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What You Need to Know About Virtual Terminal Credit Card Processing

//What You Need to Know About Virtual Terminal Credit Card Processing

What You Need to Know About Virtual Terminal Credit Card Processing

Whether you run an e-commerce store or restaurant, your customers want to pay with a credit card. That’s why it makes sense to offer virtual terminal credit card processing.

You may have already done this. You may even accept payments online, over the phone, and via snail mail. 

With everything in place, you no longer have to worry about issues with accepting payment. You’re good to go, right? Not so fast… 

You forgot one rule as a business owner: Don’t let profits slip away for no good reason!

Because you probably are paying too much in virtual terminal credit card processing fees. Get rid of those fees, and you could boost profits by double digits (really!). 

Here’s what you need to know about implementing the best virtual terminal credit processing system. 

How virtual terminal credit card processing works?

Virtual terminal credit card processing is a web application that gives you the ability to process payments without a card reader (aka a card-not-present transaction). The customer simply types in the card information, and payment is processed. 

On a screen, virtual terminal credit card processing looks like this: 

Source: Bill.com

A variety of businesses can benefit from virtual terminal credit card processing, especially those that do business over the phone and internet. Industries where virtual terminal credit card processing is most used include: 

  • restaurants
  • e-commerce 
  • delivery services (food, groceries, etc)
  • professional agencies, such as marketing and graphic design companies

Businesses that do high-value transactions also tend to use virtual terminal credit card processing. Paying and caring for point-of-sale (POS) hardware doesn’t make sense if you’re not doing a lot of transactions. 

Since most businesses want multiple ways to accept credit cards, virtual terminal credit card processing is typically offered alongside POS credit card processing. Some merchant service providers (MSPs) may charge a monthly fee to add virtual terminal credit card processing, while others may provide it at no additional cost. 

Although virtual terminal credit card processing may not cost you much upfront (if anything), you’ll pay fees per transaction. Similar to POS credit card processing fees, your total fee (or effective rate) comes from the following fees: 

  • MSP markup: Your merchant service provider has to make money too. 
  • Pass-through rate: The MSP pays this to the card-issuing bank.
  • Interchange fee: You pay this to the card-issuing bank.
  • Assessment fee: You pay this to the card-issuing brand.

The fees for virtual terminal credit card processing may not even end there. As noted before, you may pay a monthly fee. Many MSPs have complex multi-tiered plans, so you may also have to pay surcharges

On top of all that, you may have to pay fees even if the sale is voided or refunded. Ask your MSP to waive voided transaction fees and at least part of the fees for refunded transactions. Because you don’t want to pay fees without getting any revenue!

Now, you may be asking yourself: Why do MSPs charge so much for virtual terminal credit card processing? 

Well, they know business owners have busy schedules. They don’t have a lot of time to analyze fee structures and shop for better options, especially when they want to ensure payment conveniences for customers. 

If you knew how much you could benefit from eliminating virtual terminal credit card processing fees, you’d probably take action. Because there’s actually a lot of money on the line…

Are virtual terminal credit card processing fees higher than POS credit card processing fees?

Usually, virtual terminal credit card processing fees are higher. 

Depending on what merchant service provider (MSP) you use for POS credit card processing, you’ll pay the following fee rates:

Average credit card processing fees

Source: ValuePenguin

Depending on what MSP you use for virtual terminal credit card processing, you’ll pay around the following fee rates: 

MSP Average Virtual Terminal Credit Card Processing Fees
Square 3.5% + 15¢ per transaction
PayPal 3.1% + $0.30 
Shopify 2.9% + $0.30

As you can see, virtual terminal credit card processing will cost you more than POS credit card processing, even if you get a good deal with your MSP. This is because: 

  • You don’t need a card physically present to process payments as you would with POS credit card processing. MSPs charge a higher markup for this convenience and functioning. 
  • Given that the vast majority of virtual terminal credit card processing isn’t done in person, there’s a higher likelihood of fraud. Higher fees protect against that. 

Now, you may think virtual terminal and POS credit card processing fees aren’t a big deal. It’s just 3% or so on each transaction, right? 

Yes, but that’s actually a lot. Those fees add up and kill your profits.

How much are virtual terminal credit card processing fees costing your business?

Let’s put this in numbers. It will give you a clear picture of what you stand to gain. 

First, as a TSYS US Consumer Payment Study found, credit cards are the most popular form of payment at businesses that typically use virtual terminal credit card processing, like e-commerce stores and travel sites: 

Payment Type Preference By Online Category

If you run an online clothing store or a boutique hotel, you could use virtual terminal credit card processing for nearly half of your transactions. And probably well more than have of your revenue comes from credit card transactions. 

As data from the US Federal Reserve shows, non-cash transactions have a value of $112 per transaction, versus just $22 for cash transactions. 

Average Transaction Amounts By Payment Method

Given the numbers, it’s possible 60-70% of your revenue could come from virtual terminal credit card processing, especially if you don’t do many in-person transactions. 

Now, let’s figure out how much you could be paying in fees. As an example, let’s say you run a small motel and your revenue is $2 million per year, among which: 

  • Virtual terminal credit card processing accounts for 65% of revenue, or $1.3 million
  • You process 6,500 virtual terminal transactions for an average transaction value of $200
  • You pay 3.15% plus $0.30 per transaction in fees, which equals 3.3% average fee per transaction (if the sale is $200). 

So, that means you pay 3.15% on $1.3 million per year. That’s $42,900 per year in virtual terminal credit card processing fees!

If your net margin is on par with hotel industry averages of around 17% (according to New York University), then you make $340,000 per year from the motel. That may be good enough. 

But if you eliminated virtual terminal credit card processing fees, you could make $42,900 more per year

That’s a profit increase of 12.6%

You definitely want that, right? All you have to do is figure out how to eliminate credit card processing fees…

Enter the cash discount program

If you have a virtual terminal and POS credit card processing system, you can greatly reduce fees with a cash discount program

Here’s how it works: 

  • Your customer goes to complete payment. 
  • You give the option of paying with cash or a credit card. 
  • The customer chooses based on what is most convenient and affordable.

So, how do you avoid credit card processing fees? 

Well, the price structure incentivizes the use of cash. And it automatically ensures you always make the same amount of money, regardless of whether customers pay with cash or credit card.

With a cash discount program, which is 100% compliant and legal thanks to a 2011 FTC ruling,  you can take home 100% of your revenue. And you can boost profits by double digits. 

Want to get started? At NadaPayments, we can set up a cash discount program for you within a few days. Call us anytime at +1 (929) 293-1800 or click the link below.

I Want FREE Credit Card Processing

2019-08-28T01:04:19+00:00August 28th, 2019|
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