Credit card processing has long been confusing for many small businesses. Fees differ based on what credit card is used for each transaction, and it seems as if each transaction is different, which means the credit card processor charges businesses different rates. Thankfully, companies like Square, Stripe, and VizyPay are looking to simplify the process by charging transparent and easy-to-understand fees.
What is credit card processing? When a customer inserts their credit card into your terminal, their credit card network, your bank, and your credit card processor communicate with each other to finalize the transaction. Some processing companies work in the background to help facilitate those transactions we call credit card processors.
We sat with Austin Mac Nab, managing partner at VizyPay, to talk about his company's role in the market and how credit card processing affects small businesses. He shared several tips on how small businesses can best alleviate these costs and what business owners expect. From our conversation, it's clear that complete industry transparency and simplicity are still a long way out, despite strong demand.
This interview has been condensed and edited for clarity. If you're a small-business owner interested in sharing your story, tweet us at @ValuePenguin.
Austin, could you tell me a little bit about yourself and VizyPay?
I’ve been in the credit card processing business for about 15 years. Over those 15 years, I have learned a lot of good things that this industry can do, tech-wise: making payments quicker, safer, etc. I’ve also watched card brands push for a cashless society, almost forcing merchants to foot the majority of the bill.
With that said, we wanted to create a company that is much more transparent about pricing clients and giving them options to offset that. You learn a lot of good and bad things in this business. We’re just trying to cure all the things I’ve seen that I think are very, very fixable; to do what most companies choose not to do, but our company is choosing to do. When it comes to VizyPay, we focus on small-to-midsize-business owners. They’re not like Target or Home Depot, which have a legal counsel to protect them and look after their best interests. Our programs are, again, to offset or reduce the processing fees, in general, of the company.
How does VizyPay differ from companies like Square and Stripe?
Over my years, I’ve gotten that question probably 1,000 times. Square did one big thing that I thought was important in this industry: they made it simple. Across-the-board, $2.75 fee per transaction. And they have that asterisk that says if you have other card types, you have higher prices… But most owners don’t look at that; they look at the front-end number. I think it’s incredible how they made the whole process so simple. They have great technology to go along with it.
Credit card processing is complex for many small-business owners to understand if you take players like Square or Stripe away from the picture. Their charge of $2.75 is, realistically, not the greatest for the majority of clients with a ticket size that is a decent size. I’m talking about $25 or higher. If you do the math, the reality is they’re more expensive, on occasion than most companies like us. But I think they did well with the program—and even Stripe has done the same thing I’ve seen—is they keep it simple.
There’s value in simple, even if it’s more expensive. And their technology is excellent too. We can compete with their technology, but I think along with technology and simplicity, they did a fantastic job with it. I can’t hate them for it, but I know they’re not the best fit for everyone, either. What they also did for this industry is they took away a lot of the smaller clients, like hair salons, etc., that have very low tickets, and they helped them out. I thought they did a fantastic job helping them out because no fees are applied to them. They did a perfect thing to help small-business owners on that level.
So what about Small Business Saturday, specifically, that’s so bad?
So first, there are definite pros to Small Business Saturdays. American Express and other groups promote it, so participating small businesses pick up sales. People, in general, shop more during the holiday season.
The bad part about that is that when sales increase, processing fees increase. Rates can range anywhere from 1% to 3%, depending on the average ticket. When credit card companies promote 4% cash back and get all the consumers to rush to use it, who do you think feet that bill during Small Business Saturday? Or any other day, for that matter? It’s always the business owners. I’m optimistic, and you’d probably agree, the business owners don’t get called each time a big card issuer that issues these cards out decides to put a high-incentive credit card to their customers. They have to deal with the fact that they’re going to get those cards.
The problem compounds on days like Small Business Saturday, which is in the middle of the holiday season. Since most small businesses are discounting their products, they have to deal with higher fees as a result of the higher sales volume, and they also have to deal with various credit card promotions. So I would say it isn’t good because of those reasons. But a good thing about it is it does promote focusing on shopping small and giving small-business owners the love they need. The majority of employees in America work for small-business owners. They need to be able to have this volume come through and the influx. But they pay the price if people are using cards. It’s ironic. That American Express, one of the highest-cost cards out there, is promoting this. Imagine if they would give that day for free? No credit card costs this day for business owners. That would be awesome—wishful thinking, but excellent.
Just so I’m clear: Every time you see those “For a temporary period, you’ll get an additional 4% cash back if you shop at a store of this category,” it’s actually the business owner who’s footing that bill?
The business owner foots a lot of that bill because there are costs to swiping a credit card. Visa, MasterCard, and all the card brands have their price, which is called interchange. Every card issuer has its cost of cards, plus the card brands themselves have to make money. So, yeah, business owners foot a lot of that bill. It’s not the majority of it. The owner is getting hit, anywhere between 1% to 3%, sometimes higher, depending on their average ticket or whatever card wants their business. There are hundreds of cards, right? There are not three card types out there. That’s why this industry is so complex.
