In Part 1 of this series I discussed how we were ripped off by our former credit card processing vendor – to the tune of about $30,000 over a few years.
In this second of my 5 part series on credit card processing vendors (not to be confused with the credit card vendors themselves or the banks behind them), I will discuss why online retailers pay higher credit card processing fees than traditional businesses.
As a B2B services business, most of our clients pay by check or, more commonly these days, by wire transfer, so NuRelm’s 30,000 in lost revenues could have been a lot higher if our clients paid exclusively with credit cards – even more so if all of our clients paid with credit cards remotely (over the Web or by phone).
Those of you who run high-traffic e-commerce businesses that rely solely on electronic credit card transactions should pay close attention to our findings:
- The most expensive kind of credit card transaction is an electronic (Web) or “over the phone” transaction, as these are where the most fraud occurs. So, as an online retailer you are paying a significantly higher processing fee than a brick and mortar store.
- The most expensive type of card to accept is a business credit card (higher incidence of fraud/nonpayment than a consumer credit card ) so if you are a B2C online retailer you get a break here. However, if you are a B2B online retailer you are in the highest risk category, and your cc processing vendor is charging you a premium for processing businesses credit cards electronically.
- American Express charges about twice the amount of the other credit cards, so anytime a customer pays with an American Express card, you are paying a premium. If you are selling high ticket goods or services, then you should consider charging a 1% surcharge to offset this extremely high processing cost. This is a pass-through charge that goes directly to the credit card vendors (American Express, VISA, etc) and the banks backing the cards, so there is no possibility of negotiating a lower Amex rate with your cc processing vendor.
In Part 3 I will discuss the three pricing schemes most commonly used by credit card processing vendors (flat rate, tiered, cost plus) and why cost plus pricing is the best way to go.
If anyone has specific questions, is researching credit card processing vendors and wants recommendations, or wants to offer up stories/advice, please leave a comment.