The Most Important Things to Consider about Your Credit Card Processing Agreement

In my years in the field, consulting with merchants regarding their credit card processing, it never ceases to amaze me how little they actually know about the process or the agreement. But hey, it's not your fault because most often you don't know all the questions to ask and the reps typically don't just volunteer all the details....for obvious reasons. So, what I hope to do here, with this article, is to give you some insight and, more specifically, the questions you need to ask, whether you're an existing merchant or a new one in search of merchant services. So, here's some ideas for you to strongly consider because it's imperative that you become informed:

• What is the term of my agreement? Typically, you will find them to be for three years with an "early termination fee" for pulling out early. You absolutely need to know what penalties there may be for your future reference. The reason is that you will always be prospected by reps in the industry, all the time, And, they have a way of making things "look" better than what they are actually are in reality. So, armed with the information that you have here, and possibly elsewhere, you'll be better able to apply the math to see if the "new deal" will ultimately be a cost savings. For example, let's say that your new proposal shows an anticipated savings of $25 a month based on your average volume and average ticket. Well, that would be a $300 savings over a twelve month period. So, with that in mind, and if let's say you would have a $195 early termination fee to leave your current provider, it would take you just under eight months to start getting into the green with the new guys. If, on the other hand, your early term fee is $295, it would take almost a year to get there. Simply, know your costs versus potential rewards, do the math and make an informed decision.
• What rate am I paying for pinned debit transactions? Now, if you're using a PinPad, and your average transactions are under $50, you could potentially rack up some savings here by capturing more pinned debit sales. As you may, or may not know, pinned debits will cost you less than swiping them as a credit card. For example, let's say you make a $50 sale and your customer hands you a debit card that goes thru the NYCE network. Effective with the April 2010 Debit Network Fee schedule, a pinned debit on that $50 sale would have a "cost basis" of about $.55 (plus whatever transaction fee your processor charges you). That same transactions swiped, as a credit card would have a "cost basis" of about $.68 (and you know your processor is charging something more significant than that. So, here again, ask the question so, based on your pricing structure (whether i be 3 Tier, 4 Tier or Cost-Plus pricing), you absolutely know what you are being charged and you can train your staff accordingly for maximum savings.
• What rate am I paying for swiped, generic credit cards? You see, if you are on a Cost Plus pricing program (which by the way is the most transparent form of pricing) you will absolutely know what you are paying for all different types of transaction and card types simply by know what your "plus" is and have access to the Interchange Rates. The problem comes when you are priced on any form of Tiered pricing because, literally, the processor can make their own decision into which "bucket" they want to put your transactions. And, you can bet, it will typically benefit them....and not you!
• What rate am I paying for Rewards Cards? Now this, especially these days, can be a big one. Again, if you're on Cost-Plus pricing...no big deal once you know what your "plus" figure is. The reason is that you will simply get the exact Interchange Rate for the card or transaction type, plus the "plus", every single time. Once again, the problem comes when you're on a tiered structure. Come right out and ask your rep, and have them show you in writing, what you are paying for these Rewards Cards. Let's face it, more people have, and are using, some form of credit card that pays them some sort of "reward" whenever they use that card. And, guess who pays more to accept that card and indirectly, help pay the reward back to the customer......that's right....you, the merchant. And hey, look at your own spending using plastic these days. If you had the option to use your plain ole generic card, or one that pays you a reward, which one would you use? The problem with a tiered structure is that the processor can place those transactions in any "bucket" (Tier 2, Tier 3, or Tier 4) they wish and, furthermore, can change which buckets they go in at any point in time, as they desire. Here's where the next point comes into play.
• Check your statements monthly, in detail. There are numerous times when I consult with a merchant that they hand me their most recent statements, still sealed in the original envelope. They have given up trying to decipher them because they feel there are more important things to tend to. Let me tell you, that if you simply spend some time with them and have your rep or Customer Service, explain every line item in detail to you, they're not that difficult to understand. And, after all, who has a more motivating reason to comprehend them than you, the owner? In addition to looking at your statements every month, you want to compare them to previous months to look for any changes, either in rates or fees in general. If you find any, make the call and have the changes explained to your full satisfaction. Another thing to look at is the "Statement Message" or something to that effect that is usually found on the first page of your statement. Here is where reputable processors will alert you of changes that are coming up. And, some even give you helpful tips on improving your costs.
• When was the last time you asked for a rate review? Most merchants never even think of doing this. All it takes is a phone call to your rep or Customer Service and say something like this: "I've been with you for a while and am doing consistent business, and I'd like to have my account reviewed for any rate reductions that I may be entitled to". This is an especially good step to take after you have received a competing quote that "looks" better than what you currently have. Don't give your current provider the rates you've been offered but simply tell them that you're entertaining an offer and wanted to give them the opportunity to be "more competitive" in order to keep your business. Hey, it's worth the call, don't you think?
• Here's some other ideas you want to ask about: You will likely find numerous other fees on your statement, some of which are justified and worthwhile and some others that are simply profit generators for the processor. Here again, look for and ask for justification of these kinds of fees: debit access fees, monthly minimum fees, statement or service fees, gateway fees, "merchant advantage" or something similar to this (usually for terminal replacement or paper fees), PCI/DSS fees (if you see these, ask if they are monthly, annually or a combination of both and ask what benefit you get from them), and simply, any other fees that you don't understand what they are for.

Well, I guess that's what I would consider to be the most important things to understand about your merchant services, or credit card processing agreement. This is your business and it's your money that is being spent on this service so it is absolutely imperative that you know all there is to know about this cost center in your business. I would encourage you to be come more thoroughly educated regarding credit card processing because the people that are selling you this service, usually don't want you to know all there is to know....for obvious reasons. Blessings to you and yours!