To return to Square, I think their current rate is 2.75%. But hundreds of card types filter through that percentage, not just one. Depending on how you and I open our wallets today and use our cards, there’s almost a 100% guarantee that your card or my card will not be the exact cost unless it’s a regulated debit card. If it’s a reward card that’s just a regular credit card, that owner will get hit for anywhere between 1% and 3% off the top! That doesn’t include the markup that the majority of the companies out there, like us, will have on top of that. So it gets expensive for these owners. And that’s why we’re so big on advocating for transparency.
Are you familiar with American Express’ OptBlue program?
Would you consider that a step in the right direction?
Back in the day, offloading didn’t exist. A decade ago, Amex would send its statement out, and it wouldn’t combine with other card brands. It was almost like they were enemies if you will. Eventually, they became friends, to a certain extent. So there are some positives to it too. You mentioned one. A couple of others are: They combined statements to help merchants be more aware of what they’re paying alongside other card brands. Back in the day, there were two statements combined into one. Plus, they allowed for quicker payments to the business owner. So they get paid simultaneously as other card brands, usually the next day. Back in the day, there would sometimes be a multiple-day delay on American Express, which would be different from Visa, MasterCard, and Discover. So, they did an excellent job on that. But when it comes to cheaper rates? The reality is that they’re still one of the most expensive card types to accept for a business owner. So it’s ironic for them to promote it so highly. They’re one of the most costly card types to get out of all four card brands. But it is still a step in the right direction.
Why is this new fight for transparency and simplicity just happening now?
Fifteen years ago, when I found out this business existed, they had a terminal when I walked into a business owner’s location. I thought it was just provided, just Visa. I didn’t know any difference whatsoever. There were many guys like me; thousands of people in this industry didn’t know what was behind the scenes. Now we’re like insurance salespeople—we’re everywhere. As the years progressed, more and more of us got involved. If you’re uneducated in the business, you go out there and miseducate your merchant with mistakes unknowingly. So many merchants had terrible taste in their mouths over the years.
Then companies like Square and us, we thought the whole industry could be more straightforward. Back then, there wasn’t much of a need or demand to make things simpler. But now, as thousands of companies have filtered through this industry over the last 15 years, there’s a lot of, unfortunately, bad taste in merchants’ mouths about companies like agents or us in the field that is doing this for a living and trying to do right by merchants. They have been burnt before, take advantage of before.
Our industry isn’t strictly regulated. Business owners are pushed to accept as many cards as possible, while companies like us are allowed to charge what we want. I think it’s unfair to business owners. Well, now, business owners are getting smarter, period. They’re opening their eyes to that oversized fat line item at the end of the year on their P&L that says I paid X amount of dollars in credit card fees. They’ve been through their grandpa and dad, who owned businesses. Now when they’re opening trades, they’re more aware of it. And I think with social media and technology increasing over the years, people are more aware, with reviews, etcetera. I think that’s why companies like Square are trying to keep it simplistic, and companies like us are trying to keep it as transparent as possible and coming up with programs that can help them offset their fees, in general.
What concerns around payments should every small-business owner have right now?
Many programs are popping up to help business owners offset what they pay for accepting credit cards from individuals; through surcharging programs or cash discount programs. We feel business owners should be on the lookout for those things. If you don’t know what surcharging is, it allows business owners to pass credit card fees on to the consumer, and they don’t charge a fee for using debit cards or cash. You might have seen these in cash discount programs where customers are given discounts for using cash rather than credit cards.
The Dodd-Frank Act prohibits card-payment networks such as Visa from inhibiting the ability of anyone to provide a discount for payment by cash, check, debit card, or credit card. So business owners are becoming more aware, and their friends are telling them more about these programs that are out there. As that progresses, credit cards aren’t going anywhere any time soon. We all know that, right? It’s years away. The newer generation is getting used to these mobile wallets, etcetera. I’m in my mid-30s, so my age is half there, half not. Once you bring to 40s, 50s, 60s—mobile wallets? Please don’t. I can barely pull the right card out of my purse because there are so many. Do you know what I mean?
Things are going to progress in the mobile direction. It probably will go as far as fingerprinting, eyes… you name it. There’s much technological advancement, but even when they build it and launch it today, it won’t be adopted by mass consumers today. It took us years to implement the chip card technology, and we’re still trying to adopt it in America. If that’s indicative of anything, it will take us many years to implement a heavy dose of mobile payments, etcetera, which is becoming increasingly popular.
Business owners should keep an eye out for programs that help them offset the processing fees and have companies like us that are very transparent on our website, which are few and far between. Look up a hundred sites like us in this industry. We’re probably one of two, maybe three sites, tops, that will give you detailed definitions of fees in this business. That’s the kind of transparency we’re trying to showcase to the owners we deal with. They need to keep their eyes open for programs out there, like surcharging or the cash discount program, that most of them don’t know are available to help them offset their fees and allow them to put more money back into their business for investments or their employees. Many are missing out because they’re busy doing what they’re doing and paying what they’re generally used to.