3 Innovative Ways to Reduce Credit Card Processing Fees

How do you reduce your credit card processing fees?

It’s the age-old question.  How do you pay the lowest rate possible?  Can you get away with processing for free?  What’s the deal with interchange levels?  And, what the heck is a discount rate?

Suffice it to say credit card processing is a strange, multi-faceted beast.  There are lots of moving parts, and things going on that even your processing statement, which is confusing enough in itself, doesn’t detail for you.

Talking about it all would take me the length of a tome, and nobody wants that, so I’m just going to cover what you pay today.  Even what you pay has a few different levels to it – it’s not just a single rate that you sometimes hear about in advertisements on the web.  Without further ado, let’s move to the first item to look at to reduce what you pay out.

Wait too long, pay the price

Good things don’t necessarily come to those who wait – it’s best to strike while the iron’s hot, in my opinion.  While this is an adage I live by, it can very well be applied to credit card processing too.  If you’ve authorized a charge on a credit card and wait more than 48 hours to charge that credit card, you’ll be charged a “standard” processing rate – and, that can be as high as 2.95%, a fair bit higher than what you’ll usually pay.  (And, we’re just talking about the set interchange cost, not the processor’s markup!)

In order to alleviate those sorts of charges, simply make sure you’re settling authorized charges at the appropriate times, taking care not to wait too long.  If you use a virtual gateway, you can usually set it to automatically batch out at certain times (or trigger batching out for certain transactions, like pre-auths).  If it seems feasible for your business, it might make sense to nix pre-authorizations altogether and simply charge credit cards at the invoice level.  In any case, strike while the iron’s hot and you’ll come out on top in this case.

Save some money by saving time

Lots of businesses, especially B2B wholesale companies, are extremely advanced in almost every sense, except when it comes to payment processing; they’ll use systems that are quite disconnected, take too much time to use properly, and, for all their inefficiency end up costing businesses more.  This is due in part to the processing industry, what with most payment processors’ tendencies to rope businesses into contracts, lie, be ambiguous in their language, and other nasty habits – most business owners are apprehensive about doing anything differently when they’ve found a processor that’s at least somewhat fair.  It’s not uncommon to see a manufacturing company use the most high-tech equipment to fabricate their products, yet use a standalone terminal (technology that dates to the 1970s) for credit cards in conjunction with their top-notch accounting programs!  It’s unfortunate.

So, is it really possible to get two good things in one package pertaining to payment processing?  Actually, yes.  Using a credit card processing plugin for your accounting system of choice can effectively reduce your processing fees automatically while making your workload a lot lighter.  Plugins like this work with programs from QuickBooks (as an alternative to Intuit merchant services) all the way to Sage 500 (as an alternative to Sage Payment Solutions).  Here’s what happens:

1. Rather than using a credit card terminal, you input your customers’ credit card data directly into your accounting system, which you would have had to do at the end of the day anyway.
2. The plugin automatically transmits extra information like a PO number, invoice number, ZIP code, freight amount, and other information you enter anyway to the credit card-issuing banks.
3. The banks see this extra information and qualify the transactions at higher security levels, since the extra information makes those transactions harder to duplicate or make fraudulent.
4. The higher security gives you a lower interchange cost (set cost) for the credit cards entered that way – especially for business-type cards and GSA cards.

And, that doesn’t even touch on the time savings.  But, imagine how much time you might save not having to run all around your office to complete one credit card order, then stay a half hour (or a whole hour) after work re-entering credit card data to mark your invoices as paid.  And balance your GL.  It’s a lot of work you don’t really have to do!

Birds of a feather flock together

Ever had the feeling you just didn’t belong?  It happens most often in social situations, I’m sure, but your processor can pull a fast one on you and take you on a bad spending trip – all because you operate in a “high risk” industry, or some other industry they don’t particularly like.  Of course, in an effort to earn your business, they may not always tell you this, but they’ll sure make you pay anyway.  So, what do you do when you’re being silently shunned?

First, take a good look at your processing statement and determine if your overall costs seem fair (and, they will vary considerably depending on the type of business you’re in).  If they don’t, you might consider seeking out a processor that caters to your exact business.  Often, credit card processors will cater to specific industries, like adult novelty shops or firearms dealers, by establishing relationships with other entities (offshore or local banks) that will allow them to process transactions that other processing networks might label high-risk.  Prices will be lower with a high-risk-specific processor, for example, than with a run-of-the-mill company because they don’t have to worry about their backing network kicking merchants away, and for that reason the processor doesn’t have to worry about recouping all sorts of administrative costs by charging you.  Everyone wins.

Yours,

Jeremy

PS - I'm sorry; you still can't get away with processing for free.  When I figure that one out, you'll be the first to know, though ;)

3 Cash-Saving Tips For Adult Merchant Account Owners

Do you have an adult merchant account?  

