Pitfalls of Credit Card Processing

Credit card processing is a critical function for business owners everywhere. Without credit card processing, you’ll miss a lot of business. As society trends toward more cashless, plastic payment methods for ecommerce and in-store purchases, your business will need to evolve. In June of 2022, credit card use in the United States reached a new high, with 196 million credit card users.

With so many service providers on the market today, choosing the right credit card payment processing partner is not easy. Keep reading to learn about the top pitfalls with credit card processing so you know what to avoid and how to find the partner that meets your needs.

Zenti specializes in high-risk credit card processing and can help simplify your online customer experience with solutions that fit your needs. Learn more about our high-risk credit card processing services and how Zenti can help.

Table of contents

• What are the Different Kinds of Credit Card Processing?
• What is a Credit Card Processor?
• Credit Card Processing Mistakes to Avoid
• Zenti Can Help

What are the Different Kinds of Credit Card Processing?

First, it’s essential to understand the three most common ways of accepting credit cards from consumers:

• Standard POS systems: Standard point of sale (POS) systems allow merchants to accept multiple forms of payment, like credit and debit cards. You’ll likely see this type of payment system in brick-and-mortar stores.

• Mobile POS systems: If you’ve ever been asked to swipe your credit or debit card using a tablet or phone, you’ve used a mobile POS system. These mobile systems are fully connected, meaning your payment processor can help you with any troubleshooting or questions about your credit card machine.

• Online payment processors: Venmo, Stripe and PayPal are examples of online payment processors that allow businesses to send invoices and receive payments strictly online. A caveat to these systems is the need for a third party, which can sometimes delay the funds. Nevertheless, online payment processors provide a convenient and user-friendly way for ecommerce merchants to do business securely.

What is a Credit Card Processor?

Credit card processing is a multi-step process that works to complete payments made with a credit card. Processors enable payments to be made anywhere — online, at a brick-and-mortar store, in a pop-up shop or on the go. There are many entities involved in credit card processing, including:

• The customer

• The merchant

• The payment gateway

• The credit card processor

• The card network

• The issuing bank

• The acquiring bank

Credit Card Processing Mistakes to Avoid

The top reasons behind credit card processing issues include the following:

• Technical difficulties

• Account termination

• Account suspension

• Insufficient funds

• Expired card

• New merchant account

• Attempting to make a purchase overseas

• Suspicion of fraudulent activity

• Account flagged for unusual spending behavior

• Monthly credit or volume limit exceeded

• Card is reported as lost or stolen

• Inaccurate card number or payment details

• A hold has been placed on the card

• Failing to Understand All Fees and Costs

Failing to Understand All Fees and Costs

One major mistake merchants make is failing to review and understand all fees and costs when researching different credit card processing companies.

Some payment processors hide their fees and costs in fine print and easy-to-overlook parts of the contract, hoping you won’t read it until after you’ve signed it. This is why it’s important to read the entire document closely, so you can fully understand all terms and jargon and not be surprised. Don’t hesitate to ask if there’s something you don’t understand. If you can’t get a straight answer, find a payment processor that offers transparent pricing.

The good news is that as long as you take your time and research, you shouldn’t run into any surprises in your contract. Here are a few things to look for and examine before signing any contract:

• Fees

• Penalties

• Expensive equipment requirements

• Lengthy contracts

• Inadequate security

The more service providers you research and compare, the better. It’s also essential to seek transparency in your search for a credit card processor, particularly regarding rates and cost. Reading customer reviews and asking other business owners in your industry who they recommend is helpful when choosing a processor. These colleagues can provide a ballpark of what they’re paying for services. This information helps you know what a typical rate is and if a processor raises their rates or overcharges.

Declined Credit Card Transactions

Declined auto-pay credit card transactions are a considerable problem merchants face. Numbers from Visa and Mastercard show that an average of 15% of all recurring payments are declined. Declined payments can add up and cost your business a ton.

