How to Reel in a Solid Merchant Service Provider From a Sea of Sharks

11/16/2015
The checkout line snakes around the corner, and your customers — between bouts of shouting and shoving — are vigorously waving their dollar bills and American Express cards. For retailers stuck with the wrong merchant service provider, this is a nightmare of a scene, but for those who are confidently backed by a great one, this is a glorious sight.

Undoubtedly, navigating the world of merchant services is difficult at best — and the rollout of EMV chips has only made it more complicated. It's an industry chock full of sharks and scammers claiming to have the best deals and the greatest services.

But at its core, this is a profit game. Unless you wise up, you might as well be floating bait for those aggressively hungry sharks.

What exactly do you need from a merchant service provider?
If you're a savvy retailer, chances are you're already on the defense against anything less than the best deal out there. But how can you spot it?

First, you need to have a firm understanding of your company's needs. Your best option will depend on how exactly you conduct business. Specifically, will you need a POS system to keep track of inventory, or will a simple terminal to swipe cards suffice?

If you determine a POS system is your best option, understand these come in two types: They're either proprietarily tied to a merchant service provider, or they're open and can work with any provider on the market. 

If a terminal is more suitable to your needs, consider making the switch to a mobile app. Mobile app terminals are simple to use, they eliminate paper waste, and they're less likely to tap out at an inopportune time. Plus, they're much easier to upgrade as technology evolves, allowing you to be better equipped to handle developments such as EMV or the latest PIN technology.

Lastly, be sure to keep in mind your overall business goals. Will you be taking payments off site? Do you plan on expanding to additional locations or adding an e-commerce shop? Know the answers to these types of questions before you take the next step.

Rules of thumb on making the approach
Once you've narrowed down the type of merchant service provider you'll need for your business, keep these five things in mind as you make your way into the seller's playground:

Look for hidden fees. Smart marketers know low prices are eye-catchers, but smart buyers know there will always be strings attached. If a price sounds too good to be true, it's because it most likely is. Don't commit to a provider based on the number you see in an ad.

Take some time to do additional research and have in-depth talks with prospective providers. Then, compare and contrast against other providers on the market to pull those hidden fees out of their hide-and-seek game.

Ask trusted merchants for referrals. When you're in need of a good plumber or repairman, sure, you may start with a quick Google search — but at the end of the day, you're likely to side with the guy your neighbor has been using for years. Why? You trust his personal and experienced opinion.

Likewise, as you're looking for a merchant service provider, check in with other retailers to learn from their mistakes, heed their advice, and, assuming it fits all of your needs, potentially hire the same provider. Plus, you never know when a referral bonus may be tacked on.

Beware of the ridiculously low price quote. Here's the truth: In a retail business, you're not going to be paying anything less than 2 percent to your merchant service provider. If you've been quoted at 1.25 percent, that rate probably only factors in debit cards and not qualified credit cards. And this rate doesn't factor in the range of credit card transactions, including fees for credit and debit cards, swiping, and rewards cards — these are often charged at higher rates.

Also, beware of services that require you to purchase a terminal lease, as those are often very costly when sold by a merchant service provider and can end up being serious rip-offs.

Again, ask questions. Make sure all of your transaction needs are included in the price quote.

Look for numbers that make sense. When it comes to credit card pricing, MasterCard and Visa have determined more than 100 interchange categories that actually determine the merchant service cost. Whoever you decide to work with, be sure to uncover the overall effective rate you're estimated to pay. Meaning, at the end of the month when you take the gross merchant fees paid and divide that into gross sales, what's the percentage number?

No one should offer you an exact number, as total volume ultimately determines that. However, per industry standards, it would likely not be any lower than 2 percent.

Seek out experts who are willing to help. Beyond your trusted retailer friend, seek out an expert in the merchant service world who is able to give you sound advice and investigate your unique situation. Find someone who will take the time to sit down with you, get to know your business, and be able to propose a customized recommendation based off of his or her analysis.

When your profit figures are on the line, you want to ensure that you're not only getting the best deal, but that you're also nailing down a flexible provider that has the capacity to handle your business volume from peak season to any ol' Tuesday. 

The merchant service provider world can be a daunting arena to enter — but it's something every retailer has to do. You need to be the smart surfer who's always watching for sharks in the water. You've got a business to run, and they're looking to take the biggest bites out of it that they can.

Prepare yourself by knowing your needs, knowing the industry standards, and at every step, ask lots of questions. Don't allow yourself to be an easy target.


Don Siclari founded InChek while still a student and has grown the business to offer expansive payment processing to merchants.
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