Just last week, I was contacted by a merchant that had received notification of substantial increases in their rates. The processor claimed that it was due to “adjustments in interchange rates from Visa and MasterCard”. They were going to see an increase of .30% + $.10 in their Non-Qualified transactions, even though there was nothing like that reflected in the new Interchange levels.
I thought it might make an interesting topic to take a look back at credit card processing Interchange Rates. Since we just had an adjustment to rates in April, I decided to go back to April 2006 for some comparisons. As you might imagine, there are hundreds of different rates based on the card or transaction type. Rather than make this an extremely lengthy, and boring, article, I simply chose to focus on a few of the most common type transactions. So, let’s take a look:
Visa CPS Retail Credit: This is for a plain old generic Visa card (with no perks or Rewards attached) that is swiped thru your credit card terminal. This still represents quite a chunk of credit card sales for most merchants. If you’re on a Three Tier Pricing, this will typically show up in your Qualified rate category. If you’re on Four Tier Pricing, it is Tier 2. If you are on Cost-Plus or Interchange-Plus pricing, it will show up as a separate line item as CPS Retail Credit. In April 2006, the Interchange Rate was 1.54% + $.10 and is still the same as of the new Interchange Rates in April 2010. How have your Qualified, or Tier 2 rates been affected in that time frame?Visa
CPS Rewards 1: Rewards cards pay the card holder some form or reward in the form of cash back or bonus points. You, as the merchant, have the privilege of accepting these cards and paying more for them. In a sense, you are paying the customer, indirectly, to shop with you. As a Three Tier merchant, these will typically be Mid-Qualified and as a Four Tier Merchant as the third tier. And, of course, as a Cost-Plus merchant, they will show up as their own line item. Interchange Rate was 1.65% + $.10 in April 2006 and is the same today. How have your Mid-Qualified or Tier Three rates been affected in that time frame?
Visa CPS 2: Simply, this Visa Rewards card pays a larger reward to the card holder and, you got it, you get to pay more to accept it. Some processors will put this into your Mid-Qualified or third tier category, however, some will slam you by putting it into your Non-Qualified or fourth tier. I know of one processor that “reclassified” Rewards 2 transactions in July 2008 (in between typical Interchange Rate adjustments) and took them from Mid-Qual to Non-Qual and Third Tier to Fourth Tier…EVEN THOUGH THERE WAS NO RATE INCREASE. That represents an immediate increase in their bottom line and a subsequent decrease in yours. Why do you think they did that? You’ve seen the ads all over the place for “enhanced-double rewards” type cards. More and more consumers are getting them, and using them in your business. Interchange was 1.90% + $.10 in April 2006 and went up to 1.95% + $.10 in October 2008 and remains the same today. How have your rates been affected in the past four years in this category?
Visa CPS Key-Entered: Now this doesn’t typically represent a bunch of transactions for most brick and mortar type businesses but still warrants attention. April 2006 showed an Interchange Rate of 1.85% + $.10 but, in April 2009, it was reduced (that’s right, I said reduced) to 1.80% + $.10 and remains the same. These will be classified Mid-Qualified or Tier Three by most processors. How much did your provider reduce your rates on these types trnsactions?
MC Merit III: Here again, this is a generic MC swiped thru your POS system. It was 1.64% + $.10 in April 2006 but, in either April or October of 2007, they came all the way down to 1.58% + $.10 which is where it remains today. These are Qualified or Tier Two transactions. I believe the substantial drop was to come more in line with where the Visa rates were. I'll bet your rates weren't reduced, were they?
MC Key-Entered: April 2006 showed 1.95% + $.10 and also in October 2006, it dropped .06% to 1.89% + $.10 where it remains today. Here again, these will be Mid-Qual or Tier Three, typically. And of course, your processor reduced your rates....didn't they?
I know this may seem to be a lot of rambling but the point I want to make
is this. As you can see from these basic illustrations, there hasn’t been much in the way of overall increases over the past four years. Have your rates remained the same or have you experienced increases (like the merchant that contacted me), or “reclassifications”? Do you even know? Unfortunately, many merchants rarely look at their statements in great detail much less compare them to previous months or years to look for changes. You should definitely look at your statements each month and…COMPARE!
Let me ask you this now. In October 2007 when MasterCard lowered their rates on some of their cards, did your processor lower your rates? Nah, that never (or should I say, rarely) happens. If you’re priced on any kind of tier system, you likely didn’t see any kind of reduction in your rates. However, if you were on Cost-Plus pricing, which is the most transparent form of pricing, the reduction would have automatically been applied.
