The battle for small business payment processing

The opportunities in the Payment processing services for small businesses enters the third-inning of a revolution.

For as long as anyone can recall, small business owners – everyone from the neighborhood florist, the pharmacist, to the local repair garage – obtained credit and debit card processing services from local independent sales organizations and individuals who operated as independent agents representing banks who processed payment transactions.

Payment processing sales people would mark-up the wholesale “buy-rate” to whatever the market would bear, or better said, small business owners would blindly pay. This is largely due to the absolutely confusing interchange rates, rules, and charge-back policies that required an accounting degree and ten years of payment processing experience to decipher.  Small business owners often had no idea what they paid in fees to the banks and their army of sales people.  

I once owned an art gallery as part of a real estate project I invested in back in the 1990s. Seldom did a week go by when yet another independent sales rep from a credit card processor would declare they could save me money on credit card fees, if only I would part with my last three months worth of statements so they could do a detailed analysis of how much I could save.

I nibbled more than once on the offer-of-the-week, and even changed banks (after getting turned inside out during the credit application review process) based on a promise I’d save money (but mostly because my wife worked for the bank, and the sales rep was a friend of hers). If I saved money, I never noticed.

So, when Square demystified the entire process for small business owners and cut out the middle-people (ISOs), they essentially threw the first stake into the heart of the old-school business model followed by the payment processing industry. I knew instantly that the world was changing – and putting the small business owner back in charge.

Square, followed by Intuit, PayPal, and now Amazon, made it uber-easy for small business to compare fees, and sign-up for credit card processing.  Each offers a simple, flat rate, transparent pricing policy. No hassle to sign-up, no hassle determining how much the fees were, and clearly a big savings over what my wife’s friend was charging me.

A  friend of mine who owns a fairly large ISO just sold his business for a king’s ransom.  Maybe he knows the writing is on the wall that the old-school business model is being upped by the new kids in town.

Today, thanks to Square, and now Amazon, their local small businesses customers are paying the same bank fees as their giant competitors, be it a Walgreens, a Target, or even Walmart.