Today I want to share with you my experience looking for a credit card processing company for my small business. With all the lessons I’ve learned, I hope my experience can provide some helpful insight for you and your small business. As you’ll see in the story that unfolds, one important part of this process is the credit card processing savings analysis.
A sort of apples-to-oranges comparison that sales reps will present. Portraying their company as the best choice for accepting credit and debit card payments.
Take everything with a grain of salt, I say (unless you have high blood pressure, then lay off the salt). And be sure to factor in how you relate to the sales rep or account manager.
How I Started My Own Business
Being self-employed and running my own business certainly has its perks. Nobody owns my time—and yes, I work a fair amount. But, I love what I do and I can do it when I want to. Then of course, when I have less work to do, I can clock out (not literally, of course) and spend more time pursuing hobbies or spending time with my family.
I remember the days of punching in at the workplace at 9:00 AM, finishing my work around two hours later, and pretending to be busy until 5:00. At first it was fun browsing through my social media. But eventually, ennui set in—that’s a fancy word for existential boredom.
Pretending to be busy for close to thirty hours each week definitely makes you want to search for something more meaningful. And that’s why I started my business (more on what that is later).
Being self-employed and running my own business certainly has its perks. Nobody owns my time—and yes, I work a fair amount. But, I love what I do and I can do it when I want to. Then of course, when I have less work to do, I can clock out (not literally, of course) and spend more time pursuing hobbies or spending time with my family.
I remember the days of punching in at the workplace at 9:00 AM, finishing my work around two hours later, and pretending to be busy until 5:00. At first it was fun browsing through my social media. But eventually, ennui set in—that’s a fancy word for existential boredom.
Pretending to be busy for close to thirty hours each week definitely makes you want to search for something more meaningful. And that’s why I started my business (more on what that is later).
Cash, Check, and PayPal
One thing I regret is not reaching out more often to business owners who already went through what I was about to go through. Back when I started my business, there weren’t so many online resources and discussion threads where business owners could impart their wisdom. So writing this article(success story), in a way, is my opportunity to rectify that missing piece on a communal level.
I opened my gift basket business almost 20 years ago, with just $200. My clients were literally just family and friends. The crinkle paper shreds, ribbons, and baskets came from the craft store. And I would shop for food items at the grocery store.
I used a hair dryer to shrink-wrap the baskets myself. My production line was a workbench in my garage, and my office was a laptop at the kitchen table. Back then I didn’t need anything like payment processing.
I took cash and check payments. Sometimes I collected payments on PayPal, which seemed high-tech at the time. My transaction volume was maybe one or two gift baskets per week.
I was also married (still am) with young kids (who have since grown up). Like many households, we were a dual-income family. I was a coordinator for a company that managed foreclosures, so I would send contractors out to job sites and review photos of their work.
As I said, I finished most of my work within two hours. But I still had to be there 8 hours a day, and do after-school carpool, make dinner, and (many times) put the kids to bed. That meant my gift basket business was a very part-time…hobby. Not a business.
My Big Break: Holiday Season 2012
I remember the month that changed everything. Forever. My big break, I like to call it. It was November of 2012. I remember we had just finished Thanksgiving dinner. We were vegetating on the couch, letting that tryptophan go to work while we watched Home Alone.
I was thinking about how nice it would be to be able to spend the weekend with the family—maybe some thrilling Black Friday shopping at the mall—instead of having to go back to work and put in some calls to board up windows and change locks.
I saw an ad for a holiday-themed gift basket and that’s when it hit me…Christmas was coming up. Why not try to leverage this holiday season into something for the business? The idea hadn’t really occurred to me, in part because it was always such a busy time of year.
But now that it did occur to me, I was motivated to make it work. I hit up my usual stores that weekend and put together some creative holiday-themed baskets. I snapped pics and put them on my Facebook account, offering free local delivery to sweeten the pot.
Within 24 hours, I already had ten orders. I started getting inquiries from people outside my zip code. Although I was initially reluctant to ship long distances, I figured that part out in a way that could build the cost into my pricing model.