At MY WEBSITE, you’ll find unbiased SOLUTIONS to all your credit card processing questions and concerns. This blog, also provides timely and relative tips on an on-going basis that you will find helpful. As always, thanks for reading and please pass this article on to other business owners in your circle of influence.
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Wednesday, May 26, 2010
Wednesday, May 12, 2010
5 Tips for saving on your credit card processing rates
There never seems to be a shortage of merchant services, or credit card processing, reps that are coming thru your door promising to save you some money. It's quite easy for the skilled ( and shall we say, less than ethical) credit card rep to manipulate the numbers and present, what appears to be, a "better deal". So, what can you do to know for sure how to really save money on your fees?
There's a lot that goes into the pricing of a merchant services agreement. Your rates typically depend on the kind of business you have, your average monthly volume, average ticket and how you transact business. What I want to present to you here is 5 Tips that you can do right now, maybe without even considering changing processors, to save on your bottom line. So, without further rambling, here's some ideas for you:
1. GET EDUCATED: Now, I'm not insinuating that you aren't an educated person by any stretch of the imagination. You wouldn't likely have tackled the monumental task of being in business for yourself if you weren't intelligent. But, let's face it, there are so many aspects of running a business, that you can't possibly be an expert in all areas. Credit card processing is one of those cost centers that are necessary if you want to appeal to the masses with your goods and services. In my years of experience in the field, I've seen relatively few merchants that truly understand how this industry works. So, simply, all I'm saying here is you need to dedicate some of your time to find out more so you will become more comfortable with what you are paying and why. The webites for both Visa and MasterCard offer a wealth of knowledge that would be very helpful in your educational process. In addition, you could just head on over to MY WEBSITE and see what you can pick up there. You'll find that it's NOT A SITE SOLICITING YOUR PROCESSING BUSINESS. The knowledge you gain from any of these sites will be time well spent.
2. ASK QUESTIONS: This is one of the simplest things that you can do for yourself. Take a look at your statement, thoroughly. and then, get on the phone with your rep (that is if you're able to even find him/her) and have them explain every single charge. I've seen merchants that are paying monthly for some sort of supplies program that they never use. They've been buying from the local office supplies store and have needlessly been paying these fees. Many processors now charge a monthly fee for sending you a paper statement when you could access them on-line for free. I know you've got a computer because, otherwise, you wouldn't be reading this article. If you're comfortable with downloading, or at least viewing them monthly, on the internet, opt out of the paper fee. You might also check your Discover and AMEX statements too as they both charge for a paper statement and with them too, you can eliminate that fee by getting them on-line.
3. GET A RATE REVIEW: If you were fortunate enough to get in touch with your rep and get their "spin" on all the charges on your statement, you still want to check them out. Keep in mind that most reps are paid monthly residuals based on all the profits generated from your account. If you're paying a statement fee, annual fee, membership fee or any other miscellaneous fees, they may tell you something like "everybody charges those"....don't buy it. They're earning a couple bucks on them monthly and will likely be reluctant to have them removed. So, call the companies Customer Care center and tell them you want a full Rate Review. While you have them on the phone, verify all that the rep told you and make sure you keep good notes for your conversation.
4. SHOP YOUR RATES: Look, there's no shortage of credit card processing reps out there. Heck, you're probably getting several stopping in or calling you weekly. Take one or two of them up on their offer to give you a quote, especially if you've been with the same provider for some time. BUT, only do this after you have taken the time to more thoroughly educate yourself so you will be better able to determine a real offer and a less than realistic offer.
5. CAPTURE MORE PINNED BASED DEBITS: This can add up to immediate savings for you, if you already have a pin pad. Most merchants, and their employees, when presented with plastic to pay for a purchase, ask "credit or debit?". The majority of customers, when given the choice, will simply chose credit because it's less hassle to sign than it is to remember and key in that massive four digit pin number that takes all but a nano second to do. But to you, the merchant, the cost difference can add up quickly. A $50 sale rung up as a credit card will typically cost you, let's say $1.10. That same card, run as a swiped debit card would run about $.67 (that is if you're set up properly to capitalize on this structure). And, last, but not least, that same transaction run as a pinned debit card, could cost you in the neighborhood of $.50 or so. If you have a pin pad, do this: look at the customers card when they hand it to you. If it is a debit card, it will say "debit", "check card" or "money card" on it. Once you are sure that it is a debit card, say to the customer, "I'm going to need you to enter your pin number here in a second", pause briefly (for any objections) and then process accordingly. Many of my merchants have even gone to the extent of telling their customers, when and if they raise objections, of the cost differences and then, the customers are happy to oblige.
