At Helcim, we understand that the payments industry is complicated and learning all the ins and outs of credit card processing can take years (and unfortunately some painful trial and error) before a new business owner may truly feel like they have a firm grasp on it.
In our daily conversations with merchants, there are a few common misconceptions that we hear quite regularly, and we would like to help clear them up so you can avoid any potential frustration in the future if you come across any of these scenarios.
The interchange rate is determined by the payment processor
Your credit card processing fees are made up of three parts: the card brand fee, the interchange rate, and the payment processor’s margin. The interchange fee is the standard fee for processing a credit card transaction and is set by the card brands, not the payment processor. The fee is actually charged by the card issuing bank to cover the cost of facilitating the transaction for its cardholder.
Payment processors make money off the interchange rate
The part of the payment processing fee that payment processors make money off of is their margin rate, which is charged on top of the interchange fee. The other portions of the fee go to the other parties who are involved in facilitating the transactions, with the card brand fee going to the card networks in exchange for access to their network, and the interchange fee going to the issuing bank in exchange for covering the handling costs of completing the transaction. Helcim is proud to offer interchange plus pricing, which is generally regarded as the most transparent and cost-effective pricing structure and essentially passes on the true interchange rate, plus their margin added on top, to the customer (which is why it is sometimes referred to as “interchange pass-through” pricing). You can easily find a breakdown of Helcim's rates on our website, as well as all the interchange rates for the major card brands. We break down all the different parts of the credit card processing fee, so you know which parts of the fee are going to which entities whenever you process a transaction.
You need Multi-Currency Processing to process international credit cards
You do not need multi-currency processing to be able to accept international credit cards. If you do not have multi-currency processing enabled and an international customer makes a purchase from your business, you will still be able to accept their payment as long as they are paying with a card brand that your payment processor accepts. If you do not have multi-currency processing and an international customer makes a purchase from your business, they will pay for their purchase in your business’s local currency, not their local currency.
If you have a large portion of international customers who regularly make purchases from your business, then you may want to add multi-currency processing in order to let customers pay for their purchases using their local currency. Multi-currency processing can make it easy for customers to see the cost of the item in their local currency, which can help improve your customer experience.
When you get your deposit, the payment processing fees have already been taken out
This is only the case with net settlements. There are two types of settlements that you can receive, either gross settlements or net settlements. The deposit type you receive can depend on what your payment processor offers and how you set up your account. Some payment processors might allow you to select which one you prefer, and others may only offer one type of settlement. If your merchant account is configured for net settlements, then that means your deposit will be for your batch amount minus your processing fees. However, if you’re on a gross settlement arrangement, then the total batch amount you processed will be deposited into your account, and once a month all of your processing fees will be withdrawn from your account.
Terminals and Point-of-Sale Systems are the same things
While many businesses might use their terminals and point-of-sale system together each day, they are two separate pieces of equipment, and not all businesses will need both. A terminal is a customer-facing piece of equipment that your customer can complete a transaction by either tapping, swiping, or inserting their credit or debit card into to, whereas a point-of-sale system is merchant facing and is used to help your customers check out, manage your products, and keep track of your inventory. Most point-of-sale systems include terminal integrations to help the two pieces of equipment work together. Some businesses may only need to accept payments using a terminal and don’t see the need for a point-of-sale system. Or, if your business doesn’t accept in-person payments, then you may not need a terminal and may only use a point-of-sale to manage products and keep track of your inventory. It is also possible to employ the use of neither, and simply just take payments online or through a virtual terminal.
When you refund a payment the processing fees will also be returned to your business
If you process a refund, the customer will see both the original amount and the refunded amount on their statement. However, while the customer will be refunded for the purchase amount, your business will still be charged the payment processing fees for the initial transaction, but you are not charged processing fees for the refund (a refund is essentially a negative transaction). If you have processed a transaction that needs to be reversed, it is better to void the transaction, instead of issuing a refund. A void will cancel an authorized transaction and prevent interchange fees from being charged to your business. As long as you have not settled the specific batch that includes the transaction in question, you will be able to issue a void and avoid any processing fees.
Contracts and equipment leases can be canceled without penalty
While Helcim doesn’t charge contract cancelation fees, not all payment processors operate this way. Many payment processors have lengthy contracts and equipment leases designed to keep merchants in their contracts for the entire duration, with using a high cost of canceling acting as a deterrent. Cancelation fees, early termination fees, and equipment leases can end up costing businesses a lot of money over the course of their contract. This is why Helcim recommends that you never lease your equipment and instead look for a payment processor that has the option to rent or purchase your equipment outright. If you are a Canadian merchant, you can use the Canadian Code of Conduct for the Credit and Debit Card Industry to help you get out of your merchant account contract.
All credit cards cost businesses the same amount to process
Not all credit cards are created equal. The type of credit card your customer uses for the transaction will affect the processing fees that you pay for that transaction. When a customer uses a high-end rewards credit card, that transaction will likely cost you more than if they used a basic credit card that doesn’t offer any fancy rewards or points. It’s important to understand the demographics of your customer base because factors like age, average income, and even location can all give you insights into what kind of cards you might regularly encounter over others. If you’re operating in a more affluent part of your city, for example, you are likely to encounter higher-end business and rewards cards, which may have a higher interchange rate. If you want to compare how the different types of credit cards can affect your processing fees, check out Helcim’s pricing page where we break down the different card types and what their associated fees are.
All transaction types are equally secure
How you process a payment has an effect on how secure the transaction is and also your exposure to fraud. Online, or card-not-present transactions, have a higher risk of fraud compared to card-present transactions because their faceless nature makes it harder to verify that the purchaser is, in fact, the real cardholder.
If you are processing a transaction in-person with the card present, it is best to use EMV chip cards and equipment to process the transaction because it is more secure than processing a mag stripe transaction. EMV-enabled cards, or chip cards, were introduced to help combat fraud and they have helped to drastically reduce card-present fraud in Canada because of their added security measures including two-factor authentication and unique transaction id’s. PIt's also been reported that counterfeit fraud at US merchants was reduced by 75% between September 2015 and March 2018 as more retailers began to accept chip cards.
It’s okay to write down credit card numbers if you’re processing a card-not-present transaction
You should never write down or store your customers' credit card information because doing so puts your customers' personal information at risk and can expose your business to fraud. Storing sensitive credit card information securely is part of PCI compliance, which anyone who processes credit needs to adhere to in order to minimize their liability in the event of a data breach. If you need to store credit card information you should ask your payment processor if they offer a card vault or a self-serve customer portal where customers can provide, update, and store their payment information securely.
You can store the customer’s CVV if you need to charge the customer’s card again in the future
Merchants, as well as processors, are prohibited from storing the customer’s CVV in their database or card vault. The CVV is not part of the data stored on the magnetic stripe or on the EMV chip, meaning that if a database is hacked and credit card numbers are stolen, hackers would not be able to process any transactions without the security code. The way that processors get around not being able to store the CVV is that if you’re trying to process a recurring payment, for example, there is an initial verification that happens when the customer first enters their CVV. This initial verification greatly reduces any doubt that the customer initializing the payment wasn’t in possession of their card, and that this credit card is indeed authorized to make any subsequent payments on an ongoing basis.
These are some of the common misconceptions we commonly encounter regarding the credit card processing industry. If there’s something about credit card processing that has you stumped that we haven’t addressed yet, feel free to reach out to firstname.lastname@example.org and we will give you a hand.