Wednesday, May 23, 2012

What Should Make A Merchant Want To Change Processing Companies?

Merchants must ask themselves why they would consider changing their processor. Perhaps even before the next sales representative walks through their door, seeking their business, it would be a good plan to have the answer in place

Nobody likes wasting their time

As an agent in the field, I can assure any merchant out there that nobody in a sales position enjoys wasting their time. If a sales rep is going to put in the effort to sign a merchant, he or she is going to appreciate knowing the merchant's actual wants and needs. And the merchant will save both time and money by being aware of his or her own expectations. In actuality, if the agent is honest and the merchant is above board, both are on the same side. Many merchants feel adversarial toward sales reps of any stripe, often with good reason. Being on the same page, however, is a win for both the merchant and the rep. The rep may not see the huge profit or windfall initially hoped for, but the relationship should be much more solid and the retention of the client much more likely.

Top Reasons To Consider Switching Credit Card Processors

Consider this check list as a starter only. Every merchant will have different issues that they want to consider and different values attached to each. What ranks as most important to one merchant (i.e., cost savings or next day funding) may be of little importance to another. And it may be that if a merchant has ten things on the list, one or two of them might be flexible options if the other 8 or 9 are going to be handled well.

  • Current experience is less than satisfactory
    • Customer service issues
      • Live vs online only
      • 24 hour vs "normal business hours"
      • Long holds
      • Frequent shuffling between departments
      • Delayed resolutions
    • Network downtime
    • Late deposits
    • Slow deployment
  • Belief that rates and fees should be lower
    • Savings on operating costs
    • Lower bottom line
    • Suspicion that current deal is inflated
    • Take advantage of new legislation or current best practices
    • Inflated PCI compliance fees
    • Unnecessary annual fees or hidden fees
    • Too many penalties
  • Option to work with someone local (actual relationship)
  • Desire to work with more modern system or different technology
    • Mobile solutions
      • Stand-alone terminals
      • Smart phone or tablet based processing
      • PC or laptop options
    • Terminal advancement
      • Smart chip enabled cards
      • PCI required upgrades
      • Require new functions not supported by old system
  • Change of POS system not supported by current processor
    • Processing network backbone requirement
      • First Data
      • Global Payments
      • Paymentech
    • Proprietary access for only certain "processing partners"
    • Limited access via 3rd party data node
    • Cost of "reprogramming" vs lower rates
  • Need for additional functionality
    • Customer rewards or incentives program
    • Gift cards
    • Check processing through credit card terminal
    • PIN based debit
    • Additional card types
    • Integration with welfare programs
    • Inventory or catalog
    • Auto generation of customer list
      • Email list capture
      • Address list capture
This is a very short list of issues that merchants should be thinking about with regard to their processing company. Not every processing company can handle everything on this list and not every issue is going to be relevant to every merchant (i.e., welfare programs or which processing backbone is used).

Predominantly, the top issues most merchants care about, because it is a business and smart decisions begin with what is best for the operation of the business, will be about the operational cost.

When I speak with a merchant, I hope that the merchant knows all the terms of his or her contract, but few do. I always encourage them to locate a copy and check the terms for everything from early termination fees to what their annual fees or PCI compliance fees are. 

Know your PCI compliance costs

Some of the biggest companies have the highest PCI compliance fees (totaling upwards of $150 annually, usually in a lump sum although often now split in two so as to appear more competitive at a $75 charge which the merchant might think is the annual total). Some PCI fees are added as monthly charges (often called breach protection) while others are billed quarterly. Then there are "non-compliance" fees which are generally around $20 per month and often on top of the compliance fee, which are assessed as a penalty toward merchants who have not self-validated their compliance. The lack of understanding about PCI compliance is rampant and many processors appear happy to put a small notice on their bill and then just begin charging for non-compliance if the merchant misses it (which is very common when the bills go straight to an accounting department or are set aside for later reconciliation).

The accrued costs of PCI compliance alone might make a compelling reason for a merchant to switch processors. While those costs are always absorbed somewhere, many processors are good about passing the hard cost through with little or no markup while still offering merchants highly competitive rates and low fees (pending the efforts of a good sales agent). Some processors use PCI compliance as an excuse to justify extra charges, unfairly targeting small businesses and retail merchants who are not really high risk factors and to whom this additional fee may pose an actual hardship.