Long story short, things started taking off from there, and by Christmas Day I had sold over 300 baskets and raked in about $7,500. A star was born—with a lot of help from my older kids and my husband.
Running With My Success
I could have rested on my laurels and decided to enjoy the same success next holiday season. But I was motivated to keep going. In part because I saw the light at the end of the tunnel. I delved into reading about online marketing. Something that was still relatively new at the time.
I invested in a website that integrated with PayPal. I used social media to start blogging and vlogging about my gift baskets. I leveraged the calendar of holidays to increase my revenue. For Valentine’s Day, I sold over 400 baskets. Saint Patrick’s Day, around 200. Easter was the money-maker, and I nearly hit 1,000 of them.
By the summer I was able to put in two weeks’ notice. There was no way I couldn’t. In two quarters I had sold close to 2,000 gift baskets and netted around $20,000, which was already more than I was making at my job.
My garage had been fully converted into an assembly line of baskets and ribbons and shrink wrap and shredded paper—much to the chagrin of my husband and teenage son, who had to park in the driveway. I was eyeing a storefront at a nearby strip mall, if only for the sake of not taking up space in our home.
The Problem With My Success
In December 2013, I opened my brick-and-mortar store. This was something I never had seen coming, and I was ecstatic about it. But the sales volume I was getting made me realize that I would now need some payment solutions beyond cash, check, and PayPal.
Customers would walk in and many of them would not have cash or checks. QR codes didn’t exist yet and it was too much of a hurdle for the checkout process to ask them to open up PayPal. I would need to start accepting credit cards. And that’s where I learned about the payment processing landscape the hard way.
Not All Payment Processing Companies are the Same
My first mistake was assuming that all payment processing companies are the same. Some research into the topic of interchange fees and credit card processing fees helped me learn that Visa, Mastercard, Discover, and American Express each have different fees that are tied to their usage—but I assumed that beyond that, six of one was half a dozen of the other. What resulted was an unfolding narrative that in retrospect reminds me of Goldilocks and the Three Bears.
The first payment processor I tried was actually a referral from another merchant in the same strip mall. Looking back, I should have realized that they were probably too busy to do a whole lot of backend research. They most likely settled for the most convenient option that fell into their lap—maybe it was even another referral.
The Initial Credit Card Processing Savings Analysis
The sales rep from this payment processor seemed genuine enough—business casual and friendly smile. But I later learned that the packaging of her presentation was disingenuous. Her credit card processing savings analysis was a glossy brochure of stock photos and colorful graphics that presented a very digestible breakdown of that company’s fees. As it turns out, the digestible nature of her presentation was due to its gross oversimplification—one that hovered in the space between negligence and malfeasance.
Tiered Pricing and the Confusion it Creates
This company offered merchants something called tiered pricing (more on that later). But another problem stemmed from the presentation of the interchange fees. I later learned that there are hundreds of different interchange fees. The exact nature of which depends on the type of card, the card brand, the processing method, and the merchant category code (MCC).
For example, a Visa credit card with cash-back rewards swiped at a grocery store will have a much different fee than a Mastercard with no rewards swiped at a gas station.
None of this was explained to me. The sales rep showed me some “typical” interchange fees that would typically be associated with my type of business. Since she had a dozen different brochures, I assumed the brochure she showed me would be tailored to my business as specifically as possible.
“Miscellaneous and Specialty Retail Stores” certainly seemed like a generically applicable category. Little did I know that “Card, Gift, Novelty, and Souvenir Shops” have their own specific MCC, or merchant category code, resulting in very different fees.
Now on to the tiered pricing issue. Tiered or bundled pricing typically includes three levels: qualified discount, mid-qualified, and non-qualified. Sounds simple enough, right? Unfortunately, the processor gets to decide what type of transaction falls into what tier.
Typically the discount tier (the lowest rates) includes debit cards, non-rewards cards, and chip payments. The mid-qualified tier includes membership rewards cards, loyalty cards, and card-present transactions. The non-qualified rates (the highest rates) include high-rewards cards, corporate cards, card-not-present transactions, and late batch-out times.
