This is a guest-post from Sean Harper, co-founder of TransFS. He is a zealot about making sure business owners get a fair shake from their financial services providers.
- Know what your requirements are and find a processor that has lots of experience with those requirements.
- Avoid hidden fees an interchange-plus contract.
- Do not agree to a termination fee.
- Shop around.
The worst credit card processing outcomes occur when the business owner doesn’t screen the processors that don’t have experience fulfilling that requirement. Fortunately, there are lots of processors that are experienced dealing with SaaS and web services companies and providing the gateway (auth.net or otherwise) that they need.
The processing industry has a bad reputation for sneaking in extra fees. The best way to avoid those fees is ensure you have an interchange plus contract (here’s an article written by a VP at Global Payments about how interchange plus reduces the extra fees they can charge. There are other, more obfuscated kinds of contracts including Tiered Pricing and ERR.
The largest cost that credit card processors face is interchange, the amount that they need to pass on to visa and mastercard, who in turn pass it on to the banks that issue credit cards (average ecommerce interchange rates). Interchange plus tells you exactly how much you will pay the processor above their cost (kind of like when you buy a car, you want to know what the dealer pays for the car so you know you aren’t being gouged). For example, you might pay Interchange + 0.15% + 0.10 / transaction.
Processors often include in their fee structure a termination fee that can range from $200 to a few $thousand. Making money when you cancel creates a lousy incentive for the processor to provide good service. When pressed, all quality processors will waive their termination fee, so it is something to insist upon.
Get interchange plus price quotes from at least a few vendors and talk to references. For most businesses, credit card processing is the largest financial-services expense and the most mission-critical to keep the business running. It’s a really important decision that requires some careful thought.