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Many people have been talking and asking about Square, the new gadget coming from Tom Dorsey, the prolific founder of Twitter. The basic idea is to make the acceptance of credit cards universally available for everyone individuals, businesses, etc.–provided they have an iPhone and Square’s little swiper piece (you plug it in the iPhone to facilitate the swiping of credit cards). Cool idea, huh? Here are some questions to ponder:
1) Is Square accomplishing something new?
2) Is Square a good idea for my small business?
3) What’s the catch?
4) What are the pros and cons?
I welcome discussion and addition to these questions. Having read a ton about Square, this is purely speculative. Since it does not come out until the summer, only test users have actually put it into use.
1) Is Square accomplishing something new?
Yes and no, but mostly no. Accepting credit cards via iPhone has been around for a while. In fact, TransFS has a free iPhone app that does virtually the same thing as Square. The difference: with TransFS (and many similar apps) there is a different credit card processor involved on the back end, but with Square, they act as both gateway and processor. Another difference is the swiping feature–most other apps require keying in the number.
Square also includes some nifty toys like photo verification (for identity theft purposes), the ability to swipe cards, and email receipts with lots of information like geographic location of transaction.
2) Is Square a good idea for my small business?
It depends on your size, but mostly no. If you are a bicycle messenger, or some other occupation with very low volume of credit card revenue and also need mobility–then Square may be worth it. Rates for credit card processing fees vary by revenue from credit card transactions. The higher the volume, the lower the fees (generally). Square charges 3-3.5% per transaction which is absolutely not worth it if your business has high volume.
3) What’s the catch?
Square is still deciding what to charge for its services. Some say both the hardware and software will be free, while others point to a $1 download fee for the app. This isn’t where Square will potentially make its money: the bulk will be that 3-3.5% processing fee. Like I mentioned before, for small businesses will little revenue, then it’s not bad. For example, Paypal’s processing fees for monthly credit card revenues under $3,000 are 2.9%+0.30 (per transaction). So in reality, you could download the TransFS iPhone app (free) and use Paypal as your processor for less. However, if your monthly revenue is really high, then processing rates can be as low as Interchange+0.10+0.05 (that’s just an estimate). Translation: 2%+$0.20 per transaction. That’s a huge difference from 3.5% flat fee. Learn more about average fees here.
4) What are the pros and cons?
| Pros | Cons | Conclusion: | |
| Mobility | Able to be used anywhere. | Not if you lose that swiper chip. | Keying in apps already exist. Swiping is cool, but not losing the add on piece. |
| Price | Flat fee. | It’s really high! | If you’re low volume and an infrequent user, you’re paying for convenience. Otherwise go another route. |
| Features | Ability to swipe, email receipts, photo ID, signing on the screen, geographic markers | You’re paying a lot for these! | If you really like the features and are willing to pay a premium, all power to you. |
Buried in Billing Activities
This is a guest post from Lance Walley, the Co-Founder of Chargify and EngineYard. Chargify is an SaaS software that manages billing activities. Engineyard provides infrastructure for running Ruby on Rails applications in the cloud (TransFS runs on Engineyard). I suspect that his story of how Engineyard got buring in billing activities will resonate with many entrepreneurs and developers.
Over the course of a few years, Engineyard grew from 0 customers to 1,000 and by month 12 we were buried in Managing our Billing Activities (BAM – Billing Activity Management). We had a combination of software and people involved every day just to keep up. It became very expensive in terms of operational costs, customer dissatisfaction and the inability to report on that activity.
Engine Yard started reining in these costs in 2009, but I wish a better solution had existed earlier.
How We Got Buried
Here’s what happened. I think it’s pretty typical:
- It’s easy to get started with tools like Quickbooks and Auth.net to set up simple recurring billing of ‘x’ dollars per month on a customer’s credit card. When you just want to get a customer set up, this is quick and simple, but the simplicity is short-term because…
- Customers add & remove products, you need to change the recurring amount they are billed
- You’ll change pricing over time. We did so 4 times over a couple of years. We gave existing customers 1 year of grandfathered pricing, which added another layer of complexity to pricing.
- Some customers get special pricing because they’re in a special group, such as a charity, school, or reseller. Another layer of pricing.
- Credit cards get declined or expire, so someone needs to resolve these issues. I later learned that this process is called “dunning”.
- As you figure out what your customers really want, you’ll change your products.
- This is where “metered billing” comes into play. Unlike pre-paid flat-rate plans mentioned so far in this story, this is where customers pay ‘x’ amount per ‘y’ widgets used in the previous billing cycle.