The Problem With Tiered Pricing: It Was Not Set Up For My Needs
The problem with this tiered system is that it’s made for the benefit of the payment processor, and not the merchant. Tiers help cover liability by increasing fees for card types or transaction methods that are likely to see an increased risk of fraud or chargebacks—e.g. card-not-present or high rewards cards. This resulted in a very confusing statement from my payment processor, where it seemed like there was no rhyme or reason why one transaction cost more than another.
Of course, it all made sense according to the rules of the tiered pricing. But that wasn’t something I could keep track of or use to guide customers toward selecting a debit card instead of their favorite rewards credit card.
Ultimately, I was very unhappy with this payment processor. There was a serious lack of transparency in presenting the interchange fees, which ended up being much higher than those lowest-possible fees (for an entirely different merchant category code, at that) listed on the sales brochure.
And the credit card processing savings analysis offered by said brochure—while spelling out the general idea of tiered pricing—did not make it clear that tiered pricing would ultimately be very confusing and at times seemingly inconsistent.
What I later learned was that this particular company was engaged in a very aggressive push to close more deals and acquire more accounts in the immediate area, because a disgruntled founder had made his own spinoff company. The byproduct of their colonial race was a barrage of hungry account managers closing deals with a lot of smoke and mirrors…and tons of gloss. I do have to admit, however, that the brochures were well done.
Go Big or Go Home: The Flat Rate Pricing Model
So, this Goldilocks moved on to another payment processor. This time around, I decided to go big instead of going home and chose to work with a large, nationally-branded payment processing company that is now publicly traded and serves more than 65 million businesses (hint: it’s not Circle, it’s not Triangle, and it’s not Trapezoid).
Square offered a flat-rate pricing model. This seemed like a promising solution over the qualified tiers. There also seemed to be a greater degree of transparency, since the pricing was placed on their website for everyone to see.
As such, there was no real saving analysis to compare anything to. It was just flat-rate pricing that was the same for everybody. But given the outcome of a credit card processing savings analysis last time around, that was just fine by me. I can’t recall exactly what the pricing was when I signed my contract. But that wouldn’t be relevant to you now, anyway.
At the time I’m writing these reflections down, their pricing is 2.6% + $0.10 per contactless, swiped, or chip-inserted payment. Keyed-in-payments and card-on-file payments are 3.5% + $0.15, and invoices are 2.9% + $0.30 and 3.5% + $0.15 for card-on-file invoices.
There is more nuanced pricing available for merchants who cross a $250,000 annual gross sales volume, and the idea of getting better pricing based on volume seemed appealing to me at the time. For instance, what if I was able to open a second location or accelerate my online business?
Why Flat Rate Pricing Did Not Work For Me, By Far The Most Expensive Option
So in fact, that’s what I tried to do. And one way I tried to do that was by offering a unique type of subscription service. Every month, you (or a designated recipient) would receive a customized gift basket for that month. While the idea was a success, it, unfortunately, fell into the category of a card-on-file invoice, which meant a punitive 3.5% + $0.15 fee per transaction.
Moreover, I just couldn’t hit that volume threshold, so I was left at the flat rate pricing. I was starting to think that my old payment processor was offering better rates. Despite the lack of transparency around their initial presentation and the tiered pricing fiasco.
So, I did a couple of side-by-side comparisons to see if I had made a bad choice by switching to this new payment processor. I couldn’t really draw anything conclusive out of these comparisons though.
My business had grown and I didn’t have the accounting knowledge to incorporate that growth into my analysis. My gut feeling was that one was not so much better than the other. But rather than feeling like I wanted to stay with the larger payment processor, I felt like there had to be a third way.
Customer Service Nightmare
That’s when the confetti really hit the fan if you know what I mean. I got a call from a large corporation with a footprint in our city. They wanted a thousand gift baskets for their employees as an end-of-the-year gift.
And not just little baskets—premium baskets with fine wine (yes, I have a liquor license, which is a story for another day), exotic fruits, caviar, and truffle butter (you read that right). Each basket totaled a whopping $300 for the customer.
