between your shopping cart software and your credit card processor. The processor will always be the one who sets you up with your gateway of choice– you can do it yourself but you need information that only the processor can give you. More information on gateways and credit card processing can be found on the TransFS blog.

About:

TransFS.com is the comparison shopping site for credit card processors. Just like getting multiple quotes for airfare using Expedia, TransFS lets business owners compare top quality processors on an apples-to-apples basis and makes sure they get the best deal by not having any cancellation or hidden fees, and only interchange plus pricing. TransFS also launched the Credit Card Processor Directory, where business owners can rate and read reviews. Email Stella with specific questions at stella@transfs.com.