Processing payments is one overhead that many companies forget about when they’re setting up their business. It’s easy to do some quick-and-dirty calculations and think “It costs me $5 to buy this item, $2 to ship it, and I can sell it for $15 – that’s $8 profit! Sadly, it’s not quite as simple as that – there are costs for storage, packing materials, and yes, even a “cost to get paid”.
Merchant service accounts can charge from as low as 0.25% for a debit card, to as high as 1.8% for a commercial credit card. These rates are far lower than the rates that you are likely to pay if you use a mobile app to accept payments.
Take, for example, the Paypal Here service. With that, if your sales are less than £1,500 per month you could be faced with fees of 2.75%. The fees are reduced as your sales increase, but for a small business that is quite a hefty fee to be faced with. Rival services such as iZettle, SumUp and Square are not much better. iZettle charges 1.75% for chip, swipe or contactless readers, as does Square. Sum Up, on the other hand, charges 1.69%. Payments by other features for ‘cardholder not present’ transactions, range from 2.5 percent to, in the case of SumUp, 2.95% + a nominal fixed fee.
Why are these readers so expensive? Well, a part of the reason is that unlike merchant accounts, anyone can buy a card reader and start using it right away. There are no credit checks and there are no strict limits or business plan requirements for merchant payment apps. This means that there’s a greater risk of fraud, and that the companies know that they’re going to have to deal with lots of low volume companies that are potentially a drain on their resources. Really, all payment processors want high volume, safe, low friction customers because these are what will make them money.
If you’re just getting started in the world of business, then you may find that it is easier for you to sign up to a mobile processing company (whether that is something like Paypal Here’s card reader, or even just accepting payments through a social media service) until you build up enough of a reputation and a stable enough income to be able to work with the bigger payment processors. The professional merchant accounts offer a much better deal for companies that qualify for them but getting an account with them can be hard as a new business, or for a business that is operating in a high-risk industry.
Manage your existing account well, and you will find that you are in a much better position to open a lower fee account. Keep accurate records, try to avoid chargebacks as much as possible. Have procedures in place to reduce fraud risk with the business that you run and be patient. This will help you to avoid potential problems and leave you in a much better position in the long run.
…