Yes, you!

As someone doing business and taking credit cards in the adult industry, I'm sure you've heard just about everything in the book - and, I'm also sure a lot of it's negative crap, too.  Adult industries and adult merchant account owners in particular get the short end of the stick in today's wonderfully ambivalent, ambiguously sexualized-but-wait-not-really world we're a part of.  When it comes to adult credit card processing, it's a freaking jungle out there.  What are you to do?

This post is here to help address common problems adult merchant account owners or would-be-owners have with getting decent, competitive costs on their credit card processing.  It's a little more difficult to do than it is for run-of-the-mill businesses, but it's attainable.  Read on!

How to get decent rates on your adult merchant account

Take notes, 'cause this might be on the final.

Suggestion 1: Take control of your chargebacks by obtaining extra information

One of the chief reasons an adult merchant account is considered part of a high risk business is because of the chargebacks you'll often incur.  Chargebacks occur when customers (claim they) aren't satisfied with your products or, more often, when they don't remember ordering them, so they file a dispute with their credit card provider looking to get their money back for the product they ordered from you.  Winning a chargeback battle can be difficult if you don't provide adequate information about the credit card and transaction itself, so you should be absolutely sure to:

• Make sure your customer gives you the CVV code from the back of his credit card.  This is just another piece of information that helps verify the card wasn't being used fraudulently.
• Make sure the customer gives you his billing address.  You'd want this for the same reason you'd want a CVV code.
• For retail adult stores, invest in EMV technology.  EMV isn't mandated yet, and, certainly not everyone uses EMV credit cards yet, but, when the time comes, EMV will reduce fraud pretty significantly because EMV credit cards are inherently harder to replicate.  An EMV-enabled terminal costs you $200 or so.  It's a great investment.

Supplying the extra detail and using EMV card readers won't help you win every chargeback, but it will help you win more than you're winning now.  And, fewer chargebacks mean lower costs for you because your processor doesn't need that extra insurance against your would-be fraudulent transactions.  Everybody wins.

Don't let this happen to your poor customers.

Suggestion 1a (or 2): For retailers, give your business an innocuous-sounding name so your customers (or their significant others) don't freak out at their monthly statement

This may seem silly, but it can help reduce chargebacks as well.  You may not be able to control what products of yours your customer chooses to bring home, but you can control how your business is presented on his credit card statement.  Regardless of the actual name of your establishment, which I recommend you keep so as not to turn away legitimate business, you can choose to you have your adult novelty business show up differently on someone's credit card billing statement.  Using the name of a bookstore or referencing the name of the street address of the business are both tactics you can use.  Be a little creative!

Why isn't this you yet?

Suggestion 3: For wholesalers and manufacturers, use a processing method that can obtain the best base costs on business-type credit cards

Some business owners aren't aware that business cards have a few different set acceptance costs based on how much extra information is provided along with each transaction - that is, the more information you provide, the less you have to pay.  And, of the business owners who do know about these lower costs, not everyone knows if their gateway will accept the information, or even how to do it.  Here's what I suggest:

• If you don't use a virtual gateway for credit card processing (i.e. you're still keying cards into your black box terminal), start there.
• If you do use a virtual gateway, ask your processor if you're getting the lowest costs for business-type credit cards.  They may be able to help you.
• If you know you're getting some discounts from card qualifications, ask your processor what steps you can take to get all the business-type cards you take to qualify correctly.  They may be able to help with that, too.
• If your processor is unable to help you, it may be time to choose another credit card processor.

This is another solution that isn't the entire package but will help lower your costs somewhat.  Again, this is only pertinent to wholesalers, distributors, and manufacturers.

I know it's a little harder than usual to get decent credit card processing as someone who wants an adult merchant account, but, it can be done.  Cost savings are part of the battle, and, by at least utilizing point 1, you'll be doing both yourself and your processor a huge favor, because without the chargebacks, your risk level drops significantly.

Happy trails,

Jeremy

COST Versus PRICE in Payment Processing: They're Not Interchangeable

(or, a brief sojourn through time is the only way I can make this point)

Why, yes, I did borrow this image from 1995.

Today I want to talk about the differences between costs and price and how those two factors stack up against each other in credit card processing.  What does that even mean?  It’s quite simple, really, but I can explain it better with an analogy than I can with algebra.  Let’s pretend we’re at a furniture store for a minute…

At IKEA

I can feel you cringing.  Hey, I’m on a budget here!  We’ll let you shop at Restoration Hardware in a minute.  Anyway, we’re here at IKEA and I’m looking at a chest of drawers.  I see something that looks pretty decent, does everything I want it to do, and it’s only $200.  Before you ask, yes, I’ve shopped around a little bit and this is the best deal I’ve found, so I’m pretty proud of myself.  I think I’m going to have to put it together myself, but I’ll survive.  After doing a little work, I’ll throw this in my room where it will proudly store all of my clothes.

