Understanding Credit Card Processing

POS101Even after you have found the perfect machine for your business, your credit card worries don’t end there. There are three major types of credit card processing services that you should be aware of in order to get the most out of your new Verifone POS system.

Tiered:

Every time a customer uses a credit card, a code is generated that categorizes the purchase based on how risky it is. Sandwiches, cups of coffee, and other small, relatively inexpensive items are assigned a code signifying low risk. Meanwhile, something expensive, like furniture, gets a code that corresponds to a high risk purchase (especially if it is made online). Through tiered processing charges different rates for the different types of purchases that could be made at your store. Low risk purchases will have a lower rate for processing, while the highest risk will higher rates. This system can work out great for stores that are using purchases that are mostly “low risk”, or “qualified” as most companies call them. However it’s important to be clear from the beginning with your company how they will be classifying transactions. Your rate on “qualified” transactions might be great, but you will want to be sure the majority of your products fall in this category.

Interchange:

Interchange works to fix those problems that pop up with tiered pricing. Through Interchange-plus pricing, you can easily break down each transaction to one fixed percent and one fee. This usually works out to be the best deal for companies that have a very high volume, but other retailers and merchants could find benefits as well. The percentage is determined by the processor’s markup and the fee is set by credit card associations–usually .5% plus $0.15 to $0.30.

Flat Rate:

Flat-rate would be the newcomer to the party that has really been shaking things up for everyone in the credit card industry. With more flexible services like Paypal and Square, things become much less common. The fee you py is usually one fee per transactions with no exceptions or a monthly subscription service. A great option for business owners looking to cut down on their headaches and have simple credit card fees to wrap their heads around.

There are a lot of complicated formulas that can come into play for getting your business on track with exactly the right credit card processing service and point of sale system for you. Take the time to discuss with your accountant, or sit down and do the math yourself, so you know your effective markup, your effective rate, and the volume of your credit card transactions. With this information in hand you can more easily see which type of service is best for you.

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