Credit card processing has long been an area of confusion 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 from one another, which means businesses are charged different rates by the credit card processor. Thankfully, companies like Square, Stripe and VizyPay are looking to simplify the whole process by charging transparent and easy-to-understand fees.
What is credit card processing? The moment a customer inserts their credit card into your terminal, their credit card network, your bank and your credit card processor all communicate with each other in order to finalize the transaction. There are processing companies that work in the background to help facilitate those transactions who we call credit card processors.
We sat down 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 business. He shared a number of tips on how small businesses can best alleviate these costs and what business owners can expect. From our conversation, it's clear that complete industry transparency and simplicity are still a long way out, despite strong demand.
Austin, could you tell me a little bit about yourself and VizyPay?
Absolutely, I’ve been in the credit card processing business for about 15 years now. 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 when it comes to 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 that 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 that have a whole 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, which is 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 amazing how they made the whole process so simple. They have great technology to go along with it.
If you take players like Square or Stripe away from the picture, credit card processing is hard to understand for a lot of small-business owners. 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 actually more expensive, on occasion, than the majority of companies like us. But I think what they did really well with the program—and even Stripe has done the same thing, that I’ve seen—is they keep it simple.
There’s value in simple, even if it’s more expensive. And their technology is great 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 do know that they’re not the best fit for everyone, either. What they did also do for this industry is they took away a lot of the clients that were 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 there’s no fees applied to them. I think they did a really good thing to help small-business owners on that level.
So what is it about Small Business Saturday, specifically, that’s so bad?
So first, there are definite pros to Small Business Saturdays. American Express and other groups out there promote it, so participating small businesses definitely pick up sales. People, in general, just shop more during the holiday season.
The bad part about that is when sales increase, processing fees increase. Rates can range anywhere from 1% to 3%, depending on average ticket. When credit card companies out there promote 4% cash back, and they get all the consumers to rush to use it, who do you think foots that bill during Small Business Saturday? Or any other day, for that matter? It’s always the business owners. I’m positive, 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 just 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’s bad 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, right? 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, right? That American Express, which is 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 awesome.
Just so I’m clear: Every time you see those "For a temporary period of time, 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’s costs to swiping a credit card. Visa, MasterCard, all the card brands have their cost, which is called interchange. Every card issuer has their 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’s hundreds of cards, right? There’s not three card types out there. That’s why this industry is so complex.
To go back to Square, I think their current rate is 2.75%. But there’s hundreds of card types that 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 same cost, unless it’s a regulated debit card. If it’s a reward card that’s just a regular credit card, that owner is going to 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?
Definitely. Back in the day, offloading didn’t exist. A decade ago, Amex would send their own 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’s some positives to it too. You mentioned one. A couple 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 out; they combined into one. Plus, they allowed for quicker payments to the business owner. So they get paid at the same time as other card brands, which is usually nextday. Back in the day, there would be sometimes a multiple-day delay on American Express, and then it would be different from Visa, MasterCard and Discover. So, they did a really good job on that. But when it comes to cheaper rates? The reality is, 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 expensive card types to accept 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, when I walked into a business owner’s location, they had a terminal. I thought it was just provided, just Visa. I didn’t know any difference whatsoever. There were a lot of guys like me; thousands of people in this industry that didn’t know what really was behind the scenes. Now we’re like insurance salesmen—we’re everywhere. As the years progress, more and more of us got involved in it. If you’re uneducated in the business, you go out there and miseducate your merchant with mistakes unknowingly. So a lot of merchants had a bad taste in their mouths over the years.
Then companies like us and Square, we thought the whole industry could be simpler. 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 us, or agents in the field that are doing this for a living and trying to do right by merchants. They have been burnt before, taken advantage of before.
Our industry isn’t really strictly regulated. Business owners are pushed to accept as many cards as they possibly can, while companies like us are allowed to charge what we want to charge. I think it’s unfair to business owners. Well now, business owners are getting smarter, period. They’re opening their eyes to that big 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. Their grandpa, their dad that owned businesses, they’ve been through it. Now when they’re opening businesses, 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 are some concerns around payments that every small-business owner should have right now?
There’s a lot of programs that 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 definitely 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 the form of 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 generation is half there, half not. Once you get to 40s, 50s, 60s—mobile wallets? Please don’t. I can barely pull the right card out of my wallet, because there’s so many. 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 a lot of technology advancement coming, but even when they build it and they 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’s going to take us a lot of years to implement a heavy dose of mobile payments, etcetera, which is becoming increasingly popular.
Business owners should definitely keep an eye out for programs that help them offset the processing fees, and having companies—I believe 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 what fees really are in this business. That’s the kind of transparency we’re trying to showcase to our owners that 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. A lot of them are missing out because they’re busy doing what they’re doing, and they’re paying what they’re generally used to.