Why process bank cards at all?

This may be the single most important issue that any merchant should ask at the outset. Many small businesses seem to do just fine on a cash only basis. The main point about taking credit or check cards for payment is usually to increase business. There is also the consideration of simply making transactions easier for the existing customer to encourage retention. That is to say, while cards may not increase sales in some instances, they may encourage current customers to remain customers rather than ever having to turn them away or risk the customer leaving because they want to earn miles on all their expenditures. Another reason some merchants choose to process is that they simply want to appear more professional. It seems expected that cards can be used just about anywhere these days and a small number of merchants now accept cards primarily for this reason, even when it might otherwise seem counter-intuitive.

It is suggested that even one or two extra sales per month might pay for the entire cost of service, thereby cementing the notion that taking cards is good for the bottom line and increasing profit. Many "studies" have been done to show that taking cards is good for increasing business, just as adding gift cards is argued in the same way. But the evidence is ultimately anecdotal most of the time and there is no way to know exactly what the benefit is going to be for a particular business. Locking into a three year term without a processing history is a risky choice for some very small businesses. But there are options that require little or no commitment available to test the value of card acceptance. 

Risk-free options for merchants just beginning to process cards

These include the well known and highly branded SquareUp and PayPal, both of which I use but feel are too limited or too expensive for most merchants, especially those who need quick access to funds in their bank account and live customer support. (PayPal offers "immediate" access to funds, but only in your PayPal account, which is great if that is what you use to pay everything. Moving funds into your bank account still takes 3 to 4 days. Square still takes multiple days to process most transactions and holds funds for up to 30 days in many cases, while still offering support only by email or Twitter.) There are competing programs that offer similar pay-per-use terms along with live support, like PhoneSwipe (slightly better rates than Square for most transactions and much better software) and month-to-month agreements like Payment Jack (much lower rates with very low monthly fees, allowing for the benefits of a full merchant account without the risk). 

All of the above options require the use of a smart phone, tablet or computer with an additional swiping device. The services working on smart phone or tablet platforms generally supply a card reader for free which can be plugged into an audio jack. It may be of some importance to active merchants with large client bases that not all card readers on the market are encrypted; only a properly encrypted card reader is going to protect the merchant in the event of a data breach where card holder information is stolen by a hacker, for instance. Fines against merchants who allow the full card number or other personal information to be accessed by an unauthorized party are fairly steep, so this is one more argument for working with an established processing company and using their software may be a better option especially for high-volume merchants.

Because of the nature and flexibility of some of these products, I know many established merchants who continue to prefer them over more "traditional" means of processing. Also, many merchants who do a large amount of outside sales, whether in flea markets, trade shows or special events, have found that a single PhoneSwipe account often handles all their needs with more accounting and reporting options than their previous account on a stand-alone terminal did. (Note that the link to the PhoneSwipe page here is part of a bigger site aimed at multiple solutions and the rate listed in the corner is not for the
"Pay As You Go" PhoneSwipe plan. PhoneSwipe can also be set up on term contracts at greatly reduced rates for high-volume merchants which compete head-to-head with the lowest priced processing options in the industry, even on an Interchange-plus basis, with the benefits of online access to batches and in-unit reporting options that make it a viable POS system in its own right.)

Still, there is always the caveat that a merchant must consult a knowledgeable professional before making a final decision about which system to use and how to get set up on that system. Because there are various pricing issues for each system, it is important to compare them with real-world factors and make an educated decision about which would be most appropriate to start with or switch to. I frequently advise merchants just entering into the processing fray to try a particular system for a period of two months in order to get an idea of what the transactions are actually going to be like, and then work with them to fine-tune their needs and come up with a long-term plan. Sometimes, merchants are quite well established and it is easy to know the best option up front, especially for traditional brick and mortar restaurant or retail businesses. Sometimes the territory is very grey and future use is difficult to determine, which is why testing the water should not be rushed.

No comments:

Post a Comment