To avoid unnecessary costs, it helps to know the signs that your merchant provider may not be a good fit for you. Meaning… it’s time to switch payment processors. A strong payment optimization strategy enables you to stay ahead of the game.

Below, we’ll explain the 5 top signs that could indicate you need to start shopping for a new payment processor. We’ll also offer some tips on how to make that switch so it’s as seamless as possible and doesn’t interrupt your business operations.

Why Consider Switching Payment Processors?

Running your own business can be hectic. As you manage the day-to-day issues and problems that arise, it can feel like there’s no time to deal with more significant issues that may be impacting the business. However, these more prominent issues that get placed on the back burner can slowly build and become a drag on your business. 

One of these areas is payment processing. Once a business is set up to accept electronic payments, they often forget about it. Even if their system and workflow aren’t exactly perfect. Most businesses find workarounds or deal with certain inefficiencies in their payment processing as just another aspect of doing business.

But this is a drain on your revenue. It can cost you money each month in higher fees, downtime, or increased labor costs. The difficulties are compounded if these problems persist into busy retail times like the holidays.

Number 1: High Fees or The Wrong Fee Structure

Regarding payment processing, one of the biggest concerns for business owners is transaction fees. There will always be payment fees associated with credit card processing. Still, understanding the different fee structures and how they work is critical to ensure you always get the best rates.

Credit card processing for retail stores can differ greatly depending on various factors. Some of these factors you have control over, and others you don’t. For example, the type of transactions you perform will impact your fees.

For example, suppose you’re a restaurant that mostly does physical card transactions with the customer signing a receipt. In that case, you should pay lower fees than common card-not-present transactions like website payment processing. This may seem logical, but many businesses are paying a flat rate. As a result, they aren’t receiving the discounts on processing they should for certain transactions.

There are essentially three types of processing fee structures available. Choosing the one that fits your business and sales volumes is essential to ensure the lowest fees. If your current provider doesn’t offer this fit, it’s time to switch payment processors.

Flat-Rate Processing Fees

Many new business owners or owners who don’t want to invest much time researching payment processing often opt for a flat-rate pricing structure. It seems simple, and it’s easy to account for your overhead when taking credit cards and calculating it into the price of your goods.

The problem is that this simplicity comes at a cost. A flat rate means the rates are higher to accommodate all types of transactions.

Think of it like car insurance. If car insurance companies charged everyone the same rate, many people would pay more since safe drivers or low-risk drivers would have to subsidize the risks of the other drivers.

In credit card processing, a flat-fee structure will apply a set percentage amount to all transactions plus a set rate. For example, every transaction costs the merchant 2.75% of the total plus .25 cents. The fee is the same regardless of the transaction type or what the merchant is selling.

Payment processors usually offer flat-rate pricing and faster or easier approval processes. This is another reason that business owners may be attracted to it.

But applying for and being approved for a merchant account is simple. Once you submit your basic business information, a good payment processor only needs a few days to process your application.

When is Flat-rate Pricing Acceptable?

However, a flat rate isn’t always a bad choice. Sometimes, it can be a good option for low-processing volume businesses or boutique credit card processing.

For example, a low-volume merchant who mainly deals in retail payment processing under $5 or $10 may be fine with flat rates. But any business with more significant transaction amounts or a mix of different transaction types and revenue streams should look at other options and explore the possible cost savings.

If you’re a retail business with its busiest time during the holidays, you should switch to a better pricing structure if possible. You could save a substantial amount of money during your most profitable time.

Cost Plus And Interchange Plus

The other fee structure in payment processing is cost-plus or interchange plus.

Transaction processing involves an interchange fee, which the card company charges to run a transaction on its system. Each transaction can have a different rate, and even different types of cards can have different rates. For example, American Express often has higher interchange fees than other cards.

A set amount is then charged on top of each interchange fee, hence the “plus” in the name, as it simply adds a fee to the interchange base rates.

Cost plus pricing is generally the best solution for most businesses, and it’s also the most transparent. You know precisely what you will pay for the specific transaction type. 

This can make it somewhat more difficult for a business to calculate their final retail prices, but they save money with each transaction over flat-rate pricing, making it worth it.

Tiered Pricing

Most smaller businesses won’t use tiered pricing, but payment processors still offer it. With tiered pricing, different cards are put into various categories and charged specific rates accordingly.

