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Tired of high credit-card processing fees? Here are three ways
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Like many entrepreneurs who accept credit cards from customers, Jon
Sugihara, co-founder of PlayHawaii.com, a deal-of-the-day website, dreaded
the processing fees.
"Credit-card processors [may] charge different fees depending on the card
type," says Sugihara, who is based in Honolulu, Hawaii. "Our statements used
to contain 10 to 12 different card fees." That is, until Sugihara signed on with
FeeFighters, a service firm that helped him cut monthly processing fees by
nearly a third.
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More service providers are popping up with new strategies to help smallbusiness owners. Consider these three ways to take the sting out of
transaction costs for your company.
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1. Avoid credit cards entirely. New services make it easier than ever for
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customers to pay directly from their bank accounts, without carrying cash, a
debit card -- or even that old-fashioned checkbook. Consider the following new
service, which allows consumers to pay for goods and services with electronic
transfers from their bank accounts that they direct on the spot.
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Service: Des Moines, Iowa-based Dwolla
How it works: Consumers and retailers open accounts with Dwolla, which
verifies financial information so customers can make purchases via bank
account transfers or an account they keep with Dwolla. Business owners
never have direct access to customers' personal information. Dwolla
integrates with an etailer's shopping cart the same way PayPal or similar
services would. At a store location, retailers can use an iPad or iPhone or
integrate Dwolla with their point-of-sale system. In person, customers use
their smartphone to make a purchase. The money is transferred either
immediately or within 72 hours, if the banks involved have not partnered with
Dwolla.
Fee: Twenty-five cents per transaction. Plus retailers pay for technology
they might need to get started, such as handheld devices like an iPad, or
Internet access for POS systems.
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Ideal for: Both online and brick-and-mortar retailers.
Potential drawback: Founded in 2008, Dwolla just has about 20,000 users
so it's just starting to gain traction and not as established as other service
providers like PayPal, which has been around since 1998.
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2. Use services with fees that don't fluctuate. There are companies
that process credit cards with standardized fees, so you'll know what to expect
and you can plan for this expense. Here are two.
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Service: San Francisco-based Square
How it works: Any individual or business can accept credit cards by
opening an account with this two-year-old startup, co-founded by Jack
Dorsey, also one of the founders of Twitter. Swipe and process cards with a
free smartphone app and Square's free device that plugs into the phone.
Square transfers payments to your bank within 24 hours.
Fee: 2.75% per transaction (more if you have to type in credit-card
numbers).
Ideal for: Sole proprietors and mobile businesses without an elaborate
checkout system.
Potential drawback: Might be too simple for business owners who need a
full-scale point-of-sale system.
Service: San Jose, Calif.-based PayPal or Mountain View, Calif.-based
Google Checkout
How it works: PayPal allows customers to pay via credit card or electronic
bank transfer, making it more versatile than services that handle one or the
other. And unlike many traditional credit card processors, you pay a single,
flat rate regardless of what credit card customers may use and how much
they charge.
Fee: Both services charge 2.9%, 2.5% or 2.2%, plus 30 cents per
transaction, depending on the monthly dollar volume. For businesses with
more than $100,000 in monthly sales, Google charges 1.9% and PayPal
establishes fees individually.
Ideal for: Web-based businesses looking for convenience and security from
an established brand.
Potential drawback: Customers need to leave your website to complete the
sale.
3. Negotiate better fees from traditional processors. There are
service providers that act as advocates for the business owner, finding ways to
simplify bills, cut fees and lower overall costs. Here are two startups that will
take your side in negotiations.
Service: West Palm Beach, Fla.-based Ideal Cost
How it works: Founded in 2008, Ideal Cost monitors the monthly bill from
your existing processor and negotiates to lower your fees. For example, if a
company was charged high fees when it was new because its business fell
into a high-risk category, Ideal Cost might argue for lower rates after the
company established a good track record. It also negotiates for speedier
fund deposits if processors are holding back payment for too long.
Fee: Half of the savings it finds for clients each month. No savings, no fee.
Ideal for: Business owners who want to save money, but don't want the
hassle of finding a new service provider.
Potential drawback: It's not a one-time solution; fees are ongoing with the
service.
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Service: Chicago-based FeeFighters
How it works: Business owners provide information, such as their industry
and sales volume, then processors bid for their business in a uniform way to
allow for direct comparisons. Fee Fighters also displays Better Business
Bureau ratings on its comparison lists. "Processors have strict rules in their
contract with FeeFighters which ensure that if any bait-and-switch occurs,
they have a hefty financial penalty and get swiftly kicked off of the
marketplace," says Stella Fayman, who heads up marketing and customer
service for the company.
Fee: Nothing. Fee Fighters gets a cut from the processor once you become
a client.
Ideal for: Any business that wants to change processing firms -- or look for
one for the first time.
Potential drawback: Once you find a processor, you deal directly and on
your own with that processor to close the deal.
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