So What's It Really Costing You?

Have you ever tried to figure out exactly what you're paying for the "privilege" of accepting credit cards in your business? You're not still stuck on the rate you think you're paying, are you? Most merchants, when asked what their current rate is quote their lowest rate they see on their statements. However, in reality, the real, Net Effective Rate is always much higher.

Obviously, when you get set up for merchant services, the reps typically only quote you the lowest rate you will receive. This will be for a plain ole generic Visa/MC debit or credit card swiped thru your terminal. If they were to quote you up front what your REAL rate was going to be, you'd probably opt out of accepting them all together. It's hard enough making a living these days without having to give up a chunk of your profits for "convenience" sake.

Keep in mind there are a multitude of categories your customers transactions could fall into. They will be categorized into varying "buckets" and subsequently, a variety of rates and fees will apply. So, how do you know what you're really paying? Let me explain a simple way to decipher it all.

For Existing Merchants: Here's what you want to do. Take a look at your most recent statement. Find your total fees paid for the month. This will be towards the end of your statement. You want to be careful here to make sure you're getting the real "total". For some merchants, they are on what is referred to as "daily discounting". This is where you are paying some of your fees out of each daily batch (great for the processor....an accounting nightmare for the merchant). You'll know this is happening if the total deposit you receive is less than the total sales each day. If that's the case, you'll have to account for these daily fees and add them to the month end fees. You'll want to add any and all miscellaneous fees like batch fees, supplies, statements, equipment rental, monthly or annual fees (these may be only charged once or twice a year but still, you need to account for them to get an accurate figure). Now, take that total and divide it by the total Visa and MasterCard volume. This will give you the true Net Effective Rate that you are paying.

I recently took a look at a merchants statement and went thru this exercise with them. They had never considered this nor had they been shown this process in the past. When I asked them what their rate was, I was told it was 1.49% + $.25. Now, this is a restaurant and this is an excellent rate for them. After examining their numbers, we found that they had total fees of $2,164.24 for the month on $78,132.50 in V/MC volume. Doing the math, we come up with an actual real total rate, considering all their downgrades and transactions types of, 2.77% (the Net Effective Rate). I was then able to do a line by line analysis for them on their actual types of transactions, and show them how to effectively lower their overall rate, quite nicely. Not just their "quoted" rate but their "real" rate. As you might imagine, they were quite pleased with the education and the resulting savings. They have a much better handle on how the whole industry works now, as well. Try doing this with your own statement or even send me a copy for help, if you like.

For New Merchants: For new merchants just getting set up, you won't be able to really determine a Net Effective Rate. What you will need to do, however, is to make sure you ask as many pertinent questions as possible. First, you'll want to know the rate you are being quoted or "teased" with. Ask the rep the following questions:

• What types of transactions will this rate apply to (i.e. debit,credit swiped or whatever)


• What if any transaction or per item fees there will be


• What will hand-keyed or card-not-present rates be


• How much will you pay for Rewards Cards


• What will the rates on corporate or World cards come out to


• Are there any batch fees and if so, how much


• Monthly statement or monthly minimum fees


• Any application or programming fees


• How about annual fees (this is one they don't often tell you about)


• Supplies or any other miscellaneous fees....find out upfront before signing any paperwork)

Out of all the fees described above, I'd have to say that the Rewards Cards are probably the biggest thing to find out about. Each processor can place these types of transactions into any category they choose (primarily when you are on a 3 Tier or 4 Tier Pricing Model). No matter what your type of business, these cards are beginning to show up with greater frequency. For the merchant that I described above, last year they were seeing about 19% of their volume was falling into this category. Currently, they are seeing about 30% and it's beginning to hurt.

Okay, there's your education for today. As always, I welcome your comments and look forward to being of any service to you that I might be.