Tag Archives: accepting credit cards

Three Common Arguments against Accepting Credit Cards

A look at the cost of not accepting credit card payments in your small business

Our previous article looked at three specific cost advantages to accepting debit card and credit card payments in your small business. Equally important is the financial risks you might incur if you don’t accept credit card payments.

There are three seemingly strong arguments I hear small business owners use, reasons that, at first blush, seem compelling, but that ultimately end up costing their businesses more money than if they had accepted credit card payments. Let’s take a look at these.

Argument #1 The old-school way is working just fine, thanks.

This argument usually takes one form or another, such as:

“I’ve been taking checks for classes for the last 20 years.”
“My parents always pay by cash or check, and I see no reason to change or pay the extra fees with merchant processing.”

This is something I hear from time to time from prospective ClassJuggler clients. The truth is that the “old school” ways of bringing in money can be much more expensive.

A good question for that studio owner is, “Have you actually talked to your customers and asked them how much they enjoy writing you a check each month?”

The reality is that the overwhelming majority of parents would find it much more convenient to have their credit card billed automatically each month rather than write you a check. Seriously, who even carries a checkbook around with them anymore?

Argument #2 – “The fees and complexity are just too much.”

Here is something I’ve heard more than one prospective ClassJuggler customer say: “Merchant processing is expensive and complicated; I just don’t have time to figure this out.”

While merchant processing and its associated fees can be confusing and complicated, when it is fully integrated into your studio management software, it becomes trivial to use.

As to costs, I encourage you to take a moment and answer the following questions, and see how this adds up:

How much time do you spend chasing down late payments?
How much time do you spend collecting cash or check payments each month, either at the front desk or by mail?
How much time do you spend organizing deposits and visiting your bank branch?
How much in time and cost is wasted on NSF bounced checks?
How much time do you spend monitoring your checking account to see when checks clear and are deposited so you can pay your bills?

The reality is that most business owners do not take into consideration their own efforts spent on these time-intensive tasks. They don’t understand the real costs of their current payment process. And they often discount or ignore the inconvenience to their own customers.

After answering the questions above, add up the time. Typically, it adds up to at least 4 hours, usually much more. If you could save 4 to 8 hours monthly on payment collection, how much would that time be worth to you? That time could be turned into more classes taught, or time to better market your business, or time to plan that big open house event to promote your business.

Time really is money and saving 4, 8 or more hours monthly more than pays for the costs of accepting credit and debit cards.

Argument #3 – “Many of my customer’s aren’t online”

Statistics from June 2017 show that 88% of North Americans and 80% of Europeans are now internet users. The International Telecommunication Union estimates that about 3.2 billion people, or almost half of the world’s population, would be online by the end of the year.

I.e., your customers are online.

Accepting credit and debit card payments, particularly online, is a competitive necessity these days. Ultimately all dance, gymnastics, tennis, swim, martial arts, and music schools are, and must be, 100% customer service oriented. You want all of your students to have the best experiences and education you can give them, right? Why not continue that experience in how you interact with their parents, or with the student who is also the paying customer?

Think about this: If you lived near two identical grocery stores that had similar pricing and similar items but one store only accepted checks and the other only accepted credit or debit cards, which one would you visit? Can you imagine running to the store for a last-minute item you needed for a party and having to stop, pull out a checkbook, fill it out, wait for them to enter and scan your check and check your ID before being able to check out?

Pennywise and…?

Many businesses only look at the costs associated with a merchant account and consider it “money out the door.” They maintain their old policies of cash and check only payments. While they may save money on the costs of accepting credit and debit cards, they aren’t really saving money when you factor in the costs of not accepting cards as payment.

ClassJuggler offers schools and other class-based businesses the ability to accept credit cards easily and affordably. When you let customers pay for classes online with a credit card, you get paid fast, and without the hassle or expense of collecting payments at your business, manual mailed billing, or check processing!

Setting up customer accounts and processing payments is simple. We’ve integrated these features right into our acclaimed ClassJuggler interface. Our affordable merchant payment processing option integrates account management and credit card processing technologies within ClassJuggler, making payment and processing as easy as a few mouse clicks.

Three Types of Savings You Get by Accepting Credit & Debit Payments

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After our last article, which looked at the costs of accepting credit and debit payments, you may be a bit overwhelmed, or even depressed! But, yes, accepting credit card and debit card payments can have cost advantages to a small business owner. Let’s look at three of those cost savings benefits.

1. Decrease the time spent on your monthly billing cycle

A typical small class-based business, such as a dance studio, gymnastics school, or swim school of, say, 100 students can expect between 5% and 15% of their accounts to be late each month.

That may not sound like much, but that adds 4–8 additional administrative hours or more each month, chasing down payments from customers. Those hours cost you money and lost business opportunities. It also leads to grumpy studio owners.

Accepting credit cards for your business can reduce time spent on chasing down late payments by 50 to 80 percent. Think what you could do with an extra 4 to 8 hours each month!

