Credit and Debit Card Fees

CPA Journal, The, May 2008 by Whiton, Todd S

How to Avoid Surprises

E-commerce has created an explosion of options for small businesses that want to accept electronic credit and debit card payments. Small businesses continue to be the driver for new job creation and economic growth in the United States.

Small-business owners should expect competitive and transparent pricing and terms when analyzing an electronic payment-processing agreement with a vendor. Owners should focus on the following:

* The agreement should reflect a rate structure that matches how the business conducts its payment processing. For example, a merchant set up with a "Retail" or "Swiped" category rate structure but that does all of its payment processing online will pay a higher rate on every transaction.

* The rate for check-card processing should always be lower than the rate for processing a credit card.

* In a "swipe" environment, debit cards should be accepted with a PIN pad to lower costs.

* Do not pay an application fee, a termination fee, an annual fee, or any kind of surcharge.

* Terminals should be fairly priced. Wireless terminals should cost no more than $1,000. Other terminals should cost no more than $400 to $500.

* Look at card acceptance inclusively; add all fees together (discount rate plus fees) and divide by total sales processed to get an all-inclusive rate. Except for some high-risk merchants, this rate should never be more than 3%.

Todd S. Whiton is president and CEO of Capital Payments, LLC (www .capitalpayments.com). Adapted with permission from the whitepaper "The Dirty Little Secrets of Merchant Services, " copyright January 2008.