There are two main types of card declines:

• Soft decline: These temporary declines are due to technical or financial issues, such as downed WiFi or insufficient funds in the customer’s account. This type of decline can be easily tackled by retrying the transaction. Declines for financial reasons, such as insufficient funds, won’t go through on subsequent attempts unless the customer fixes the issue.

• Hard decline: A security issue causes a hard decline, and retrying the transaction won’t fix it. The cardholder’s bank or card issuer won’t authorize a transaction if there are fraud concerns, invalid account information or the card has been reported lost or stolen. To resolve this, the customer must contact their card issuer to inform them they’re trying to make a legitimate purchase.

The top reasons for declined credit cards include the following:

• Insufficient funds: One survey showed that insufficient funds cause as many as 27% of consumer payment declines in a single-month period. There’s not much a merchant can do if a customer doesn’t have enough money in their bank account to cover the purchase. One option is to offer multiple payment methods, such as credit cards, debit cards and cash. If one payment method doesn’t go through, then the customer has other options and doesn’t have to abandon the purchase. You can also offer flexible payments by allowing customers to pay in installments. If they don’t have the entire purchase amount, they can buy the item under a contract to pay in smaller installments. Now everybody’s happy, and you’re still making money.

• Transactional error: The second-most common reason for declined transactions is an incorrect card number, expiration date and/or CVV. Merchants can avoid this by tokenizing credit cards that customers have used previously. PCI-compliant payment gateways, like Zenti, will help you safely store and recover customer data for future payments, reducing the likelihood of these errors.

• Lost and stolen credit cards: If a card is reported lost or stolen, the card issuer will cancel it. Any further transaction attempts with the credit card will be declined.

One way to prevent declined transactions is to only work with payment processors that use account updater services. These services help merchants reduce the risk of lost revenue by automatically updating cards when customers forget to update manually.

Paying Too Much

Small businesses, in particular, can’t afford excessively high payments. It’s essential to read the contract terms and ensure there are no hidden fees. In addition, you should regularly check your statements for any changes or unwarranted fees. If you notice fees popping up or your price increasing, contact the credit card processor ASAP.

Automatically Using Your Bank for Merchant Processing

It may seem like a no-brainer, but the most convenient option is to have all your accounts housed in the same place. However, very few banks offer merchant processing. Instead, they outsource sales agents that work for third-party processors. Set up a meeting to learn more about their process, and meet the person responsible for your account before you hand over these functions to your bank. You’ll want to ensure the person/processor you choose takes time to understand your needs, and you can count on them.

Chargebacks

A chargeback happens when a charge is returned to a customer’s payment card after they dispute their account statement and they can cost your business significantly. In addition to not receiving sales revenue, you’ll also pay a chargeback fee, usually $20-$100. Moreover, too many chargebacks in a short period could lead to your merchant account being disabled.

The four reasons for chargebacks are:

1. Technical (Expired card authorization and insufficient funds, among others).

2. Clerical (Duplicate billing, incorrectly billed amount, promised refund never issued).

3. Quality (Customer claims to have not received the items or claims items are defective).

4. Fraud (Customer claims to have never made the purchase).

Another way to reduce your chargeback risk is partnering with a platform like Zenti. Zenti works to prevent chargebacks by monitoring your merchant account in real-time. You can count on our automated chargeback monitoring process, giving you peace of mind. You’ll get the help you need to avoid chargeback pitfalls, by stopping them before they happen or mitigating the issue as soon as possible.

To reduce your risk of chargebacks and avoid the fees that come with them, try the following:

• Keep a detailed record of all your credit card payments.

• Have a clear return policy.

• Offer excellent customer service.

• Make sure all item descriptions are accurate in your online store.

• Don’t use stock photos or heavily edited/photoshopped photos.

Zenti Can Help

As a leading provider of high-risk merchant account processing services, Zenti can help you choose the best payment processing service. Zenti also offers credit card machine troubleshooting services to identify and fix issues on the fly so the customer won’t abandon the sale.

Contact us to learn about the many benefits of working with an organization that prizes security, transparency and clarity in facilitating credit card transactions for your business.