Many credit card processors make excessively high profit margins because the merchant does not ask the right questions or understand the industry. They know that the merchant does not have time for such things and relies on his or her instinct of trust with the representative or processor.
Since most businesses operate on less than 20% net profit margin, every percent paid off the top in processing fees can reduce the bottom-line as much five percent. Below is a guide to prevent credit card processors from taking advantage of you and your business.
First, make sure that you are on interchange plus pricing to completely eliminate any possibility of downgrades and random rate increases commonly associated with other discount programs.
Your rate should be Visa and MasterCard published interchange plus .05% to .50% & .05 to .10 cents per transactions depending on monthly credit card processing volume. Visit http://usa.visa.com/merchants/operations/interchange_rates.html and http://www.mastercard.us/merchants/support/interchange-rates.html for published interchange rates.
Second, make sure that you’re taking debit cards correctly. If your average ticket is below $35.00, it’s not recommended that you accept pin-debit transactions. Credit card processors typically add a mark up on top of debit network fees per transaction. These transaction fees cut into your profit margins even more on smaller tickets. Your processor should charge .10-.15 cents to process pin-debit transactions depending on your average ticket size to be fair.
Third, make sure that you’re set up on Visa and MasterCard published interchange pricing to guarantee that you pay no mid-qualified, non-qualified, or any other downgrade fees. You should only pay Visa, MasterCard, and Discover published interchange rates for corporate cards, rewards cards, and key entered cards to minimize your expense.
Fourth, make sure that you use an address verification system (AVS ) for key entered cards to eliminate unneeded transaction fees. AVS transaction fees should be between .05 to .10 cents, if charged.
Fifth, review the tips below to further eliminate the possibility of being overcharged by your processor. This could mean thousands in savings.
A) Annual Fee: This fee is usually around of $100 to $200 per year. If the processor charges a monthly statement fee, a fair amount should not be over $100.
B) Monthly Statement Fees: This can also be called a monthly service fee. This fee is very common and fair in the industry. Usually this fee ranges from $5 to $10 per month.
C) Batch-Header Fees: This is usually in the form of a transaction fee each time the merchant or processor batches out the daily activity. Since the profit margins of a reputable credit card processor are very low, a fair amount should be .20 to .25 cents per batch to cover the cost of processing batches. It’s much cheaper to pay a fixed $100 a year in batch fees than $1,000’s hidden fees.
D) Debit Access Fee: This fee is just designed to increase the profits to the processor and should not be charged. This fee may be seen on many statements of merchants who do not even accept pin debit cards as payment. It happens because sales reps are trained to add it on the merchant application and receive an extra commission.
E) Merchant Club Charges: This is a merchant club that, while belonging, merchants receive supplies for free. Since supplies are getting fairly expensive, this club can be a great investment if a merchant processes over 1000 transactions monthly. Reputable providers will include the replacing of terminal equipment at no extra charge, except for shipping. The monthly fees should be no more than $9 or $14 per month per location NOT terminal.
F) Terminal Maintenance Fees: This can be a separate charge above and beyond the Merchant Club charges which becomes too expensive. A good merchant club should provide all supplies and the replacement of terminal equipment if it goes down.
G) Proprietary Equipment: Some credit card processors sell the merchant equipment that can only be processed through a particular processor and no one else. Credit card processors do this to prevent merchants from switching. If the processor should raise their rates or have bad service, the merchant is stuck with this equipment and must purchase new equipment from another processor when changing. We recommend three types of processing equipment that all processors can operate with. These manufacturers are called Hypercom, Verifone and Lipman.
H) Renting Equipment: It is recommended that merchants purchase or if cash is tight, lease to purchase. A brand name terminal with a thermal printer and pin pad should not run more than $500 or lease to purchase for about $30 per month or less for 48 months. Add a check reader if needed for no more than $300 or lease to purchase for about $20.00 per month or less for 48 months. Furthermore, merchants should beware of providers who offer FREE equipment, because nothing is FREE. Merchants either pay with time or money. Typically, providers with FREE equipment charge the merchant thousands in “unneeded fees” to pay for the equipment, and merchant may still have to return the equipment if the processor changes. Thus, having to buy or lease equipment anyway.
I) Monthly Minimum Fees: This is a common fee among processors. This fee is there because there is an expense of keeping the merchant on board their system for processing. If a merchant has no processing activity, the processor will be operating at a loss to keep the merchant account open. This expense is usually about $20-$25 per month. Processors who don’t charge a monthly minimum will typically have hidden fees to cover their costs.
J) ACH Funding: Merchants should receive funds into their business bank account within 24-48 hours after they have batched out. In fact, many processors now offer next day funding. A merchant should batch out by a certain time (varies by processor) to receive funds within 24-48 hours. After a certain time, the merchant may lose 24 hours additional time for funds to be deposited. If it is taking more than 48 hours time, then the processor is possibly holding the funds to earn interest on the merchant’s money. All Visa, MasterCard, and Discover credit and debit card transactions should be deposited on the same day. American Express transactions are typically deposited separately unless the merchant is setup on a One-Point system.
K) Daily Processing Fees: Fees from processors should never be taken out daily or more than once per month. Processing fees should taken out the following month after the merchant receives a statement, unless the merchant requests fees to be taken out daily. The only other reason would be a merchant with marginal credit and taking out fees daily will protect the processor. It is much easier for the merchant and the accountant to know that the gross funds from the daily batches are deposited and then the fees taken out the following month. All processors have this option in their system.
L) Contracts: Contracts should on one end protect the processor and on the other end, protect the merchant. When the contract from a dishonest processor who intentionally sets up the merchant with a lot of unneeded fees, it is only good for this type of processor. When a merchant is set up correctly and fairly and understands all the fees and has the protection in the agreement that the processing fees will not go up for any reason other than a card association interchange increase or decrease on specific card types and transactions, it is good for the merchant and the honest processor. Contracts are needed by the processor because it cost quite a lot of money to initially set the merchant up on the system. Examples of these expenses are paying someone to see the merchant or take the application, a credit officer to check out the merchant, a programmer to set the merchant up on the system and a trainer to get the merchant started. Furthermore, while on board the processor must have merchant services to meet the merchant’s needs or concerns. With no contract, the processor will carry a risk of losing money if a merchant should leave within a short period of time. Contracts are good for both parties as long as the merchant is set up correctly. A correct setup will give the merchant a lot of trust with his processor and the processor a reason not to worry about the merchant going with someone else. The foundation of any relationship is trust, and this is especially true in the credit card processing industry.
M) PCI Compliance: From the world’s largest corporations to small Internet stores, compliance with the PCI Data Security Standard (PCI DSS) is vital for all merchants who accept credit cards, online or offline, because nothing is more important than keeping customer’s payment card data secure. The size of a business will determine the specific compliance requirements that must be met. Processors who do not assist merchants with becoming PCI compliant annually, by a PCI approved company or vendor, are putting merchants at risk of paying tens of thousands in fines and/0r losing the privilege to accept credit cards should there be a security breach. Most merchants can not survive a PCI security breach so they shouldn’t put the future of their business in the hands of any credit card processor. And, just because the processor, software provider, or terminal vendor are PCI compliant doesn’t mean the merchant is also PCI compliant. Visit https://www.pcisecuritystandards.org/approved_companies_providers/index.php for a complete list of approved PCI compliant companies and vendors.
Fees to assist merchants with becoming PCI compliant should range from $100 to $200 per year. Acceptable monthly fees are $10 to $15. Enforcement of merchant compliance is managed by the individual payment brands and not by the Council – the same is true for non-compliance penalties. Non-compliance fees should be no more than $20.00 per month.
Vital Cash Flow 