It is a well-known fact that the use of credit cards can increase sales and foot traffic for small businesses, however it is also important for the merchant to understand the credit card transaction process, since if not watched properly the associated fees can take a bite out of their profits. One of the biggest ways to drive up processing fees is to hand-key your credit card transactions, which the merchant should avoid at all costs.
How Keyed Transactions Affect The Merchant
When a consumer is unable to swipe their card because the credit card machine is not accepting it, the cardholder may become frustrated but in reality the merchant should be the one concerned since swiping versus keying transactions can generate higher fees for merchants.
Credit card interchange fees vary based on the risk level of the transaction. A swiped transaction is the lowest risk based on the fact that a consumer is present with card in hand which can be swiped. While a hand-keyed transactions is considered the riskiest because no cardholder or credit card is physically present during the transaction. Because the risk level increases keyed transactions have a much higher interchange fee than a swiped transaction. When you’re a small business owner with a razor thin margin, those fees begin to add up.
Keyed transactions are processed at a higher rate called a non-qualified rate. If a merchants neglects to verify the cardholder’s addresses or other information when key entering a transaction they can get hit with that non-qualified rate. Another way to see a non-qualified rate is if the merchant does not batch or settle their transactions within 24 hours of accepting the transaction, thus allowing for more risk and chargebacks.
Ways to Cut the Cost of Extending Credit
Cutting costs and processing credit cards can be important to the merchant and depending on what kind of business you have, mobile payments may be a great option for saving money. For example, if you work as a plumber or a contractor, you may currently be performing your work, writing down customer credit card numbers, returning to your shop and hand-keying the credit card number. As a result, your interchange fees are probably too high.
Switching to mobile payments with a merchant services provider like SwitchPay will allow you to perform your work and accept payments at the same time and location. SwitchPay will send you a mobile card reader that you can insert into your mobile phone. You can swipe customers’ credit cards on-site, which means you’ll be charged a cheaper swipe fee instead of a more expensive hand-keyed fee. Most of all, try to avoid hand-keying credit cards. You’ll be surprised how much money you’ll save.