I couldn’t believe what was happening. I felt like I had won the gift basket business lottery. Not only was I going to make $300,000 in gross revenue off of one sale, but I was finally going to be eligible for some of that save-money volume pricing.
What ended up happening instead was a complete nightmare. Because the size of this order so far outsized my typical order size, the payment processor froze my account—something I didn’t know until I came in the next day and tried to run some in-store transactions.
From their end, something seemed fishy…and it wasn’t about the caviar. Of course, nothing fraudulent was really going on. So I dialed their customer service number to communicate that and get my account unfrozen.
The Final Straw
Unfortunately, it was no simple fix. It took the better part of a week filled with circular conversations and lots of hold muzak. In the meantime, fingers crossed, I basically jumped off a roof with pizza boxes taped to my arm and hoped I could fly—not literally of course, but figuratively.
I told the customer they could pay on delivery, and fronted the cost of these baskets myself—and they were full of things I didn’t typically have in-store. That’s because my average customer does not drink Veuve Clicquot or eat food items made with ingredients that require a trained hog to smell them out of the forest.
Nonetheless, I had my employees (now more than just my children) assemble the baskets and I kept plugging away at the customer service issue. In the end, everything worked out, but it was immensely frustrating and stressful. Imagine going bankrupt over caviar and truffles.
When I shared this problem with another business owner in my network, they told me that what I really needed was a payment processor that could provide me with something like an account manager—a dedicated point person who would get to understand my business, offer me a tailored pricing package, and be responsive to issues as they came up, even helping to navigate out of them.
The Porridge Was Just Right
This is where ECS Payments came into the picture and where my Goldilocks story came to an end. The first thing that set ECS apart from monolithic credit card processing companies like PayPal and Square is that I was connected with an account manager.
This sales rep was able to provide a comprehensive and honest credit card processing savings analysis. Focusing on my specific type of small business, we discussed the costs and fees for different card transactions, based on the issuing bank, card networks, and in-person point-of-sale (POS) versus online payment.
Rather than presenting the most favorable interchange rates based on oversimplified information from the credit card networks, this account manager took the time to answer my questions and make sure I understood the pricing model for accepting payments as a merchant account.
Moreover, they were able to tailor a merchant service plan for accepting credit and debit cards that were more favorable than the vagaries of tiered pricing. But more nuanced than the flat-rate fees of payment gateways like PayPal.
I’m also happy that ECS is helping me explore newer payment methods like QR codes and mobile payments, which has given me a lot of flexibility in terms of expanding my business. With these types of flexible payment methods, I can engage in pop-up shops and kiosks at other locations without having to commit to long-term brick-and-mortar arrangements.
For instance, last holiday season I was able to have pop-up kiosks going on at several local malls in my area, which increased my December profits by over 50% compared to last year.
Credit Card Processing Savings Analyses Summary: Ask Questions, Go Deeper, and Gauge Your Sales Rep
In summary, I would say to be careful of taking credit card processing savings analyses at face value. Be sure to ask questions and see how the sales rep responds. If the pricing structure of a certain payment processor is too confusing or seems inconsistent, don’t just automatically switch to a large, monolithic brand that everyone recognizes. Because those flat-rate fees won’t save you money.
Moreover, when things hit the fan, it can be much harder to resolve issues without a dedicated account manager. I am very happy with ECS Payments because they are attentive and flexible. Ultimately saving me more money on accepting credit and debit card payments. Remember, when you are presented with a credit card processing savings analysis, nobody is forcing you to sign a contract.
You are not trying to get anybody’s business, because there are a million fish in the sea, as they say. Rather, this company is trying to get your business. Don’t be afraid to ask questions and go deeper.
Examining every type of transaction—credit, debit, rewards, non-reward, Visa, Mastercard, Discover, Amex, swipe, chip, dip, flip, and QR codes. The sales rep who goes there with you is going to be the one that deserves your business.
To contact sales, click HERE. And to learn more about ECS Payment Processing visit Credit & Debit.
