How your gain can mean another (business)man's loss

Are all credit cards created equal?

He's about to find out.

I’m sure this happens to you pretty often.  You walk into your favorite restaurant, and you’re about to pay at the counter but you just realize you forgot cash, so you slip out your credit card, and the cashier looks at your uncomfortably, gesturing to the placard next to the register.  Cards only accepted for orders over $15.  Well, you think to yourself, guess I am trying the lava cake after all.  Your stomach thanks you for this in its own subtle way for the rest of the night as you toss and turn.  Why did this have to happen?

Obviously, credit cards are wonderful for consumers—that’s why we love to use them so much—and, because they’re in such high demand, card issuers, banks, and processors can charge companies to accept them for payment.  But, sometimes you’ll see companies go a step further than not accepting your card if you purchase under a certain dollar amount from them.  Sometimes they’ll surcharge you (which is only legal in a few states), or they’ll tell you you can only use a debit card.  Or, you can use anything but a debit card.  Or, you can’t use your American Express card.  What gives?

Three costs?  More like three hundred

The fact is that every credit card in existence has a separate cost associated with it.  Those costs are set by Visa, MasterCard, American Express, and Discover, and there are over 300 distinct card types in total.  The reason there are 300 separate costs, and not just three or four like people sometimes think, is because each of those cards is used by a different person, whether an everyday consumer or a business, and each card carries a different rewards plan with it.  The bottom line: when a business accepts your credit card, they are financing your rewards points.  Kinda cool, or kinda nasty, depending on how you look at it.

So, what’s the deal with all those different signs you see in restaurants or retail shops?  Apparently, not everyone is on the same page when considering how they’re being charged to accept cards.  Maybe you’re a business owner yourself, poised to take something away from this (and, I’d be honored if you did).  Let’s go over the three most common signs I see:

Ø  Cards only accepted for orders over $5/$10/$20

o       This one is logical from a businessperson’s perspective—but illegal in some cases.  Credit cards carry an interchange charge, which is a percentage of the total volume of the transaction, plus a markup, another percentage of the total volume, plus a flat per-transaction fee.  Interchange and markup are unavoidable, but that per-transaction fee looks smaller and smaller comparatively as your transaction amount grows, so business owners try to spurn you into buying more.

Ø  Only debit cards accepted

o       You’ll see this one at certain ARCO gas stations.  Their gas is generally cheaper than average, and the reason for that has everything to do with their card acceptance policy.  Debit cards carry an infinitesimally small interchange charge to businesses—only 0.05%, so even with a profit margin and per-transaction fee, business owners generally pay much, much less to accept those cards than other kinds of cards.  By only accepting debit cards, certain ARCO stations can charge less for their gasoline.  Kinda cool.  (And, really cool when you find one that does accept credit cards because the price tends to be the same!)

Ø  No American Express accepted

o       Why bag on American Express?  Well, there is a reason.  American Express uses a different pricing system than Visa and MasterCard in order to finance their customer rewards programs, which tend to be very…cushy.  They’re a viable option in spite of their high cost to accept because consumers demand they be accepted or they take their business elsewhere, simply put.  So, how much do businesses pay to accept an AMEX card?  Well, businesses that sell to other businesses can get away with paying 2.89% plus $0.15 per transaction, but some retail businesses pay as much as 3.50%.  Relatively speaking, that's pretty high.

An eye for an eye...or not

To answer the question from this entry’s title, no, not all cards are created equal(ly).  Your gain as a consumer participating in a credit card rewards program (or simply using a debit card, which usually carries no rewards, simply for the sake of convenience) definitely does mean another man’s loss in one respect.  However, because of the nature of things, businesses who don’t accept credit cards, or only accept debit cards, or don’t accept American Express, all turn away a little of their potential business.  And, businesses that don’t discriminate against card carriers end up paying a little more each month.  But, they gain customer appreciation and net revenue they would not have realized without taking those credit card payments.  Until someone thinks of a better way, that’s just the way it works.  But, don't despair, business owners!  You might be paying a little more than you would have every month, but your net gain in attracting customers who demand to use their rewards cards overshadows that small monetary loss.

Hope this helped,

Jeremy 

Picking a credit card processor ain't just a round of speed dating, you know

It's really more like marriage than you might realize.

Probably the worst time to ask about rates.

Oh, merchant services… You’re looking more and more like a commodity every day.  It’s no wonder people switch MSPs almost as often as they swap girlfriends or boyfriends—the industry is absolutely saturated with companies that want to sell you (or lease you) machinery, lock you into a contract, promise you infinitesimally low rates only to jack them right up on a formality, etc.  When every provider starts doing exactly the same thing, it’s easy to treat the process of choosing an MSP like that of shopping for any old commodity.  At the end of the day, you’re probably asking just one thing… What are your rates?

Let the games begin

It’s easy to stop there and just hop from provider to provider every six months.  Or three months.  As long as you can take advantage of that introductory rate that’s bound to spring right up after a set period of time, or be taken advantage of yourself…but not too badly.  It’s a lot like dating around when you’re young and not really sure what you’re looking for… You meet a lot of potential mates, and you learn soon enough that not all of them are right for you—but, not before entertaining the notion of sticking around for the long run.  But then, we think back and ask ourselves what made us choose those people we didn’t end up with… Was it simply based on looks?  A dare from a friend?  Something else equally specious?  As we gain maturity, we (well, some of us) tend to go after the things that help in the long run rather than just temporal pleasures because we’ve been through those supposed pleasures enough to know they don’t help make house payments.  Or take care of the kids.

Now, wrapping up the analogy…why doesn’t this happen with MSPs too?  There are probably a thousand of them in the United States.  Why is everyone with their bank?  Why is everyone in a B2B, card-not-present environment still using a physical terminal to key in credit cards?  It’s like everyone just jumped on the first choice they had, and they’re so, unbelievably glad they don’t have to devote any more mental energy to the matter, they’re willing to pay through the nose—for anything, just as long as it doesn’t break.

This is pretty much what happens.

Doing homework suddenly doesn't sound so bad...

The merchant services industry may be filled with scam artists—I hear about ‘em almost every day—but that doesn’t mean it doesn’t help to do a little homework and look for someone that’s right for your specific business model.  You know, before your life is swallowed away by the fallout from bad relationships.  For example, going back to our B2B example, did you have any idea you could enter card information into a secure online portal instead of a card terminal?  Most of these online gateways come with nice reporting features and an archive of transactions, too, so you don’t have to toil away looking through pieces of paper.  Some MSPs even provide accounting system integrations, which means you have to do even less work every day.  All these things are possible!  You just have to be willing to get out in the field and look for them.  Or, as the case may be, wait for them to cold-call you.  When you do meet someone working for an MSP, don't simply ask about cost!  See what innovative solution they can provide to your business.  How much would it be worth to do business with someone who could really help you out?

When all's said and done, you get what you pay for

You might even find that, at the end of the day, you’re willing to pay more for an extra service your MSP provides, like an accounting integration or 24-hour local (i.e. not based in a call center in China) support.  In the end, it really isn’t all about price.  Price is an important piece of the puzzle…but, there’re quite a few more pieces to put together when you’re searching for the perfect MSP to complement your business.

Happy hunting,

Jeremy

QuickBooks merchant services, masters of the hidden fees

O QuickBooks Payments, how thou slay me (and my wallet)

The inspiration just keeps coming!  I decided to write this partially because of the laundry list of blog posts that pops up if you run a search for “QuickBooks merchant services.”  The consensus from the blog writers is plain to see: QuickBooks merchant services cost way too much.  The bulk of the cost is simply a product of their popular three-tiered pricing structure, which funnels the 350 some-odd possible card types into just three categories, the prices for which are jacked up pretty significantly.  That sort of pricing plan is great for Intuit and other companies that use it because it completely disguises the true costs of the credit cards customers use--and, I'm sure some people aren't even aware that credit cards are cheaper to take than Intuit's pricing plan dictates.

I already did a post on three-tiered pricing, so I would suggest reading that if you need a refresher or just an introduction to that concept and why it’s so convenient for processors to pull it out of their hat.

The three-tiered pricing plan used in most QuickBooks merchant services pricing plans deserves a post of its own, though, because it’s so pervasive and comes marketed under a few different brands (QuickBooks Payments--formerly Intuit Payment Solutions, Innovative Merchant Solutions, and Intuit GoPayment).  QuickBooks dominates the small business market share, and QuickBooks merchant services equally dominate for that reason.  Hell, I think you're automatically enrolled in a merchant account when you buy QuickBooks.  It's easy.  But, as we've explored before, that doesn't mean it's the most cost-effective, especially once you start accepting a lot of credit card payments...

Anyway, a QuickBooks merchant services statement looks similar to other statements using three-tiered pricing.  Check this out:

(Via http://www.cardfellow.com/blog/intuit-merchant-services-hidden-fees-fine-print/, captured October 9th, 2014.  By the way, if you want to read a great write-up on Intuit's merchant services, I suggest you pore over that page.)

Generally speaking, debit cards are “qualified” or QUAL, consumer rewards cards end up “mid-qualified” or MQUAL, and business-type credit cards or purchasing cards all come up “non-qualified” or NQUAL—and, each of those categories carries a different price with it.  In the case of the snippet above, that poor merchant had exactly two different qualifications, but over 80% of his revenue fell into the more expensive NQUAL bracket.  Yikes.

So, what do you do?

