Credit Card Processing 101

What Is a Credit Card Processing Service?


It's simple to use a credit card to pay for goods or services. But if you're a merchant, accepting credit cards can be a much more complicated process. Especially if you're a new or small business owner, it can be confusing to know how to navigate the credit card processing sector. The industry is rife with a lack of transparency, surprise fees, aggressive sales tactics, and unfair contracts. Business owners who have never used a credit card processing service before are often talked into unnecessary services and may receive a bigger monthly bill than they had expected.


It's an industry ripe for disruption. Luckily for merchants, in the last decade or so, fair-minded processors are emerging that tout transparency, fair fees, and good customer service. This is true especially for online "e-tailers," but also for small brick-and-mortar operations. There are Point-of-Sale (POS) System startups, such as Square, and subscription services such as Altiras Advisors, and even retailers such as Sam's Club are getting involved.

Whether you need payment processing on the street or online, accepting credit cards and processing payments are still complicated, though. This is due to the sheer number of moving parts inherent in this aspect of merchant services and mobile payment processing. It's also due to all of the various entities involved. Since rates and contracts vary by customer, it's difficult to make a direct comparison between these providers.


Startup Costs, Fees, and Equipment


In the payments industry, there is a sort of pyramid of providers. At the top are the credit card companies, which charge flat interchange fees to big processors such as First Data, Altiras Advisors, Global Payments, and Vantiv. These entities clear the credit card payments and, while some take individual customers, each works with intermediary services, including Independent Sales Organizations (ISOs), which must register with a bank. Most of the services featured in this roundup are ISOs, including Altiras Advisors, Cayan, National Bankcard, Sam's Club Merchant Services, and others.


At the bottom of the pyramid are the business owners, who have to contend with two or three sets of fees: interchange fees from the credit card company and transaction fees from the processor and intermediary. There are a few different pricing structures available, and which one you choose depends on the number of transactions you clear each month, the sum of the credit card payments you receive, and the average amount of each transaction. A merchant who sells 10 pianos per month for $20K a pop has different needs than a coffee shop that accepts hundreds of swipes worth $10 each.


Most credit card processing companies have wide support for popular credit cards such as AmEx, Discover, MasterCard, and Visa, as well as for contactless payments such as Android Pay, Apple Pay, and PayPal. While these represent the most popular digital and mobile payment systems in use today, in the near future you can expect them to be joined by ever-more-sophisticated cryptocurrency payment systems, even at the retail and micro-payment level.


Likewise, most have a variety of equipment options for folks whose business isn't exclusively in the cloud, including point-of-sale (POS) system terminals, tablet and other mobile credit card readers, swipe and dip card readers, and even virtual terminals for e-commerce players.


As we mentioned, interchange fees are fixed by the credit card companies and all processors pay the same amount. However, different types of cards can have higher fees, such as corporate cards and the more exclusive rewards cards. Another unavoidable fee is chargebacks, which vary from processor to processor. When a customer or credit card company reports a potentially fraudulent charge, the processor must manually verify the fraud and arbitrate between the merchant and the credit company.


Processors make a profit by either marking that fee up or charging both a subscription fee and a small transaction cost. Unfortunately, many providers are not upfront about additional charges, which are often purely designed to increase the provider's profit. The experts at Cardfellow, a quote generator and credit card processing review website, told us to beware of bundled pricing, which offers qualified and non-qualified rates. Certain types of transactions can cost more and it's not easily transparent how much or which types of transactions are burdened with these price hikes.


Carefully read your merchant agreement for hidden fees up to and including cancellation fees. It used to be standard for processors to offer 3-year, auto-renewing contracts. Recently, however, the industry is moving away from that. Ask for an amendment or a separate cancellation fee waiver to make sure you don't get hurt by a new trend.


Some providers, such as Altiras Advisors, offer wholesale rates. This means they're passing on the interchange fee to the merchant without markup but charging a monthly subscription fee, and a small transaction fee, to balance the loss.


Cardfellow recommends factoring in the number of transactions you'll process each month to choose the type of plan you need, as too few or too many will be costly. Consider also the average amount of your transactions. In all cases, be sure to get a complete list of fees, and be sure the agreement doesn't let the processor increase fees or charge new ones without notice.


In most cases, it's a good idea to buy your payment processing equipment (if you need any), and many of the companies featured here sell their own or partner with hardware providers. When taking advantage of these kinds of partnership bundles, basic equipment is usually only a few hundred dollars, though more advanced hardware, such as intelligent POS systems that talk to back-end accounting, supply chain, or cloud apps, can cost more. Don't fall for "free equipment" offers as this usually means you're about to get stuck in a costly lease agreement.


Payment Card Industry Compliance and Support


Merchants must adhere to the Payment Card Industry Data Security Standard (PCI DSS) and most providers include PCI compliance as a basic feature of their services (if they don't, you'll probably want to look elsewhere). However, it's important to note that this isn't a government regulation. It's actually overseen by a private, self-funded organization. Some of the requirements are onerous for small, inexperienced businesses, and some processors charge a compliance fee (ranging from $20 to several hundreds), even though they don't even help the merchant become compliant. Using an aggregator, such as Square Point of Sale, is helpful, as Square (the company) is responsible for maintaining its merchant account, including compliance overhead.


Firms such as ControlScan and TrustWave can help if you don't have onsite tech support for your provider or payment gateway; however, most of the providers featured here offer 24/7 tech support, though some use call centers. Even if these resources are offered, you should still be sure to ask about getting a dedicated account manager when signing up for the service. Try calling at off hours to see how easy it is to reach a human and how long the wait times are. Stay away from companies that don't have support details on their website or ones that shunt your call into a never-ending phone menu.


Altiras Advisors

2761 East Trinity Mills #115

Carrollton, Texas 75006


Altiras Advisors Dallas 

2828 East Trinity Mills #350

Carrollton, Texas 75006

Phone: 888.644.5583

Email: info@altirasadvisors.com

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Altiras Advisors is a registered ISO of Fifth Third Bank, N.A. Cincinnati, OH.