Merchant Account & Credit Card Processing FAQ
Most frequently asked questions
Why do I need a payment processing service?
While there are businesses that continue to operate cash-only payments, the numbers are few and far between.
The number one reason cash-only business owners put off accepting credit and debit cards processing is due to the anxiety-inducing fees and tangled web of middlemen that come with such transactions.
These are legitimate worries. There’s admittedly an old-fashioned charm to cash-only operations, as well as the added benefit of avoiding fees and the chance of bad debt.
However, excluding card payments comes with risks too, such as robbery, employee theft, lost time calculating deposits, counterfeit cash, and lost sales as many customers nowadays carry less and less cash on their person.
Having a card payment processor can streamline your business, as well as introduce you to an increasingly global marketplace. The benefits speak for themselves. Thankfully, some of the best processors will let you try out their service on a trial basis or access demo versions.
Many also offer no-commitment contracts, which will give you the freedom to cancel whenever you wish should the service not be a good fit for your business.
What is a payment processor and how does it work?
Simply put, a payment processor is a third-party service that partners with your Acquiring Bank in order to conduct payments online. The processor integrates their gateway with your e-commerce site and then processes your customers’ payments.
This is conducted on a PCI DSS hosted payment page that either redirects customers away from your site to the processor’s, or on a payment page that’s customized with your brand design/logo—though not all processors allow the latter, known as API integration, and it requires some basic coding knowledge.
As digital transactions are more susceptible to fraud, it’s strongly advised that you choose a trustworthy and well-known processor, otherwise customers might not feel safe enough to follow through on the purchase.
Security is also a key function. The best processors are vigilant about preventing the use of fraudulent or stolen credit card information, and protecting your business from liability and unnecessary chargebacks.
A secure payment provider is likewise beneficial for your customers to protect their card information from data breaches. You want a processor that’s PCI-compliant, meaning they adhere to a set of rules and standards regarding data security known as the Payment Card Industry Data Security Standard (PCI DSS).
Processors usually provide a host of other services, too, such as processing different currencies, language translation, and alternate payment methods. Processors charge those who use them a fee per transaction, which varies depending on the provider.
Is credit card acceptance safe?
Although accepting credit cards introduces a new set of risks not present in cash payments, it’s important to remember that no payment method is 100% secure.
When accepting card payments, it’s crucial to implement all necessary security measures and precautious, and that starts with choosing a PCI-compliant processor. You can be sure a PCI-compliant processor will have you covered when it comes to data security.
What do I need to know about PCI DSS?
The main thing you need to know is that PCI-compliance is required if your business accepts card payments. If you aren’t, your processor will probably charge you a hefty fee, which will eat away at your profit margins.
PCI-compliance is important for both you and your customers as it means you’ll be able to handle transactions securely and that your customers data is protected.
It’s a good idea to choose a processor who provides PCI-compliant fraud and security protection as pursuing PCI-compliance independently can be both expensive and annoying.
How do I go about being PCI-compliant?
Most likely you’ll only need to fill out the Self-Assessment Questionnaire once a year; this is the minimum requirement. You might also need to allow for an on-site security assessment to scan your business operations quarterly if you store cardholder information.
Are there different rates for different card types?
As discussed earlier, different cards have different interchange and assessment fees. Low-risk cards like debit cards with an associated PIN typically have a lower interchange rate than credit cards.
Rewards cards, international cards, business cards, and American Express cards have some of the highest rates. Make sure you know exactly what you’ll be paying to process each type of transaction.
This always seems to be the question of the hour. The answer is – it depends. You should expect to pay at least 1.7% of your gross card payment volume, but hopefully not more than 3.5%.
As a rule, the more you process, the lower your percentage should be. But other factors contribute to your overall cost. Unfortunately, most of it is out of your hands
How soon will I get paid?
This is one of the most important factors to consider when shopping for a processor. Payment providers like PayPal are known for their instantaneous payouts, whereas others can take as long as seven days.
Speak to reps from potential processors, as well as read through user reviews to get an accurate sense of each processor’s average payout time. It’s also important to note that third-party payment aggregators (PSPs) combine your business with other merchants into a joint merchant account, which results in increased security risk.
Consequently, aggregators are generally on high alert when it comes to monitoring suspicious activity. For this reason, they’re much more likely to place holds/freezes on your account. Though holds on average end after 24 hours, giving your processer enough time to review, they can last up to 30 days in unfortunate cases. If this is something you’re particularly concerned about, you might want to consider choosing a merchant account provider, as they tend to provide more stability.
Why do processors freeze merchants’ money, or terminate accounts?
A variety of factors can result in your processor freezing or terminating your account:
- Business type: Some businesses are classified as ‘high-risk’—not as a reflection of your credit score or performance, but rather due to the nature of your business, specifically the products/services you sell. Fraud, chargebacks, customer complaints, and legal disputes are more likely to occur in certain industries than others, and processors take that risk into consideration when evaluating you as a merchant. High-risk businesses include firearms/ammo dealers, cigarette products, antiques, adult entertainment, and gambling. If you operate such a business, you’re probably better off seeking a provider that specializes in ‘high-risk’ accounts to avoid sudden account holds and/or terminations.
- Age of business: It probably goes without saying that an established business with a reliable customer base and extensive business records will pose less of a risk in terms of security and fraud than a young start-up. Your processor takes this into consideration, but this doesn’t mean a new business is doomed from the start, nor does it mean that an older business is except from these concerns. That said, up-and-coming businesses should anticipate increased suspicion from their processor and maintain thorough financial documents in case of account holds/freezes.
- Transaction volume/size: It sounds counterintuitive—after all, the point of owning a business is to make money—but if you make too much money, this could actually become a point of issue with your processor. When you sign up with a payment processor, you typically provide information regarding your average/projected transaction size/volume. Processors then use this data as a standard to identify suspicious activity. So, if your sales exponentially increase overnight with little indication as to why, your processor might suspect fraud and put a hold/freeze on your account. This could also result in a termination. But don’t worry, you can easily prevent this so long as you keep your processor informed of any changes in your business. So, if you anticipate having a busy month, just let them know.
- Chargebacks: Excessive chargebacks are on the mean reasons accounts are put on hold or ultimately closed. When a customer wishes to dispute a charge, they initiate a chargeback, and while there a number of reasons for doing this, it’s usually because they don’t believe they authorized a particular charge. As a result, chargebacks can be an indicator of fraud in a business. Even if the issuing bank sides in your favor in the dispute, the chargeback it’s still a bad sign to your processor, and too many could lead to a suspended account, a freeze on your funds, worst case scenario, an account termination.
- Transaction type: Payments types vary in terms of security. For example, chip reading and NFC payments are the most secure, as they’re both EMV-compliant, making fraud and data braches very difficult. While swiping is mostly secure, as well, manual keyed-in data and online transactions are the least secure, and are consequently risky for your processor. If there are too many of these types of payments, your processor may hold your funds or terminate your account.