More consumers are preferring to make purchaes with credit and debit cards.
For retailers, accepting credit and debit cards has become a must. Last year, consumers paid cash in only one-third of in-store transactions, a study by the American Bankers Association and Dove Consulting found – compared with 52 percent with credit or debit cards.
But keeping customers happy has a price: On average, processing fees eat up 2 to 4 percent of credit and debit card sales, said Paul Martaus, president of Martaus & Associates, an electronic payments consulting firm in Arkansas.
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Getting a good deal and reliable service can make a real difference for a business’s bottom line, but there are so many providers available, and the fee systems are so complicated, that making the choice can be a big headache.
Martaus said the minute merchants file for a business license, banks and independent sales organizations (third-party vendors) bombard them with offers, each claiming to provide the best deal. But which should they choose? Should they stay with the bank where they keep their accounts? Is it better to sign the agreement with a small provider or a large bank?
Martaus said it all depends on the merchant’s wants, needs and values.
A larger company, or a startup with the potential to grow, might want to sign up with a larger bank because larger banks can offer more services to meet the needs of a growing business, he said.
For example, Sovereign Bank executive Marshall Soura said the bank “can process virtually any kind of merchant transaction” because of its alliance with First Data, the largest electronic payment processor in the country. Soura is executive vice president and managing director of Sovereign Bank’s global solutions group.
In addition, the alliance allows the bank to provide next-day availability of funds, he said.
And First Data has 65 employees assigned to helping Sovereign customers, dealing with hardware and software installations and customer service.
Citizens Bank, on the other hand, owns an electronic payment processing company called RBS Lynk, which Jim Ricci, vice president of commercial business development, said makes its merchant services more convenient because the merchant deals with just one organization for everything instead of several different organizations for different services.
Ricci said owning its own processing company allows the bank to offer a comprehensive package of merchant services and next-day availability of funds as well.
Citizens Bank has an in-house sales force that partners with its business bankers and officers in the branches to go out and visit customers, he said. The sales force asks “what are [the customers] trying to accomplish to get the solution they need.”
Martaus said a smaller business might prefer using a smaller bank for merchant services because it might not need a wide array of services and tends to value the personal attention smaller banks offer.
“When choosing a merchant service provider, it always makes good business sense to do business with someone you trust,” said Mark St. Hilaire, retail sales director for Bank Rhode Island. “I think what gives us a competitive edge is we do have a local agent. … We pride ourselves on having a local agent with unsurpassed industry knowledge.”
That agent handles merchant services for all the bank’s customers, he said, but is available by phone, e-mail and in person to help with anything the customer needs.
Martaus said the best thing a merchant can do is get three competitive bids.
“Pick the one you’re most comfortable with,” he said. “And say, ‘I’ve got these other offers. Tell me what’s wrong with them and tell me why I should use you.’ ”
Martaus said merchants should ask third-party providers and banks whether the bid is for only fully qualified transactions, because many quotes are based on only the transactions that work perfectly with no glitches.
“Unfortunately half of transactions are downgraded,” he said, meaning they do not work perfectly. And the fees attached to downgraded transactions can “go through the roof,” he said.
The problem is that most independent providers hire sales teams that work solely on commission, which makes selling merchant services a “greed-based business,” Martaus said. Though many independent providers are legitimate, some “don’t have the highest morals,” he said.
One bank might hire as many as 500 independent providers to sell its merchant services because it costs less to outsource and the bank can reach a greater number of customers that way, he said.
Martaus said the best advice he could give a merchant is “don’t trust anybody” and “go with the offer you feel most comfortable with.”
