EMV, CNP, and Liability Shift

emv-cnp-and-liability-shift

Understanding Advertised Processing Rates!

(Why total processing cost is (usually) not equal to the percentage you’re promised.)

Short answer: Because there’s much more that goes into your total price than a rate.  If you ask for a rate, you’ll get a rate, sure.  But that’s like asking a car dealership how much an engine costs and expecting to walk out with a whole car after paying.  Unfortunately, the rate can be deceptively small or completely made up.  How often do you see stuff like this?

It sounds fantastic, and it would be if it were possible 100% of the time without National Bank Card, salesmen that they are, losing money on processing costs.  The reality is it ain’t.

Long answer: Your total costs are comprised of much more than a single percentage—unless you’re using a flat rate pricing program, but we can get into that later.  Unfortunately for you, single percentages sell a lot better than a block of fine print, and, with those nifty contracts that MSPs dole out like candy, it’s pretty easy for them to get away with promising you something lovely and sweet and then delivering something slightly sour. 

Single advertised percentages can mean a few different things, but hardly ever the full price.  A single percentage can refer to:

• The interchange (base) cost to accept a credit card.  It’s not likely a processor would come out and tell you this, not only because interchange isn’t in everyone’s vocabulary (“You mean the freeway junction?”) so it’s easier to avoid talking about it, but because interchange costs fluctuate rapidly depending on what credit cards your customers use.  For a full breakdown, you can click here.  Let’s just say it doesn’t read like The Catcher in the Rye, though.  (Brief synopsis: Consumer credit cards and debit cards aren’t so expensive.  Business-type credit cards and government purchasing cards are.)

• The total cost to accept credit cards.  This is more likely what a processor wants to convey when advertising “Card Processing under 1%.”  However, as we can see by skimming over that Interchange Guide above, even interchange costs are rarely below 1%.  So, do we really expect National Bank Card (or any other processor, for that matter) to eat cost on your transactions?  Good heavens, no.  We’ll see some companies like Sage Payment Solutions advertising 1.85% on “qualified” transaction costs, too.  While 1.85% is a tad more realistic than <1%, it still doesn’t account for a big number of card types in that interchange guide—anything over 1.85%.  What happens if you don’t get that 1.85%?  SPS can just say your transactions didn’t qualify.  Better luck next time!  Here is the picture as it appeared December 1^st, 2014:

(FYI, the folks at QuickBooks Payments love to do this too.  Remember, though: hate the game, not the player.  Both Sage Payment Solutions and Intuit Merchant Services are using a pricing formula that's been tried and proven over years: the fewer numbers you show someone, the better off everyone is.)

• The markup on your transactions.  This is usually what a given processor is trying to convey with an ad like that of our friends at National Bank Card, much as they may not want you to realize that.  A markup of 1% on top of an interchange cost is no small chunk of change, especially as your processing volume rises.  (That’s why it’s more common for smaller companies to have higher markups and larger companies to have smaller ones.  Somewhere down the line, someone realized that 1% of $3 million per month was $30,000 and that their company was helping to finance someone’s country house and yacht every month.)  “Under 1%” is of course better than 1%, but how much better?  We can’t tell, of course.  As long as they keep you below a 1% markup, though, they’ve kept their promise.  Get ready for a nice 0.95%!

A note on flat rate pricing

The only situation where I would trust a processor reading me one number over the phone or on the internet would be after they've thoroughly analyzed the trends for credit card usage among my customers--that is, they'd have to tell me what kinds of card types are coming in and how they arrived at that single cost.  For example, if I'm in the B2B realm, accepting a good number of corporate cards every month, it wouldn't be out of the question for someone to quote me a flat rate of 3%.  It's a little high, yes, but it covers the real expenses of the credit cards I accept.  You'll never see those kinda of quotes advertised on "credit card processing" Googles, though, because everyone's already advertising <1%.

Back to business...

Those are your options when you see ads like the one I mentioned.  They’re everywhere, and you’ll get a rotation of them whenever you Google “credit card processing.”  And, going back to the short answer, the reason they’re so popular is they’re a lot easier to read and process than a mass of fine print  And, since this explanation wasn’t written in size 6 font, I hope it helped you a little more than a big ol’ text block would have.

Cheers,

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

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