by Barbara Sprenger, Deskworks Founder and Chief Product Officer

Payment processing for a coworking space involves a few different components in addition to banks: a credit card processor (the company that you’ll work with the closest); an ACH processing entity, which may be a bank, another entity or your credit card processor; a payment vault where your clients’ payment methods are stored; and the online payment gateway that securely manages the process over the internet. You may work directly with an “Acquirer”, who will put all of these together for you, using the best ones for your application. 

Most operators do not know these components are separate entities -- and that’s exactly why so many end up using Stripe or PayPal, which bundles all four into one product at a premium. You can also use a specialized product like Deskworks Pay, which puts all of these together for you by using the ones that are most appropriate for your particular business. 

Here’s what each component does, what to watch for when you set it up, and how to avoid the mistakes that cost operators money and headaches later.

Why Most Coworking Spaces Use Stripe or PayPal (and What It Costs Them)

Stripe and PayPal appeal to new operators because the confusion around payment processing is real. The components -- credit card processors, ACH processors (the ones who connect your clients’ banks for payment), payment vaults, online gateways -- are not well explained, and bundling them into one service feels like a smart solution.

The problem is that Stripe and PayPal are both quite expensive. They’re also so big that service can suffer. While all-in-one solutions such as these seem like an easy option for new operators, they come at a price -- both in money and quality of service. When you separate the components and choose best-in-class for each, you get better service and lower costs, as this post explains.

The Four Parts of Payment Processing

Before getting into each component, here is what they are and how they connect:

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All four must be in place for automated payments to work for credit cards, debit cards and banks. If any one of them is poorly chosen, the whole system can break down -- or you may not be able to accept a particular payment method that your members want to use.

1. Your Credit Card Processor

Your credit card processor is the company you choose to work directly with, and they set up most of the rest for you. You may actually be working directly with an “Acquirer,” who works as the processor’s agent. Acquirers may use several different processors, selecting the one that’s best for you. The credit card processor connects with the various credit card networks, such as Visa, Mastercard, American Express, etc., and they'll set up your online payment gateway.

Most credit card processors are good at hiding their fees. They use the term "discount," which is really their fee to you. They have fees for checking your Payment Card Industry (PCI) compliance, they have fees for monthly access, they have all kinds of fees.

Processors quote you in one of two ways:

1. The first is a blended rate -- an average like 3% that applies to every transaction regardless of what card the member uses. The processor sets that average to cover all contingencies, but they don't know your business very well when they set it. They're hoping the average works out to what they told you, and on the cheap cards, they make more than that. They may also earn less on expensive cards that give you points or cash back or other benefits.
2. The second is Interchange Plus -- a flat markup (like 0.5%) on top of whatever the card networks charge the processor for that particular card. With this structure, your rate reflects the real cost of each transaction. If a member pays with a premium points card that costs the processor 2.75%, you pay 3.25%. If they pay with a debit card that costs 0.5%, you pay 1%. 

Neither structure is universally cheaper. It depends on your card mix. What matters is knowing which one you're on and what your effective rate actually is.

At Deskworks, since we know what to expect in this business, we work with a company that enables Deskworks Pay to charge a lower flat percentage for all credit/debit card usage. Further, you can choose to set up an automatic payment processing fee that is applied to each client invoice sent through Deskworks. So payment processing no longer has to be an expense for you!

How's your credit?

Your credit card processor is actually going to underwrite your account. You may not even know they're doing it, but they're going to check whether you're a good risk by checking your business' credit rating and your personal credit rating. For a space operator with a poor credit rating, you may have a hard time getting approved for credit card processing or may pay a higher rate.

Three tips for choosing a credit card processor:

1. Look for short-term contracts. Avoid getting locked into a two- or three-year agreement with a credit card processing company. We’ve been able to set up month-to-month contracts for all of our clients, so the processor has to continually earn your business.
2. Pick a processor with 24/7 phone support. After the initial setup, you likely won’t need to contact them much, as most of your dealings will be with your gateway, but you may need help in the beginning. It's essential to be able to resolve problems quickly and easily when they come up.
3. Be sure you own your own data! If your payment data isn’t portable, switching providers later can be difficult and may require you to collect your members’ credit card information again. More on this under the Payment Gateway section.

2. Your ACH Provider

If you are working with an Acquirer, they probably have a relationship with an ACH Provider. This may be a bank directly or it may be a company that works closely with a particular bank. This company will also perform an underwriting process, but it is more detailed and takes longer, so the same suggestions above will apply. Since this is a direct bank to bank transaction, the costs are much lower. But the time it takes for money to reach your bank is significantly longer than the time for credit card processing. This is because a transaction may have been accepted by the gateway, but the client’s bank may refuse to fund later. ACH payments can take 5 - 7 working days or more. 

Tip: It’s a good idea to try to get a balance between ACH payments and credit card payments. ACH payments are cheaper, but take longer; credit card payments are more expensive, but are quicker. This can be important when you have rent payments to make by the 3rd or 5th of the month! (With Deskworks, the cost to you can be negligible or nothing, since payment fees can be charged back on client invoices.)

3. Your Payment Vault

Your Payment Vault is the system that stores member card and bank data securely -- completely separate from your website or management software. You want to be sure your 

cards and bank details are held in a PCI compliant vault. Deskworks uses Spreedly, a middleware product for secure payments vaulting. Their entire business is credit card and ACH vaulting. They've never been hacked, they're fully PCI compliant, and they work with virtually any credit card or ACH processor and over 150 gateways around the world. (They have a new feature that allows them to work with any gateway, although this integration provides less feedback.)

The other big advantage to Spreedly is that you have the freedom to move to virtually any credit card or ACH processing company or gateway whenever you want. There's never a charge to make changes, the tokens for the client’s payment method don’t change, and the changeover takes minutes. You are in control -- which is what we always try to maintain.

You never want to have your credit cards held on your website directly or on paper. (This makes us hyperventilate when we hear about it.) There's nothing more critical in payment processing. Deskworks provides the Payment Vault through Spreedly at no cost to space operators.

4. Your Payment Gateway

Your payment gateway is the company that manages the online transaction amongst all the parties: your management software, your credit card or ACH processor, your client's credit card, their bank, your bank and the payment vault. Payment goes from your customer's credit card through the processor's bank and is deposited into your bank account.

The gateway also runs the check with the vault to be sure it's a good card. So, they have a handshake with the payment vault, and they have a handshake with the credit card bank, and they have a handshake with your bank to make all that happen. (Same goes on the ACH side.)

The gateway sets up your security settings, such as whether you check addresses, zip codes, etc. on a card. The price you pay for credit card processing depends on those security settings. The tighter your credit card security settings, the less expensive your processing fees because there's less risk. But, of course, you may have to deal with more declines and more chasing of correct addresses.

One warning about gateways:

One of the biggest gateways is Authorize.net. They're fine to use for a gateway, but do not use them for your payment vault. If you ever want to move from them, they used to charge $1,000 to get your own credit cards back from them, and they won't do it for fewer than 250 cards. You'll have to manually go ask everyone for their cards again. This may have changed due to industry pressure, but be sure you check it out ahead of time with whatever gateway you use.

This is why keeping your vault separate from your gateway matters. When the vault is portable (like Spreedly), switching processors or gateways later costs you nothing and becomes a very simple process.

How Deskworks Handles Payment Processing

Deskworks makes payment processing in your coworking space easier by handling the most complicated part for you -- the payment vault -- so you can choose the best processor and gateway separately.

Here is what that looks like in practice:

• ‍The vault is set up for you. Deskworks sets up your payment vault through Spreedly at no cost. You never have to worry about PCI compliance for card storage, and you're never locked in. Operators just need to be sure that the gateway they select is one of the over 150 supported by Spreedly.‍
• Processing rates are negotiated. We've pre-negotiated flat-rate processing for Deskworks clients through Deskworks Pay -- a flat percentage for all cards and a flat percentage for ACH payments. Of course, you can choose to use another provider, but most of our clients choose to use Deskworks Pay.‍
• Billing runs automatically. We strongly recommend that collecting payments automatically is  an opt-out, not an opt-in process. You don't want to have to ask people for payment. You want to send them an invoice, and if they have a question they'll let you know. Otherwise, the payment is processed automatically on the due date. Deskworks handles the automatic billing and provides a simple process for updating an invoice ahead of time or refunding payments when needed.

With Deskworks, we've picked the best of each world rather than a bundled solution which costs you more and may not provide as good service. You get the best processor rates, the best payment vault, and the best online gateway for your needs -- all connected through your billing and payment tools in coworking management software built by operators for operators.

Frequently Asked Questions

What is the difference between a credit card processor and an online payment gateway?

A credit card processor is the company that connects you to the card networks (Visa, Amex, etc.) and sets the rate you pay per transaction. An online payment gateway is the service that manages the actual online transaction between your software, the processor, the member's bank, and your bank. They work together but are separate services. The payment vault that stores card data is a separate component.

How much does payment processing cost for a coworking space?

It depends on how you set it up. Bundled services like Stripe charge a flat percentage (typically around 2.9% plus $0.30 per transaction) for the simplicity of having everything in one entity. They now charge more for online recurring transactions. Some processors will suggest an “interchange plus” structure, which charges a percentage (based on underwriting results) above whatever the particular credit card cost is. This can end up costing more or less than flat rate pricing. 

Do I need a separate payment vault for my coworking space?

Yes -- or you need to ensure that whoever handles your vault is PCI compliant and gives you portability. The biggest mistake operators make is using a gateway (like Authorize.net) that also holds their card data. When they want to switch, they find out they cannot take their cards with them without paying a significant fee or manually recollecting card information from every member. A separate vault like Spreedly solves this.

How does Deskworks handle payments?

Deskworks is coworking management software that includes billing and payment collection built for coworking operators. It uses Spreedly for PCI-compliant card/ACH vaulting at no cost to operators, connects to over 150 payment gateways, and has pre-negotiated processing rates for Deskworks clients. Billing and payments run automatically on a due-date schedule. Deskworks Pay includes credit card processing, ACH processing, online gateway and payments vault in one entity, directly through Deskworks.

How do I avoid getting locked into an online payment gateway or processor?

Keep your payment vault separate from your gateway. If your vault is portable (Spreedly is the choice used for almost all Deskworks clients), you can switch gateways or processors at any time without paying a data export fee or losing member card data. Also avoid multi-year contracts with credit card processors -- month-to-month arrangements are achievable and give you leverage to negotiate if rates change.