Lower volume than last year but increased costs...why?

What's going on with my processing costs?

I had a merchant call me a couple days ago and asked the above question. Last year, in September, they had a total volume of $28,049. Of that, $12,108 (43% of total volume) fell into their Mid-Qualified category. These types of transactions are typically for card-not-present transactions or, in more cases than not, they are Rewards type cards. In September of this year, his volume had decreased to $26,863 but his Mid-Qualified volume was $17,382 which represented 65% of his total volume. In that same timeframe, there have been a couple Interchange increases which reflected a .23% increase in his Mid-Qualified rates. So, let's take a look at this.

Take a look in your wallet. Do you own any credit cards that pay you some sort of reward? It could be for airline miles or cash back or bonus points towards catalog purchases. If you don't currently own one, it's likely you receive at least one offer weekly to apply for one of these cards. The issuing of credit cards is a very competitive environment and banks are constantly looking for new ways to entice you to make the switch. Now, let's say you were to go into my merchants retail cloting store and spend $100 (which is about his average ticket) and you found something that you liked and stepped up to the cash register. You have a generic Visa or MasterCard in your wallet and you have a Rewards type card....which one will you use? I would say, that in the majority of cases, as is happening nationwide, customers would chose the Rewards card.

So, why is it, besides the increase in my merchants rates in the past year, has he seen his costs increase on less volume? There's no way to know for sure, but, I told him it was likely because he had seen this increase in the types of cards he was gettng. And, every processor pays more (in Interchange fees) to process those types of cards so it gets passed on to the merchant. Ultimately, in a roundabout way, you, the merchant, are helping the card issuing bank to pay some of that reward back to the cardholder. Yep, that's right, you're paying the customer to shop in your store or dine in your restaurant when they pay using a Rewards card. Nice system huh?

Now, the other possibility of his increased costs could be to not batching out in a timely manner. After talking with him this is not the case but for those of you out there that don't know how this could manifest, let me explain. You see, V/MC rules state that you must batch within a timely manner. The general rule of thumb is that you must batch within 24 hours of the authorization or the transaction will be downgraded (in other words, it automatically gets bumped up to the next level). If not batched out within 48 hours, they can get downgraded even further. So, a word to the wise....even if you only have a single transaction in your terminal, BATCH IT OUT.

Leasing VS Purchasing POS equipment

Over the years, I have been amazed at how many merchants were leasing their POS equipment. I know, for a fact, that there are many merchant level salespersons (MLS's) that are making their primary living selling leases for, let's say, only $39.95 (or more...I've seen many at $69.95....what a ripoff!!!) per month for a 36 month lease.

Let's do the math on this one. That would come out to nearly $1500 for the three years. Then, when the lease is up, you could buy it outright but that would typically cost you about 10% of what you paid in total lease payments. Or, in other words, in this example, an additional $150. So, you would have paid about $1650 for a machine that you probably could have purchased outright for $500 or less. Guess what, the rep that leased you that machine, he/she is getting the $1000 or so profit on the lease....up front. Don't need to do too many of those a month to make a nice living. Consequently, they're not really interested in you or in building a mutually rewarding long-term relationship with their merchants. They're in in just for themselves...for the quick buck.

Now, here's where it gets worse, in my mind. At the end of the lease do you think that the leasing company will contact you to let you know that your lease is up????? Not a chance! Read the fine print on your lease. At the end of the initial term, unless you call to cancel and let them know of your intentions regarding the machine, it automatically converts to a monthly rental at the same rate. And, it will go on and on and on..... I've run into merchants that were still paying monthly, two years after their three year lease was up. Simply because they "forgot" about the original term. OUCH!!!

Come on over to one of my websites for some "education". It won't cost you anything and, just maybe, it could end up saving you quite a bit. Here they are:

Credit Card Processing Education

Credit Card Processing Knowledge Ebook

EARLY TERMINATION FEES

Okay, so you've had someone come knocking from a different merchant services provider and it looks like they may have a better deal. Accepting credit cards for payment of goods and services in your business is crucial. But, with everything in life costing more these days, it's important to make certain you're paying fair rates.

So, the new credit card processing company has done their analysis of your current situation. They've given you a proposal and you're ready to sign on the dotted line and make the switch. