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