You can do a few things, actually.  There are quite a few different companies that provide integrations to QuickBooks besides Intuit itself, though you might be led to believe otherwise.  Century Business Solutions' module, for example, uses interchange plus pricing, not a three-tiered pricing plan, so you won’t be in the dark about how you’re being charged.  (It’s also designed to lower the base price of business-type credit cards and government purchasing cards, so if you happen to work with other businesses or government entities, this might be right up your alley.)

Hope that helped, and happy hunting,

Jeremy

Data breaches: Is this the new norm?

No More Tiers

(Or, the tale of how you pay for convenience)

Not as delicious as it looks when a processor proffers it, I assure you.

This post was inspired by an earlier entry that began by addressing folks who only wantto accept quotes for merchant services over the phone.  While looking for material for the post, I came across a Sage Payment Solutions page that looked like it was offering a great deal.  Observe:

(Via http://na.sage.com/us/sage-payment-solutions, captured October 1^st, 2014)

Okay, looks solid.  But, there’s an asterisk, and, at the bottom of the page we see this:

(Via http://na.sage.com/us/sage-payment-solutions, captured October 1^st, 2014)

Seeing those two images made me want to address the three-tiered pricing plans that many processors still seem to have no trouble doling out to merchants like candy.  How come no one cries foul?  Well, because they look pretty attractive on the surface.  But, as with most things that look attractive, it’s good to give them a closer look before diving into something serious.

The Message in Their Tiers

Let’s look specifically at the graphic and text from the Sage Payment Solutions page above.  Those qualified transactions they mention, along with mid-qualified and non-qualified transactions, make up a three-tiered pricing plan, so we can infer that the claim of 1.85% for qualified transactions is part of this kind of plan.  The three-tiered plan really does make life simpler for merchants, as it breaks the 350 or so card types down into just three categories with three distinct prices.  You might see something like this:

(Via http://firstpays.com/gofirstpay2011/public/images/statement_img/statement.png, captured October 1^st, 2014)

So, in this case, qualified transactions cost 1.75%, mid-qualified ones cost 2.75%, and non-qualified ones are 3.25%.  Sounds okay—just have to make sure they’re all qualified and you’re golden, right?

Not so fast.  Unless you have a policy where you only accept debit cards, you’re in trouble.  And, even if you do have that policy…you’ll never know what kinds of cards came in until you saw your statement at the beginning of the next month.

Universally, when it comes to these pricing structures, all regulated debit cards fall into the qualified category.  All consumer rewards cards fall into the mid-qualified category.  And, all business-type credit cards fall into the non-qualified category.  One hundred percent of regulated debit cards cost less than 1.75% to process.  In fact, they usually cost 0.05%.  The same goes for consumer rewards cards, coming in at an average of 1.5% compared to the 2.75% mid-qualified rate.  The very same goes for business-type cards and even GSA cards, coming in around 2-2.5% with the proper qualifications—not 3.25%.  Across the board, the three-tiered pricing plan raises costs for merchants a full percent or more.  Great deal for merchant services providers.  Not so great for you.

Conclusion: Avoid these pricing plans unless you have a thing for throwing away money

Now that you know that bit about three-tiered pricing plans, you should be able to spot similar plans when you see them advertised.  Square does something similar with its 2.75% swiped and 3.5% keyed rates, for example.  Intuit does the same with many of its merchant services customers as well.  (If you already knew about Intuit's own pricing and were hoping to get away from that, lucky you!  Go check this out.)

In summary: three-tiered plans are very convenient because processors can drop any merchant into one and NEVER lose money… but, they’re a raw deal.  It’s worth the additional legwork (research, getting customized quotes) to save the hundreds—or thousands—of dollars per month.

Hopefully this helps you in your journey to finding the right merchant services provider for your business.

Until next time,

Jeremy

But, what are your rates?

A quick (not really) journey through all those lovely fees you’re promised every day by folks like me

"Why won't you people just TELL me?!"

Ah yes, the moment you’ve been waiting for!  Don’t get me wrong—I would like nothing more than to tell every single businessperson I contact on the phone what our rates are.  It would eliminate a lot of confusion and it would shorten our sales cycle a bit too, I’m sure.

Unfortunately, it just ain’t that easy.

The fact of the matter—and, the reason my colleagues and I have been accused of being evasive when it comes to talking about our rates—is that there isn’t just one rate.  Or, even two or three.  There are about three hundred fifty to choose from.  Behold our good friend, the interchange guide:

Right here.

That tome is the list of base prices to accept every single type of credit card imaginable—over 350 in total—with a broad range of costs, from 0.05% for a regulated debit card to over 2.65% for certain MasterCard business cards; the guide helps us determine our exact costs to process the credit cards you accept for payment.  It’s a lot to take in by itself, and, did I mention the rates change every six months?  Bearing that in mind alone, it’s no wonder most processors just fire one or two numbers at you and see what sticks—without even knowing who your customers are.  It’s less work for everyone involved, and, hey, if they get you to sign a contract, you’re at their mercy no matter what they may have told you your cost would be.

