Most businesses don’t just look at them as paying for a service or just part of the cost of running a business, some merchants absolutely loathe paying for them. So, that being said, I’m here to tell you there are a few things you can do to make them a bit less painful. Everything from partnering with a reputable merchant service provider, to knowing a little bit about how the system works, to remembering that some things are negotiable can have a dramatic effect on how much you pay for the service at the end of the day.
Don’t get caught up in a too-good-to-be-true introductory credit card rate offer.
This is just a bait and switch tactic to trap you into a long term contract where they plan on raising your rates every single year thereafter. Brick and mortar banks are notorious for this. Merchants think that by going down to their local Wells Fargo or Bank of America they are going to get a better deal. False. These banks are notorious for charging much higher rates than a reputable and dedicated credit card processor.
Knowing HOW you are going to be charged is just as important, if not more important, first off, than what a processor’s rates are. Frankly, the rates are almost always negotiable. But depending on the rate platform they use, you could end up paying a lot more than the rates they promised.
The first place to start to make sure you are paying fair processing fees is to demand “interchange plus pricing”.
This is where understanding a little bit about how the system works will empower you to make better choices. Interchange is always the basis of your processing costs, but what exactly is “interchange”? Interchange is the rate set by Visa, MasterCard and Discover that you will pay for accepting their cards. It is non-negotiable.
That being said, “Interchange plus” pricing then refers to a merchant account where your costs include a fixed markup applied directly to the interchange fees published by Visa, MasterCard and Discover. This pricing model will be considerably less expensive than standard “tiered” or “bundled” pricing model, let alone much more transparent.
Tiered pricing lumps all of the costs together, this way it is difficult to figure out exactly what you’re paying. If the merchant service provider is using “qualified” and “non-qualified” rates they are using a tiered pricing model.
The reason interchange plus is much more transparent is because different fees are charged for each card type depending on the interchange category it falls into. Credit cards and debit cards, personal credit cards and business credit cards, gift cards, airline miles and other rewards cards each have their own interchange cost. It’s important to keep in mind that there are literally 100’s of different card types. Credit card processors who offer what is called “Tiered Pricing” will create a system where each of these cards will fall into a preset pricing category which consists of “Qualified”, “Mid Qualified” and “Non Qualified” transactions. So, rather than having one flat rate that will be added to the interchange rate for each card they will have a different rate for each category. If the card you are accepting does not fall into the “qualified” category, for instance, you will end up paying a much higher rate than they originally quoted you. Additionally, they will also use the way the card is entered (swiped, entered online, etc.) to determine what interchange category it falls into, qualified, unqualified etc.
Interchange plus pricing is applied the same across the board making it much easier to see the true cost of your processing fees with no surprise charges. Again, the base of your costs will always be the interchange cost, which is not negotiable and goes to the Card Brands and Card Issuing Banks, then you will have your merchant services provider fee mark up (the “plus”) as well as a small per transaction fee, and generally a monthly fee for statements and/or secure gateways. In this way your true fees are much more transparent and you will actually have the true effective rate the processor promised you.
Interchange plus pricing is really the only way to achieve the most transparent and cost effective processing.
Now that we have a better understanding of what to look for in a pricing model there are a few other things to watch out for that can raise your costs more than they should be. Watch out for a high per transaction fee. You can be promised “low” rates and have your per transaction fee so high that it sends your effective rate through the roof. Especially for merchants who do a lot of small transactions that are fairly low in volume such as coffee shops processing hundreds of $3 transactions everyday.
Assessments are another thing to look for in your statement or quote. Visa and MasterCard will apply assessments that are not negotiable, and will clearly state the price which clearly on their websites. The problem is that oftentimes a processor will try to add on to those assessments and that is definitely negotiable.
Don’t get blindsided by a bunch of bogus merchant account fees when you sign up for cheap credit card processing.
Bogus fees- “monthly minimum” fees. These come into play when a processor requires you to hit a monthly minimum in processing or they will assess a fee. In our opinion a principled provider will not charge this fee.
Don’t lease your terminals/machines. Leasing machines is the single most wasteful way to spend your money. You can often buy a terminal for the cost of your first few months in the lease, but processors will often try to get you into a contract to lease for 3-4 years. Then they can even require you to return the terminal when your lease is done. Leases are often anywhere from $50-$100/month every month for 4 years! Leases can end up costing you thousands of dollars. Why would you pay up to $1200/yr for a terminal that would only cost you $400 to buy it outright? Buy your terminals and when you need new updated equipment you may even be able to recoup some costs by shipping back your old equipment for a credit when you buy new.
Make sure you are regularly reviewing your statements! Keep an eye out for annual rate increases and request that they be removed. It will generally be somewhere in your monthly statement “notifying” you that you will be having a annual rate increase. Most merchants do not realize they can actually ask for that to not happen.
There are also a few things you can do to help make a difference in your cost of doing business.
Another effective way to keeping your processing costs down is to make sure you are accepting alternative forms of payments like Remote Deposit Check service or ACH payments. Even encouraging more customers to use debit cards can put a dent in your costs since debit cards cost less to process than credit cards in general. How about implementing a cash discount program? Ask BankCard Brokers about our cash discount program and eliminate them all together.
Make sure that you are not just looking at the rate you were promised, but calculating your true effective rate. If you’re not sure exactly how to do it, feel free to give us a call and we will help you find out exactly what rate you are paying.
If you take the time to understand your rates and rate structure, pay attention to your statements when they arrive and look for any notices of a rate hike you have a good start at being less frustrated with your credit card processing services.
If you believe your merchant services fees are just too high, you are not getting the service your business deserves, or would like to address more ways to reduce fees and still service your customers give Bankcard Brokers a call. Our ETA-certified payment professionals would be happy consult with you and help you review your statements to find where you could be making changes.