- As your business grows and you get a finance person, you’ll discover that some charges must be “recognized” over different periods of time. We found out that set-up fees are supposed to be recognized over the expected life of the customer. I had never heard of “revenue recognition”. Wouldn’t it be nice if your BAM system could help with things like this?
As you can see, Engine Yard quickly outgrew the systems we started with, and we had almost no ability to report on all of this activity because the data was either spread across different systems or just didn’t exist.
We were paying a lot for a bad BAM system. For my next business I wanted to solve the BAM problem, which I think we have done at Chargify.
A TransFS user recently asked this question:
” I run a quarterly business and only take in credit card payments a few times a year over the phone. As a result, I’m looking for a processor who does not charge monthly fees. What do you recommend?”
Our answer:
“We could potentially set up a zero monthly charge contract with a processor but that would really increase the discount rate you’d receive, making it not beneficial for you. The reason that processors are usually unable to waive monthly charges for seasonal businesses is that you pay for their infrastructure with the monthly fee, and they have to keep that up even when your business is in the off season.
Another option is using Paypal and emailing them the invoices. However, depending on your volume this may also not be the most cost effective choice. The lowest monthly fee in the TransFS marketplace is just $8/month so in this case, it might be more cost effective to just pay a low monthly fee to avoid higher rates.”
Maine business owners are joining the opposition to inflated credit card processing fees. A local news station, WMTW reported that business owners are noticing a consumer payment trend that shows consumers drifting away from cash use and depending more and more on credit cards. This means that they are punched with higher processing fees. Smaller businesses not only feel it worst, but have the hardest time fighting back because of their size.
One gas station owner, John Babb, is fighting back by circulating petitions among his gas stations. “They’re [processors] actually making more money on a gallon of gas than we are,” Babb said. “They write the rules, you either take it or leave it and our customers demand we take it.”
The signatures collected from Maine’s petition efforts will be sent to Congress to join the already millions of other signatures asking for reform and more regulation.
CHICAGO, Jan. 05, 2010— Transparent Financial Services (TransFS.com), a leading marketplace for businesses seeking financial services, today announced the launch of the TransFS Credit Card Processor Directory, the first comprehensive website through which businesses can research, rate and review credit card processors.
In the past, researching the quality of a new credit card processor required a business owner to conduct hours of research across processors’ own websites, BBB ratings, message boards and discussions with fellow business owners. The TransFS.com Credit Card Processor Directory dramatically simplifies this process by aggregating all of that information into a single place, and making it simple to sort, filter, and compare processors side-by-side.
“While review sites like Yelp.com have become indispensible tools for consumers, it is still hard for business owners to find good, honest information about services such as credit card processing,” said Sean Harper,CEO of TransFS. “We wanted to give business owners the same opportunity to learn from the experiences of others and share their own reviews, and this centralized resource achieves that goal.”
The TransFS Credit Card Processor Directory enables business owners to:
- Search the TransFS database of more than 800 credit card processors, both nationwide and locally across more than 320 U.S. cities
- Filter processors by performance ratings provided by the Better Business Bureau (BBB) and by other business owners on TransFS.com
- Quickly and easily rate their own processors on a five-star scale and through detailed comments about their experiences if desired.
“Research suggests that the recommendations of fellow users are more important than any other factor in decision-making,” said Joshua Krall, CTO of TransFS, “but for credit card processing, the decision is infrequent and business owners may not have a deep network to draw upon for opinions. Our directory solves this problem, making it easy to exchange reviews with users from all around the country.”
The release of the TransFS Credit Card Processor Directory continues the mission of the company to bring transparency and ease to the process of shopping for credit card processing services. The directory is available free of charge at www.TransFS.com. Also available at TransFS.com is the company’s free credit card comparison shopping service, through which business owners can reduce their merchant fees by an average of 40 percent.
About TransFS.com
TransFS.com is an online comparison-shopping service that enables business owners to shop for credit card processing services quickly, efficiently, and at no cost. TransFS evens the playing field for business owners, letting them keep more of their money without time-consuming, annoying sales calls from service providers. TransFS employs instant reverse auctions to quickly negotiate better deals, automated bill analysis software to identify unnecessary or undisclosed fees, a stringent certification program and an online ratings and reputation.
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Contact:
Stella Fayman
309.368.5987
stella@transfs.com
The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD) was a major piece of legislation signed into law on May 22, 2009. The Act was supposed to cause the credit card industry to make sweeping changes and alter the standard use of deceptive practices. “The new rules of the road established by the Credit Card Act will shield credit cardholders from widespread abusive practices,” Senate Banking Committee Chairman Chris Dodd, D-Conn., the Bill’s author, said.