2. Reduce uncollected debt

Another cost of running a small class-based business is uncollected debt. When a parent who could not afford your classes gets too far into debt, they are likely to never pay you back the full amount.

Shifting responsibility from your studio to the customer’s credit card company allows you to collect those fees even if the customer defaults on paying their credit card bill.

3. Keep your administrative costs down

As your business grows, you will likely add instructors and more class types to bring excellent services to your students and their parents. But at the same time, you don’t want your administrative costs to skyrocket.

Rather than adding additional admin staff to deal with customers, take those savings and invest them back into your classes and instructors by empowering customers to pay their bills to you online, unassisted by you.

In our next article, we’ll also look at the cost of NOT accepting credit card payments.

The Costs of Accepting Credit Cards

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If your business isn’t accepting credit cards for payments, the efforts to do so may seem daunting. Is it worth it? Before you can know the answer for your business, it’s critical to understand the fees involved in accepting credit cards.

Let’s focus here on the e-commerce aspect as we evaluate what it takes, cost-wise, to make online payments via credit cards or bank cards available for your customers.

As we reviewed in earlier articles (see Merchant Processing 101 and The Top 5 Benefits of Merchant Processing for Your Business) a merchant account is actually the combination of two things: a gateway service and a merchant account.

Those two entities represent the primary costs of owning a merchant account – the foundation for accepting credit cards for customer payments.

Gateway costs

The most popular payment gateway service in the U.S. is authorize.Net. It is used by many of the online software companies, including ClassJuggler. It’s pricing model is very simple. Typical pricing looks like this:

$15 to $25 monthly
Small per item fee of 6¢ – 10¢ per transaction

Merchant processing gateway costs

The merchant account is one of the most complicated kinds of accounts to understand from a pricing standpoint, because:

It can contain so many different elements.
There are so many different providers.

Looking at a monthly merchant statement is just as much fun as looking at the details of your cell phone bill with all of the crazy little regulatory, network, and other surcharge fees. Let’s explore the four major elements to your merchant accounts cost:

Interchange rate fees

The card networks – Visa, MC, Amex, Discover – all have tables of rates that are assigned to each and every credit and debit card available. Some of these tables contain hundreds of card types each with its own rate. These published rates are referred to as the Interchange rate for a card.

Think of it is the base cost of that card transaction. That interchange is what Visa and MasterCard make in profit on each transaction you run.

Discount rate fees

The discount rate is a tiny percentage (usually between 30 and 80 hundredths of one percent) added to the Interchange rate and represents the “profit” component that the merchant account reseller makes on your business for each transaction.

Per item rate fees

Each transaction has a “per item” fee. It represents a baseline fee for any transaction so that, if the transaction is particularly small, say $5, the reseller will still cover its costs.

Per item fees generally run between 5 and 15 cents per transaction with an additional 5 and 15 cents often added for address verification services.

Other fees

On top of all the fees mentioned above, there are additional fees added on to your monthly bill, for things like

PCI compliance
Statement and management fees
Government regulatory fees, network fees
Monthly minimums
Foreign transaction fees

Many of these fees are often obscure and hard to understand and may remind you of the bewilderment you feel when looking at your phone bill.

These other fees typically add an additional $10 – $20 or more to your monthly fees. And while these represent a small part of your overall bill, they are usually constant.

So Exactly How Are Merchant Accounts Priced?

We just looked at the four cost components of a merchant account, but this doesn’t account for how they are priced by the reseller. There are generally two ways merchant accounts are priced for consumers:

Bundled or tiered pricing

This type of pricing takes large groups of credit card types and rates and groups them together into tiers for simplicity. These tiers represent the percentage and per-item costs you will pay per transaction.

This allows the processor to classify interchange fees under its own rate structure by assigning individual interchange categories to its pricing tiers.

Each reseller can bundle these tiers any way they want, which can be good, neutral, or bad for merchants, depending on how the groupings are determined. These tiers are usually referred to as Qualified, Mid-Qualified, and Non-Qualified.

Interchange plus, cost plus, or pass-through pricing

Another way of pricing merchant accounts is what is often called interchange plus, pass-through or cost+ pricing.

Cost+ pricing ensures that every card transaction is processed at its exact cost as established by the card industry. The reseller then adds their discount (or profit) to each transaction plus their per item fee to calculate the final cost. This makes this pricing model easier to understand.

One Example of Bundled or tiered pricing

The table below shows how a processor might organize nine common Visa interchange categories under a tiered pricing model for a retail business.

So, for example, if a customer paid me $100 with a Rewards I card (in this example), it would be considered a Mid-Qualified level transaction. So 2.25% plus 31 cents, or $2.56 of my $100 would be paid back in fees.

Another example of Bundled or tiered pricing – how costs can increase even with the same rates!

Tiered pricing also makes it possible for a processor to increase your processing cost without increasing your rates.

“What?? how is that possible?”