This is one of the more complex processing fee structures, and it’s best for businesses with a very high volume that can pour through the data to know exactly what cards their customers are using.

Armed with this knowledge, the business can negotiate rates on each tier that can save them a small amount over cost-plus pricing.

But this usually only reduces costs with high volumes and after careful analyses of a business’s customer behavior.

If you’re a smaller business using tiered pricing, you may not be getting the benefit from it, and it may be time to look for other payment processors who offer fee structures that fit your business better.

Number 2: Poor Customer Service

Hopefully, you never have an issue with your payment processing or an item on your monthly statement. But we all know this isn’t realistic. Problems will always arise, no matter how good our payment technology is.

When this happens, you should contact someone immediately who can answer your questions.

If you have to submit tickets and wait a day or more for a response, that’s not good enough. If you finally get a reply and it’s a basic canned answer or a link to their website knowledge base, that’s not good enough either.

Your provider should offer in-house customer service, easy contact options, and extended hours of operation to best suit your business needs. If your current provider does not offer this, it’s time to switch payment processors.

In-House Support

Your payment processor should handle support issues themselves rather than outsource this. This means you can get a hold of a support representative that works for your payment processor, not a third-party call center.

This should be true for both technical support and billing support. Whether you need help with PCI compliance and payment security or an item on your monthly statement, you should be able to get the answers you need.

Contact Options That You Prefer

If you prefer phone support, your payment processor should offer this. However, some people do prefer email or even chat support. Whatever method or customer experience you like, make sure your payment processor provides it.

A good payment processor should cover a variety of contact and support methods.

Hours Of Support

If you run a 24-hour business, you may need extended support hours since there could be an issue in the middle of the night that requires a fast resolution. Make sure your payment processor offers support during your business hours. This could mean 24/7 support.

Always check that your payment processor has support hours when your business needs it the most.

Number 3: Long Contracts And Termination Fees

It’s not uncommon for there to be contracts when dealing with payment processors. Businesses need some sense of stability when offering services, and that’s where contracts can help.

However, not all contracts are the same. Some processors may try to lock you into a contract that is three years or longer, with no flexibility. These should be considered carefully to ensure they align with your goals and help you financially.

Another problem with long contracts is that they generally have very severe penalties for trying to terminate them early. One clause many contracts like this have is called a liquidated damage clause.

This clause may be buried in the contract’s fine print, and it states that if the merchant terminates the contract early, they have to pay the remainder of the revenue the contract would have brought to the processor.

For example, if you have a 5-year contract and try to terminate it after two years, the processor can charge you for the lost revenue of the remaining three years as a termination fee. For some larger businesses, this can mean a considerable sum of money.

Long Hardware Lease Agreements

Another area to be aware of is long hardware or software lease arrangements. Leasing some hardware for payment processing can make sense in some cases. Subscription or monthly subscription fees can be a way to budget your initial startup costs.

Equipment leases can also help you stay up-to-date with the latest technology, as hardware is generally replaced regularly with hardware leases.

Another benefit to leasing hardware is that, under certain circumstances, businesses can write off a portion of these expenses for tax purposes. However, these can very easily go on for far too long and cost you way more than the value of the benefits you receive.

If you are currently in a long-term contract or long hardware lease program nearing its end, that may be a sign to switch payment processors. You may lose a lot of money with those contracts, especially if you have to terminate them for any reason.

Number 4: High Reserves

In payment processing, reserves are generally used to cover any expense due to the merchant dealing with chargebacks or other fraud issues.

Reserves can be a normal part of payment processing, but they can also be exploited by some credit card processing companies that take more than is needed. You may need a reserve set up if you’re a new business and have certain risk factors, such as volumes to average ticket amounts, associated with your transactions.

In these cases, a percentage of each transaction will be withheld to reach a certain amount that is then held for a period of time. This is meant to cover any chargebacks or fraud.

Another reason for a reserve is if you’re processing in a high-risk industry or selling a high-risk product. High risk in payment processing means a higher risk of chargebacks or fraud. So in these cases, it’s not uncommon to have reserves, especially for new merchants.

But these reserves should be reasonable. If they are, it generally means the payment processor is holding the money for other purposes, or it has poor payment fraud prevention and uses the reserve as a stopgap measure to fix the problem.

