In July of 1961, the Green Bay Packers were the second-best football team in America following a loss to the New York Giants in the NFL Championship game. To kick off the team’s training for the next season, Lombardi gathered the experienced and talented team together, held up a pigskin, and famously said, “Gentlemen, this is a football.” He went on to reteach his team the most basic elements of the game. He started over from zero.
While you don’t need to start over from zero with your business, it could be useful to take a few minutes for a “This is a credit card” refresher on how your business gets paid. Payment processing, sometimes referred to as merchant services, is what allows your customers to use a credit card to pay you. Over the next few paragraphs, we will look at the miracle of how that happens. It’s not as simple as you might think.
What is Payment Processing?
Like Lombardi did with the Packers, let’s start with the basics: Payment processing is how businesses complete credit card and debit card transactions.
When you use a card to make a purchase, a series of actions occur electronically to complete the transaction. During a single card transaction, a payment is processed, verified, accepted, or declined, and money is transferred. While the entire transaction may only take seconds, the process occurring behind the scenes is complex.
Sensitive data, like your customer’s identity and bank account and your bank account, must be transmitted through multiple entities. This must be done securely, without credit card numbers or identities being stolen. It also must be done quickly because no one wants to wait more than a few seconds to make a purchase.
How Does it Work?
The process looks something like this:
Your customer slides their credit card into your POS terminal at the checkout counter or table-side tablet. From your POS, a payment gateway is responsible for transferring payment information from your customer to your bank account. Its job is to make sure the customer has the necessary funds and ensure that you get paid. To do this, the gateway must communicate with the customer’s card, the issuing bank (the industry’s name for the bank that issued your customer’s card), the companies that manage the cards (Visa, MasterCard, etc.), and finally the acquiring bank (aka the financial institution that holds your account).
Payment processing services expedite card transactions by moving money from your customer’s bank account to yours. Payment gateways securely communicate with all the other entities listed above and are necessary parts of the transaction.
This happens in seconds. Imagine if your business had to coordinate with all the entities for every single sales transaction. But the system works at the speed of light billions of times a day so that your customer can make a purchase without using cash or a check. As you can imagine, all this coordination and secure communication comes at a cost. Payment processors or merchant service providers charge merchants in order to facilitate these transactions.
How Can My POS Provider Save Me Money?
Some POS providers charge you a service fee or percentage of the transaction that can really dig into your bottom line.
Knowing that savvy business owners will be looking to protect their profits, big brand providers often sell themselves on affordability. However, the prices they quote don’t consider the payment processing fees. Once those fees are applied, some big brand services are not so affordable after all. With the industry average consisting of 2.8% for each transaction, the total cost to small businesses adds up quickly. Each transaction accrues an interchange fee from card networks and banks; interchange is made up of a percentage of volume and a flat per transaction fee (e.g., 2.00% + $0.10).
While some providers do what they can to minimize the impact by only charging slightly above the interchange fee, others are less giving. Some larger, more well-known POS providers charge anywhere from 2.49-3.50 % plus 15 cents per transaction, depending on the contract. And once merchants or restaurant owners are contracted with those big brands, POS providers can up their charges without fair warning, locking business owners in to either pay the increase or break a contract agreement. But with the right POS and payment processors, you don’t have to fork over your hard-earned money.
Working with an independent POS software provider and local reseller allows you, as a small business owner, to select your preferred payment processor. This is due to the fact that independent software providers are just that independent and not contractually obligated to only work with one payment processor creating constant competition for your business and leaving processing rates low. This enables resellers and business owners to select a credit card processor with great reliability, uptime, support, and lower fees that fit your business model best.
The big brands can provide great service over the phone, but then, after you sign a long-term contract, you can’t get anyone to come into your business to help you out. Don’t get stuck as a faceless customer to your POS provider, cycling through endless automated menus when you call. Work with someone local who runs their own business and knows what your business needs.
Understanding the basics of how payment processing works can help you be better at running your business. Those quick transactions when your customer pays their bill involve a lot of big businesses. But you don’t have to be dependent on them. You can work with a local small business owner who knows your area and can help you find the best payment processing fit for your business.
Contact NCC to find an expert local reseller in your area: https://srgmarketinginc.com/ncc/contact-us/
