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Today's business owners have a lot of options when it comes to accepting credit card payments on the go. But how much does it cost to make a business mobile?
Just like traditional credit card processing, the fees and pricing structures associated with mobile payment processing can get complicated. Here's a simple guide for understanding the complex costs associated with mobile credit card processing:
Because mobile payment processing doesn't require much hardware, setting up a mobile merchant account is typically cheaper than setting up a merchant account with a traditional payment processor.
In fact, many mobile processors offer free card readers to new merchants. Additional card readers, which are compatible with specified smartphones and tablets, usually cost between $10 and $15 and can be purchased in retail stores or directly from the processing company or merchant service provider you choose.
If you already have an account with a merchant service provider or credit card processing company that also offers mobile credit card processing (most of them do), you may be able to start accepting mobile payments right away. Of course, you'll want to contact your company of choice for detailed information about the costs associated with accepting mobile payments. [See also: 25 Ways to Accept Mobile Payments]
Some mobile payment processors charge merchants various fees for setting up a new merchant account or updating an existing account. Depending on which processor you choose, you may have to pay a fee just to apply for mobile credit card processing (application fee or sign-up fee). Some processors also charge merchants a set-up or activation fee before allowing them to accept mobile payments.
[For a side-by-side comparison of some of the most popular mobile credit card processing providers, check out Top Ten Reviews' in-depth review of mobile credit card processors.]
Most mobile credit card processors charge a monthly fee for the use of their services. This fee goes by several names— statement fee, account fee, bundle fee, payment gateway fee, wireless access fee, etc. However it's referred to on your monthly statement, you'll want to make sure you understand what's included in the amount you pay per month.
Some credit card processing companies, for example, charge what's known as a "monthly minimum fee." In other words, if the fees you incur every month don't meet a minimum threshold, you'll be charged the monthly minimum fee, rather than the amount you actually owe. Monthly minimums vary greatly from processor to processor, so you'll want to know whether such a fee applies to your account before signing up for a service.
While many mobile processing companies follow a monthly pricing structure, others choose to forgo monthly payments altogether for a pay-as-you-go model. Companies like Square, for example, don't charge a monthly fee at all.
However, opting out of monthly payments usually means paying higher discount rates and transaction fees, and merchants need to consider whether this price structure is really the best option for their business. Some mobile processing options, like Intuit GoPayment, let merchants choose whether to pay as they go and incur higher rates or opt for a monthly charge with lower rates.
Clearly, choosing a mobile credit card processing company requires some research. When making your selection, don't forget to look for information about annual fees. Some credit card processing companies may charge merchants an annual account fee in addition to their regular monthly account fee. Others may charge a PCI compliance fee.
Knowing if such charges will apply to your account before signing up for a service can save you a lot of money (not to mention frustration, headaches and regret) in the future.
While not all mobile payment processors charge a monthly fee for their services, they all do charge fees for every credit card transaction you process. Typically, processors charge a transaction rate (a percentage of the total sale), plus a separate fee per transaction.
A discount rate is actually a number of different charges that merchants incur in order to process a credit card sale. Part of the rate represents the fees paid to the credit card processing organization and part represents the fees paid to the merchant's acquiring bank. This rate is expressed as a percentage of the total sale.
Discount rates vary depending on the type of transaction processed. For example, Flagship Merchant's mobile payment service, ROAMpay, charges a discount rate of no more than 1.58 percent when you swipe a customer's card through the mobile reader. However, the same transaction could incur a discount rate of 1.98 percent if you key in the card number rather than swipe the card.
This discrepancy in discount rates is based on a few factors. First, it reflects the rate structure, known as tiered pricing, that many credit card processing companies use for merchants. As Ben Dwyer points out in a blog post for CardFellow.com, tiered pricing is a much maligned and rather complicated subject, but one that merchants should definitely research before signing up for any credit card processing service.
Merchants should also keep in mind that keyed-in transactions are almost always more expensive than swiped transactions because they are classified as "card-not-present" transactions, and are therefore viewed as being more susceptible to fraud.
Companies like Square simplify the discussion of discount rates by charging a flat — and relatively high — rate for every merchant (2.75 percent per transaction).
In addition to charging a discount rate for every credit card payment processed, most mobile payment processors also charge an additional per-transaction fee. For most companies, this fee ranges from 10 to 25 cents.
Swiped transactions, in addition to incurring a different discount rate, will also typically incur a different per-transaction rate. Leaders Merchant Services, for example, charges a 10-cent transaction fee for swiped transactions and an 18-cent fee for keyed-in transactions.
Considering how complex pricing is for credit card processing, it should come as no surprise that transaction fees are often more complicated than they appear on paper. As CardFellow's Dwyer explains in another useful blog post, transaction fees generally refer to any flat fee charged when a merchant's credit card processing apparatus (i.e., a card reader or app for mobile payment processing) shares information with a processor. Unlike discount rates, more than one transaction fee may apply to a single credit card transaction.
In addition to the many fees and charges already listed, some mobile payment processors also charge a number of other fees, which fall under the category of "miscellaneous fees." Such fees can include charges for canceling a service before the contract with the processor has expired, bank routing fees and other service fees.
To avoid paying these fees — aptly referred to by many merchants as "gray charges"— merchants should look closely at their processor or merchant service providers' terms of service agreement before signing up with a company.
Originally published on Business News Daily.