If you feel your reserves are far too high or your payment processor doesn’t reduce the reserves after a period of time, you should consider another payment processor.

High reserves can wreak havoc with your cash flow and prevent you from supporting critical business expenses like payroll or replenishing inventory during a busy holiday period. This may force you to take out lines of credit or other tools to cover expenses.

If your current provider is harming your ability to have ample cash flow, it may be time to switch payment processors.

Number 5: Low Compatibility Or Poor Integrations

In today’s digital business environment, payment processing is more than accepting credit and debit cards. Payment processing touches almost every aspect of your business and, with the right tools and integrations, can streamline your operations and boost profits.

But this requires the right integrations and systems to help automate many processes you may be doing manually. Technology like point-of-sale POS systems that track inventory in real-time and provide critical payment analytics can give your business a competitive edge. They also help improve payment speed and payment reliability.

You may also have special requirements for online payments. These can include things like virtual terminals for phone orders via customer support personnel or shopping cart integrations. You may also need mobile card readers or other devices to integrate with your existing systems.

When your payment processor is a partner, they understand your business and its needs. They also have experience working with similar businesses and know what works and what doesn’t.

This allows a good payment processor to offer you the solutions necessary to fully integrate all your systems to leverage all possible efficiencies and cost-cutting.

If your current payment processor tells you they cannot integrate something or they don’t have a solution for an issue you’re having, it’s a sign to switch payment processors.

How To Switch Payment Processors

Some businesses hesitate to switch payment processors because they feel it will be too much of a headache. But when done right, the transition can be easy and well worth the effort if the result means saving money and boosting revenue.

Start Researching Well Before Your Contract Is Up

This may seem obvious, but in the hectic world of a business owner, things can often get pushed aside and forgotten about.

If you have issues with your merchant services, check your contract to see when it ends. Also, check for clauses that require you to notify them in writing by a specific date to prevent the contract from renewing automatically. These deadlines can be months in advance of the contract ending, so be aware of this tactic.

Then, leave yourself plenty of time to research other payment processors before any deadline so you aren’t rushed and forced to resign because you couldn’t find a replacement in time.

This is especially true if you have a busy holiday season approaching. Not allowing enough time to decide may cause you to put it off.

Decide What You Need

List what’s most important to your business when switching payment processors. So if you are looking for the lowest fees, focus on learning the different pay structures explained above and start your search armed with that information.

If you need better technology or payment integrations, focus on that and find the payment processor that offers the latest products and the support to implement it with your existing systems.

Making sure you have a list of what you want from a payment processor makes the selection process much easier and faster.

Making The Switch

When you contact possible payment processors, make sure to share that you are switching and where you are switching from. They should be aware of the company you use and whatever systems are involved.

This helps them determine the best way for you to switch if you decide to go with the company.

Always ask questions about the switch and what it involves when dealing with a potential new payment processor. They should be able to answer all your questions and explain the entire process. This includes ensuring your new payment gateway is compatible with your existing systems.

This is important for an online store or one with recurring billing, as you’ll need to integrate your system and move customers’ payment data over. 

If they gloss over any details or don’t fully explain the process, they might not have the expertise to make a seamless switch.

Also, make sure to list your existing business software that needs integration into your payment processing. Share this list with your potential processors to learn which solutions are specific to your situation.

Plan For Any Training

If you’re moving to a new processor to take advantage of better technology, like a new POS system, plan for any necessary training.

Depending on your number of employees or locations, you may need additional training to bring everyone on your staff up to speed.

Your payment processor or POS vendor should provide this installation and training. However, you’ll need to account for this training and plan accordingly.

The holiday season has accounted for a 7% increase in sales. So once again, if you have a busy time of year, like the holiday rush, you don’t want to be dealing with learning a new system during that time.

Sometimes, worrying about transition issues like training can make business owners hesitant to switch processors. But if your current processor isn’t working out, the inconvenience of switching to a better alternative will always pay dividends over sticking with an inferior payment solution that bogs down your business.

Learn More About Payment Processing Solutions And Alternatives

If you’re having issues with your current payment processor, it may be time to switch.

At ECS Payments, we have experts who can help you find the right innovative payment solutions for your business that save you money and streamline your payment workflow.

Contact ECS Payment to learn more about switching payment processors and start enjoying the benefits that the right payment solutions can bring to your business.