Now, let’s turn the clock ahead five years.  I know I didn’t tell you we were getting into a time machine, but just ride it out; I swear it’ll be a good experience.

Five years later…

Don't worry, these are stunt doubles, not even from IKEA.

Here we are, back at my house, and my dresser from IKEA has moved around town a few times.  I’ve used it endlessly, and it’s operated tirelessly for me—well, as tirelessly as it could.  It’s quite banged up, and the cheap black finish is scratching off.  Also, I didn’t tell you this, but two of the drawers have never quite closed correctly, so the paint is really coming off around those edges because of all the excess friction.  If we take a step back, this thing looks beaten.  It’s a little embarrassing, actually, and if I have company over I might have to cover it up just to save face.  I guess it’s just the way things are, though.

Now, let’s go back to the present moment and, instead of going to IKEA, let’s go across the parking lot to Restoration Hardware like you wanted in the first place.

At Restoration Hardware

Now, we’re looking at some nice pieces of furniture, and we happen upon a new wooden dresser, and…wow, it looks classy as hell.  Really nice veneer on the wood, really straight, and of course all the drawers are perfectly flush with the body—and, I can tell this because the thing’s already put together!  I hold my breath and glance at the price placard and my eyes bulge—it’s $600.  You assure me it’s a good deal, though, because—well, look at the quality!  You’ll have this thing forever, you assure me.  I fret for a minute but ultimately succumb to peer pressure, and you warmly reassure me I made a really smart purchase.  I feel a little better as I watch the complimentary shipping service guys wrap the chest up and load it into their truck.  The thing’s going to make my room look awesome…

Now, back to the time machine, obviously.

Five years later…

Yes, it is.

Well, when I first got the dresser into my room, it was pretty fantastic, and I guess it shouldn’t surprise you that, for the price, it’s held up incredibly well.  I’ve had to move it a couple of times, but it doesn’t have anything but superficial scratches on it.  All the hinges still work well, and none of the finish is flaking off, due in part to the fact that there isn’t any excess friction from shoddy workmanship (my own in an alternate scenario!).  I haven’t even thought about replacing it—and, why would I?  It’s an awesome piece of furniture, and it perfectly complements my room.

Okay, one more trip back to the present.  This is where we heroically apply what we’ve learned to the present moment to change the future for the better.  God, I should be a screenwriter.  Anyway, I’ve learned that buying furniture isn’t something to sneeze at—it’s more of an investment for the future.  My RH dresser hasn’t crapped out on me once, and I don’t expect it to unless my house burns down.  I’m in pretty good shape.

I haven’t mentioned credit card processing ONCE yet

And here you thought you were going to fall asleep at your desk.  Not so this time!  But, like all good things, this one must come to an end too.  The reason I told such a flowery story is because I like doing stuff like that, but, the story’s meaning really can be applied to picking a suitable payment processor.  So many times—in fact, the vast majority of times—merchants in need of payment processing go shopping at IKEA.  It’s the only place they ever shop, and, if the folks over there or any other big bin store come out with a better-priced chest of drawers or a lamp, merchants are sure to at least give it a once-over and probably even take it home because, gosh, it’s just so cheap.  Processors might cold-call you and remind you you can come to Restoration Hardware and you’ll have an attentive salesman there who isn’t bogged down with putting inventory away, who can tell you exactly how their special couches are stitched, the thread count of the sheets on their display beds, and the kinds of wood that go into their armoires.  “But,” a merchant might counter, “What are your rates?”  The sales guy on the phone answers, and the number he quotes makes the merchant a little flip.  “Don’t even bother me with that nonsense,” the merchant might say, and hang up the phone immediately.  “Serves him right for trying to swindle me out of my money,” the merchant says to himself.

The thing the merchant does not realize, and what you now do realize by now, is that choosing the choosing the right vendor for your company, much like buying furniture, is a solution for now and an investment for the future.  Not next year, not something to tide you over till you’re out of college, but…the future.  When you shop for payment processing, you’re not just shopping for the lowest price or lowest rates: You’re shopping for low costs, a solid company behind the services offered, a good pricing plan for those costs, technology that fits your business goals, a more-than-adequate support team: a solution that can grow with your business.  You may very well end up paying a little more than you would have, but your choice will pay back your business in spades.  And, you might even take pride in your choice like you'd take pride in buying a piece of furniture that really improves your room instead of simply serving a purpose until the next plebeian piece of furniture comes along.

Jeremy

Disclaimer: I shop at IKEA.  I take good care of my furniture but I know very well I'll have to replace it if I ever share my space with anyone else permanently.  That's analogous to, say, accepting over $30,000 monthly in credit card payments.

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?

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