How much are you paying customers to shop with you?

There isn't a week that goes by that a new credit card offer doesn't show up in the mailbox. Credit card issuers are constantly trying to lure new customers to transfer balances or, at the very least, apply for a new and improved credit card. New and improved in that every time you use it, you will earn some form of "reward". Sounds good to the consumer who uses plastic anyway so why not get paid something back for doing so.

But, here's the issue. These newer breed cards are great for the consumer but not so great for you, the merchant. Every time you accept one of these cards for payment, you are paying an increased discount rate over what you would pay for a plain old "generic" credit card.

Today, I met with a merchant (hair salon) that is currently on a Four Tier pricing model. Thirty two percent of her volume is in Tier Three which is clearly rewards type cards. She is paying over 3.08% + $.03 for each of these sales. Also in this category would be card not present type transactions which she says, they do maybe ten of those a year. In taking a look back during the same time period last year, her Tier Three volume was a much smaller percentage of the total. So, it's obvious that more of their customers are receiving, and using, these cards for the perks they receive.

So, obviously, we'll be moving her over to a Cost Plus Pricing model so that at least, since she's already receiving these cards, she'll be able to pay less for them. It's a tough game out there these days people, just trying to stay profitable. You need to look at any way you can to reduce your cost of doing business.

Let me encourage you...take a detailed look at your monthly credit card processing statement...EVERY MONTH. Compare to the previous month and even, take the time to compare to the same time period a year ago. Look for any noticeable changes. Also, make sure that you totally understand all the fees that you are being charged. Ask your rep, if you can even find them, to explain in detail what everything is. If they don't know, themselves, which isn't too uncommon, find someone that can enlighten you. My contact info is also available here if you so desire.

The bottom line here, and in all my posts is to GET EDUCATED. Accepting credit cards for payment in your business is a necessary evil. You must, therefore, do all that you can to ensure that you are paying fair and accurately for the "privilege" of this service. Thanks for reading!

Using Debit Cards as Credit Cards

A few weeks ago, my wife upgraded her cell phone with our provider. The phone she selected came with a $50 rebate which sounded good to us. The rebate, we discovered, was to be issued in the form of a Visa prepaid debit card. All sounds good so far but here's what I discovered when the card came in the mail today.

You see, to the every day individual, this wouldn't be any big deal but as an individual involved in the processing business, here's what I want to tell you about. You see, with banks, it's all about fees. That's how they generate the majority of their income rather than interest on loans. Anyway, this "prepaid debit card" was issued by a Visa member bank (a large one at that). Okay back to my reason for this post.

The Visa card, clearly marked "debit" on the front also had a sticker plastered prominently on it as well. Here's what the sticker said "Always choose "CREDIT" when using the card for your purchases". Here's what happens when the customer requests that it be processed as a "CREDIT". You, the merchant, will be charged your "discount rate" from your provider at whatever you are being charged for swiped Visa DEBIT transactions. Of that amount, this issuing bank will receive the Interchange Rate on this card that is being processed as a CREDIT card. Currently, on this $50 sale, the issuing bank will earn close to $.70. You, on the otherhand will likely be paying somewhere in the neighborhood of $1.00 to process the sale.

Now, if you had processed it as a pinned DEBIT card, your cost would have been probably in the neighborhood of $.60-$.65. And, processed as a pinned DEBIT card, do you know how much the issuing bank makes? Zero, Zilch, Nada! Are you beginning to see why the issuing bank put such a sticker on the card? Many banks that issue Visa or MasterCard branded debit cards, try to encourage their card holders to "just say CREDIT" for what are now, obvious reasons. To the cardholder, it really makes no difference because the funds simply come directly out of their account no matter how they run it. The diffenence is in how much it is costing you for the process.

So, while this may only translate into minimal amounts on individual transactions, it will certainly add up to something significant over a period of months or years. So, the lesson to learn here is that when you take a card for payment, that says DEBIT on it, do all you can do to get the customer to enter their pin number.



Good luck and I wish you much success in your business. If you have any comments, or questions, please post them here.