The truth is these lovely, low-priced claims are NEVER (read: never) substantiated by anything, and they’re the reason so many people make the sign of the cross when they hear I deal with credit card processing.

This post is NOT for the faint of heart, but, if you’re ready to take the plunge into processing academia, let me be your professor.

The REAL anatomy of a rate

Don’t worry; this will be at least as fun as your college anatomy class.  Your true costs are determined by a number of factors, such as:

• The interchange (base) cost of the credit card used.  Is it a debit card, which qualifies at a paltry 0.05%?  Or perhaps a Visa purchasing card at 2.65%?  Or…anything in between?  We can get the interchange cost of a certain card by thumbing through our interchange guide.

•  How you accept the card.  Was it swiped into your system, or did you key it into a terminal over the phone?  Costs are higher for keyed in cards since there’s a higher potential for fraud.

• What medium you use to accept the card.  Do you use a box terminal, or do you key the card in online?  Or, do you have an accounting system integration?  Costs are different through each one of those media, too.

•  Did you wait too long to charge the card after pre-authorizing?  (Don’t worry, this doesn’t apply to everyone.)  If you wait too long, your card can be charged a “standard” rate of around 3.00%.

• What type of establishment do you run?  There are other costs that you might incur simply based on whether you run a non-profit organization, a manufacturing plant, or a retail store.

So, yes, there are quite a few factors at play here.  It’s pretty difficult to accurately quote you over the phone without knowing all these things, but, we can determine a good number of them by reviewing a couple of your merchant statements.  You wouldn’t trust a quote from an auto insurance salesman if he didn’t ask you what kind of car you drove, how many miles you put on it, whether or not it was garaged, what kind of coverage you wanted…and so on, so, why offer the same trust to a credit card processor and let them give you a quote over the phone or on the internet without seeing your processing statements?

“Well, someone just offered me a 1.85% swipe rate.  That sounds pretty good.”

(Via http://na.sage.com/us/sage-payment-solutions, captured October 1^st, 2014)

This is a common objection, and, you’re right—1.85% doesn’t sound bad at all.  But, what does that 1.85% really mean?  That could be the total cost of a transaction (Any transaction?  Well, if I’m accepting only business-type credit cards, sign me up!), or it could just be the discount rate.  Well, let’s see what that asterisk after swipe rates means.

(Via http://na.sage.com/us/sage-payment-solutions, captured October 1^st, 2014)

I wouldn’t be concerned about $0.12.  We charge $0.10 per transaction here, and an additional 2 cents per transaction probably won’t break you.  However, they’re good to warn you that additional fees may apply!  Do you know how many business-type credit cards cost 1.85% to accept?  

One.  

There’s a certain corporate type of MasterCard that can qualify at below 1.8%, and that’s if all the proper transaction information is passed.  If you’re taking mostly—or all—business-type credit cards, you can bet they won’t all be that same MasterCard, and, even if they were, you could bet that a processor wouldn’t manage your account for free, so that cost would be more than 1.85%...100% of the time.  Hey, at least they tell you about the additional fee up front.  You might just expect that every time you get a quote from someone who doesn't know who your customers are and what card types you really accept, since the number says nothing about your actual costs.  It’s only a guess, and it probably comes in a package with a lovely early termination fee.  Hopefully that helps explain why we can’t just fire a number at you.

What happens when you let a processor review your statements?

Look at that account manager…just scheming away.

What happens?  Not a whole lot, actually.  The world doesn’t cave in, no one uses your merchant ID to open an account in your name, and nobody extracts your customers’ credit card information.  (That’s not even possible!)  Usually, someone from a processing company will use your statements to determine your actual costs and then (hopefully) offer you something more competitive, whether that means a better cost or an easier solution for you, or both.  When you send statements to one of us at Century, for example, we introduce you to our array of processing solutions, show you a demonstration of the one (or more) that fit your business, and then give you a written proposal that reflects your real costs—the costs of the exact card types you accept on a regular basis.  It’s a little more involved than just firing off a rate over the phone, but it's well worth the additional time you'll have to set aside to reach into your filing cabinet, pull out the processing statements, and fire them over to your happy potential account manager.

Hopefully this sheds a little light on the all-too-common rate sheet problem.  Determining your real costs takes more care than a wild guess can give you, and—I hope I speak for most credit card processors here—we’re in this for the long haul, not just to process you for two months until you figure out we’re not delivering exactly what we promised you.  If, after all this, you still kick and scream, we can give you a rate sheet, I guess...if you’re okay with it being 80 pages long ;)

Yours,

Jeremy