Well, that's it for now. I hope that these tips will be of some help to you. As always, I thank you for taking the time to read and wish you great business success in 2010 and beyond.
There's a lot that goes into the pricing of a merchant services agreement. Your rates typically depend on the kind of business you have, your average monthly volume, average ticket and how you transact business. What I want to present to you here is 5 Tips that you can do right now, maybe without even considering changing processors, to save on your bottom line. So, without further rambling, here's some ideas for you:
1. GET EDUCATED: Now, I'm not insinuating that you aren't an educated person by any stretch of the imagination. You wouldn't likely have tackled the monumental task of being in business for yourself if you weren't intelligent. But, let's face it, there are so many aspects of running a business, that you can't possibly be an expert in all areas. Credit card processing is one of those cost centers that are necessary if you want to appeal to the masses with your goods and services. In my years of experience in the field, I've seen relatively few merchants that truly understand how this industry works. So, simply, all I'm saying here is you need to dedicate some of your time to find out more so you will become more comfortable with what you are paying and why. The webites for both Visa and MasterCard offer a wealth of knowledge that would be very helpful in your educational process. In addition, you could just head on over to MY WEBSITE and see what you can pick up there. You'll find that it's NOT A SITE SOLICITING YOUR PROCESSING BUSINESS. The knowledge you gain from any of these sites will be time well spent.
2. ASK QUESTIONS: This is one of the simplest things that you can do for yourself. Take a look at your statement, thoroughly. and then, get on the phone with your rep (that is if you're able to even find him/her) and have them explain every single charge. I've seen merchants that are paying monthly for some sort of supplies program that they never use. They've been buying from the local office supplies store and have needlessly been paying these fees. Many processors now charge a monthly fee for sending you a paper statement when you could access them on-line for free. I know you've got a computer because, otherwise, you wouldn't be reading this article. If you're comfortable with downloading, or at least viewing them monthly, on the internet, opt out of the paper fee. You might also check your Discover and AMEX statements too as they both charge for a paper statement and with them too, you can eliminate that fee by getting them on-line.
3. GET A RATE REVIEW: If you were fortunate enough to get in touch with your rep and get their "spin" on all the charges on your statement, you still want to check them out. Keep in mind that most reps are paid monthly residuals based on all the profits generated from your account. If you're paying a statement fee, annual fee, membership fee or any other miscellaneous fees, they may tell you something like "everybody charges those"....don't buy it. They're earning a couple bucks on them monthly and will likely be reluctant to have them removed. So, call the companies Customer Care center and tell them you want a full Rate Review. While you have them on the phone, verify all that the rep told you and make sure you keep good notes for your conversation.
4. SHOP YOUR RATES: Look, there's no shortage of credit card processing reps out there. Heck, you're probably getting several stopping in or calling you weekly. Take one or two of them up on their offer to give you a quote, especially if you've been with the same provider for some time. BUT, only do this after you have taken the time to more thoroughly educate yourself so you will be better able to determine a real offer and a less than realistic offer.
5. CAPTURE MORE PINNED BASED DEBITS: This can add up to immediate savings for you, if you already have a pin pad. Most merchants, and their employees, when presented with plastic to pay for a purchase, ask "credit or debit?". The majority of customers, when given the choice, will simply chose credit because it's less hassle to sign than it is to remember and key in that massive four digit pin number that takes all but a nano second to do. But to you, the merchant, the cost difference can add up quickly. A $50 sale rung up as a credit card will typically cost you, let's say $1.10. That same card, run as a swiped debit card would run about $.67 (that is if you're set up properly to capitalize on this structure). And, last, but not least, that same transaction run as a pinned debit card, could cost you in the neighborhood of $.50 or so. If you have a pin pad, do this: look at the customers card when they hand it to you. If it is a debit card, it will say "debit", "check card" or "money card" on it. Once you are sure that it is a debit card, say to the customer, "I'm going to need you to enter your pin number here in a second", pause briefly (for any objections) and then process accordingly. Many of my merchants have even gone to the extent of telling their customers, when and if they raise objections, of the cost differences and then, the customers are happy to oblige.
Well, that's it for now. I hope that these tips will be of some help to you. As always, I thank you for taking the time to read and wish you great business success in 2010 and beyond.
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