Start-up entrepreneurs who profit from their passion are the luckiest people in the world, according to a recent Inc. Magazine article. But we all know that it takes more than luck to be profitable in business. In fact, there is a mountain of factors to consider BEFORE starting a company, from writing a business plan, to creating a website, to pitching investors, to hiring employees. There is a lot to think about, and it’s no piece of cake.
Even with all of that planning and creating and thinking, there are factors that you can control and others that you cannot. An example of this is merchant fees, or the price you are charged for processing a credit or debit card transaction by your processor.
As a merchant, there are many factors that will determine what kind of fees you are charged. Some, like limiting charge-backs and fraud exposure, are within your control, while others are based on the type of business you are conducting, where you are doing business, and your merchant category, also called the Merchant Category Code (MCC) – a 4-digit number assigned by MasterCard or VISA when you first start accepting one of these cards as a form of payment. Let’s take a closer look at these three factors.
- Industry: Certain industries may be considered “high-risk” because there is a greater potential for charge-backs and fraudulent purchases – which means you will likely be charged a higher processing fee. When obtaining a merchant account, the processor will ask you to define the industry that you operate in so that they can match that industry with an internal risk assessment that they employ and with the MCC.
- Categorization: How will you accept payments? Over the phone, in person, over the Internet, on a mobile phone? Face to face transactions – those made at the counter of your local supermarket, for example – are considered “card present” (also called swiped) and carry a lower transaction fee. If you accept a payment on your web page or over the phone, that is considered “card not present” (or non-swiped), since it not face-to-face. Thus, it is considered at a slightly higher risk for fraudulent activity and the merchant fee will be higher.
- Location: Believe it or not, location also plays a part in merchant rates. If your business is operating from a home-based or high-crime location, there might be higher processing fees. The same goes for operation in any country that is considered a heavily targeted area for fraud.
So if you’re looking to start a business and accept credit cards, you should consider these factors. Learn more through our partner website, SmallBizClub, a joint venture of Office Depot and the Tarkenton Companies. And as always, you can learn how Bluefin offers merchants a payment gateway solution to safely process transactions that is secure and PCI-compliant – putting you at ease in the driver’s seat. Now you can have your cake and eat it too!