Take a look at this chart. The card types and tiered pricing is exactly the same as the previous example, but if we move two of the card types that were in tier 2 pricing into the third tier, it ends up costing you more to accept those types of cards. I’ve highlighted those changes in red. Note the change in markup in the 4th column:

So using the same example, a customer pays me $100 using their Reward I level card. I would end up paying 3.35% + 31 cents, or $3.66 cents instead of the $2.56 in the previous example.

That’s $1.10 more for every $100 you receive!

Processors accomplish this by routing a greater number of interchange categories to the more expensive mid and non-qualified pricing tiers. And as a merchant, it’s almost impossible to understand how a reseller has structured their tiered pricing – the pricing itself is simple, it’s the details that matter.

Interchange plus, cost plus or pass-through pricing

Another way of pricing merchant accounts is what is often called interchange plus, pass-through, or cost+ pricing.

Cost+ pricing ensures that every card transaction is processed at its exact cost as established by the card industry. The reseller then adds their discount (or profit) to each transaction, plus their per item fee, to calculate the final cost. This makes this pricing model extremely easy to understand.

The table below shows three of the most common card categories along with their Interchange cost. Note how the discount, or profit, is the same regardless of the card used.

You can see how much simpler it is to calculate your cost. Simply add the discount to the published interchange rate and that’s your fee.

So, if a customer pays me that same $100 using their platinum cash back Visa, I would pay 3.65% plus 25¢, or $3.90 for that same $100.

Understanding costs is important, and now you understand a heck of lot more. But is it all worth it? will you be better off if you do accept credit cards than if you don’t? Believe it not, in spite of the fees and the mental circus of fee, most businesses conclude that it is.

In our next article on merchant processing for small business owners, we look at the savings or benefits you can expect from accepting credit cards.

What you need to know about EMV Chip Credit Cards

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So what the heck is a chip card anyway? In short: it’s a new credit card standard set forth by Europay, MasterCard, and Visa (the initials of each = EMV).

Chip cards, with their embedded “chips,” were designed specifically to eliminate counterfeit credit cards in retail environments.

How do chip cards work?

The way it works is that the chip on the card contains a microprocessor that can store information securely and perform cryptographic processing during a payment transaction.

Chip cards carry security credentials that are encoded by the card issuer at personalization. These credentials, or keys, are stored securely in the EMV card’s chip and are impervious to access by unauthorized parties.

In a nutshell, an EMV chip credit card makes it next to impossible for a criminal to make a “fake” of your credit card. Magnetic stripes are easy to fake; Embedded computer chips are hard – too costly and complicated for a criminal to replicate. This is important because…

What does this really mean for my school?

In reality, it means very little. Most studios today that are accepting credit cards have next to a zero fraud rating.

Why is that? Can you imagine a parent trying to pay for several months of classes for their son or daughter with a fake credit card? It’s practically unheard of.

This means that you can rest assured that, even if you are not taking cards in a retail setting – face-to-face with a chip-ready terminal – using batch auto payment features in popular studio management software, like ClassJuggler, won’t increase your chance of fraud.

Besides, unless you do a lot of retail sales, you likely don’t use a terminal so don’t need to worry about chip cards. However, if you are doing a large amount of retail sales, a chip terminal will reduce or eliminate any chance of fraud.

FAQ — Understanding how PCI compliance affects your business

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Here are some common questions about PCI Compliance from business owners.

What is PCI Compliance?

PCI compliance is short for PCI DSS or “Payment card industry data security standards.” PCI standards are a set of guidelines developed by the major players in the card industry to set forth best practices in security for merchants and their customers.

Does PCI compliance apply for my business?

The compliance affects any U.S. business or organization, of any size, that accepts credit or debit cards.

What do I have to do as a merchant to become PCI compliant?

Complete a once-a-year PCI self-assessment to identify and ensure your business is compliant – to identify and ensure that you are following all of the standards and guidelines set forth in the PCI DSS compliance rules.

What procedures and policies do I need to adopt to be considered PCI compliant?

PCI Compliance is mostly common sense business practices. For example:

Make sure your computers do not have viruses or malware on them that could capture cardholder information.
Ensure your software providers are PCI compliant (and, yes, ClassJuggler is).
Maintain an information security policy at your business.

How do I maintain an information security policy at my business?

For example:

If you capture cardholder information on paper, set a policy and practice that the paper is then immediately destroyed after use, or is stored under lock and key.
Assure you and your employees follow PCI policies when handling a customer’s card information to prevent that information from being compromised.
Better yet, implement a policy whereby the majority of payments are managed directly by the customers themselves to reduce the amount of interaction with their information by you or your employees.

What are the penalties for not being PCI compliant?

Possible increased transaction processing fees
Monthly non-compliance penalty fees levied by your merchant provider
Suspension or loss of your merchant account
Penalties of $5,000 – $500,000, depending on the severity of the breach

As you can see, PCI compliance is very important, so make sure to maintain your compliance.

Does all this have you questioning whether or not offering credit cards are worth it? Check out this article that answers that very question: The Top 5 Benefits of Merchant Processing for Your Business.

Also, check out How to accept credit/debit cards in your business.