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Managing the Effective Cost of Accepting Card Payments

Retailers should read credit card processing agreements carefully.

The payments technology industry is evolving rapidly. With the advent of mobile technology, analysts have heralded the emergence of mobile payment technologies. While adoption has been slow in the U.S., the number of global mobile payment users is expected to pass 141 million this year, marking a 38.2 percent hike over 2010, according to Gartner.

Meanwhile, the credit card industry, although quick to establish its own array of mobile services, is also changing, as evidenced by a push to develop computer chip-based credit cards.

But where does this rapid transition leave today's retailers and merchant account holders? How does a business stay up to snuff on the latest POS systems, payment processors and mobile banking devices? While it is important to stay informed, it's inevitable that mainstream retailers will be the first to adopt new payment terminals and technologies.

In the meantime, there's nothing more critical in the world of retail payment processing than acquiring a merchant account and being able to accept credit and debit cards, as consumers both prefer and demand such services.

When it comes down to it, the best way to manage your credit card processing costs is through diligent review of your bills and contracts. If you don't understand the jargon in small type, you're not likely to save much money nor manage your finances better, even with the cap on interchange fees set to go into effect.

The agreement you sign with your processing service will include a specific rate - sometimes a discount - as to how much the company charges, with the difference paid to the credit card companies in the form of the infamous interchange fees. However, retailers need to be diligent in researching what types of transactions this rate applies to, as rewards cards and online transactions, for example, often have separate rates that are much higher, according to Inc. magazine.

In fact, processors may even raise their own rates according to the type of card being used - a trend that designates consumer cards according to qualified, mid-qualified and nonqualified status.

"When a customer pays with a generic Visa card, Visa charges an interchange fee of about 1.63 percent," reports Jennifer Gill for Inc. "The processor considers that a qualified transaction and charges a discount rate of 1.74 percent. If someone uses a Visa rewards card, however, the interchange jumps to nearly 2 percent. The processor labels it as mid-qualified and charges 2.85 percent."

These "qualification" rates are not standardized among processors, so certain accounts may charge more for mid-qualified cards than others, underscoring the need for retailers to thoroughly review their merchant contracts.

When it comes to the fine print, there are certain stipulations retailers should not stand for. When reviewing a contract, pay extra attention any time a number pops up, because more often than not, it's a fee.

Shannon Suetos argues in Resource Nation that retailers should never tolerate cancellation fees, which can range up to several thousand dollars.

"This fee is a way of guaranteeing loyalty to the processor, regardless of customer satisfaction," Suetoes writes for the source. "The good news is that getting rid of this fee should not be a problem: most salespeople have the authority to waive it. To avoid this issue, talk to the salesperson and make sure the fee is waived in writing either in the contract or as an amendment."

This is doubly important among startups with limited capital. But whatever your venture, the level of due diligence can never be too high when it comes to vetting credit card processors and merchant accounts.

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