The changes would be made in two stages, the first effective in August 2009 and the last in February 2010. All of the law’s provisions can be read here. One extremely important thing to note, and a criticism why the law is extremely limited, is that it does not apply to business or corporate credit cards. Therefore, deceptive practices in the business arena will continue until legislation similar to the consumer act is proposed. There is a bill (HR 3457) in the House right now which proposes to extend the Truth in Lending Act to small business credit cards, however, this bill was referred to committee last summer and has yet to see any other action.
As deceptive practices pervade the credit card industry, one action the business owner can take is to expect full transparency from his/her credit card processor. Anything less should be grounds for suspicion. To find a fully transparent processor, check out the marketplace of pre-screened processors on TransFS.com. Start and auction and have processors bid for your business with an average savings of 40%. We even offer complementary bill analysis of your current processor so as to see how much you’re actually paying and demystify hidden fees. Transparent Financial Services should be the standard practice and not the exception.
Image thanks to http://www.flickr.com/photos/63583256@N00/4229010722/
A common question many users ask is what will happen with their existing credit card terminals if they choose to switch credit card processors. The good news is that switching terminals is simple and painless, as shown in the video below. Here is the first of a series of informational videos from TransFS which empower you, the business owner, to get informed and keep more of your hard earned money.
Bicycle Shop hit by reserve
Bicycle Retailer recently profiled a Michigan bicycle shop that went out of business not only due to rough economic times, but rough policies by his credit card processor. Bikesport Michigan was in business for 17 years until owner Tom Demerly was hit by a surprise from his processor.
Demerly had not read the fine print on his processing contract (most businesses don’t) which stipulated that the processor had the right to require a reserve as a means of protection. The reason why processors do this is if customers dispute charges, the merchant is responsible to pay up. However, if the merchant for some reason cannot pay up, the processor bears responsibility for the return. Many times the reserve is a substantial sum, and in the case of Demerly, helped make his business go under.
Last January, Demerly’s processor established a reserve for $60,000 which was completely off limits to the business citing. The processor began collecting on the reserve right away. Demerly appealed to the processor saying the reserve would put him out of business, and the processor responded by lowering the reserve time from one year to six months. Attorneys who Demerly went to shook their heads and told him they could do nothing since the contract stipulated that the processor could institute a reserve whenever they felt was necessary.
Demerly advises all merchants to carefully read processing contracts before signing them. Unfortunately, we have seen merchants hit with reserves before. In fact, Sean dealt with the situation himself and describes the ordeal here. TransFS recommends the following steps if you ever find yourself hit with a reserve:
1) Cancel right away and switch credit card processors-This way the processor stops collecting to the reserve. Use TransFS to get unbiased and apples-to-apples comparison from top quality processors.
2) Demand your money back and threaten to sue- Most likely the sum will be small enough (since you cancelled immediately) that processor will be unlikely to take legal action.
3) Always read contracts in the future- And stipulate (in the contract) that the processor cannot have reserves on the account.
Image thanks to http://www.flickr.com/photos/9495733@N05/2269593579/
Check out this cool video from The CreditCardCon.com, a project of Consumers for Competitive Choice. This dedicated group of individuals is a “diverse national coalition of Americans who support a strong, vibrant, and consumer-focused economy.” The CreditCardCon.com lets you sign a petition to lower swipe fees and reports the latest news in efforts to lower credit card processing costs.
Image thanks to http://www.flickr.com/photos/28998362@N00/251944083/
The insurance industry, including carriers, brokers and agents increasingly accepts credit cards. Typically such businesses accept payment from their customers over the phone or computer, more similar to an internet business than a retail store.
Insurance companies have the added benefit, however, of a special category for Mastercard transactions (no special category exists for Visa, however). The full mastercard interchange guide is available at mastercard.com and below is a summary.
| Card Type | E-commerce Rate | Insurance Rate |
| Consumer Credit (non-rewards) | 1.89% + 0.10 | 1.43% + 0.05 |
| Consumer Rewards | 2.04% + 0.10 | 1.43% + 0.05 |
| Consumer World Rewards | 2.05% + 0.10 | 1.43% + 0.05 |
| Consumer World Elite | 2.50% + 0.10 | 2.20% + 0.10 |
The Mastercard insurance interchange rates are significantly lower than for other industries. To ensure you are getting the lowest possible rates:
- insist on interchange plus pricing
- ensure that you are set up to qualify for your industry-specific rates
- audit your bill afterward to ensure you are getting those rates
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About TransFS
TransFS is a comparison shopping website for credit card processing.
Our unique auction process and comparison shopping engine leads to an average savings 40% on credit card processing.
Click here to learn how TransFS works or try TransFS now to quickly add cash to your bottom line. Search
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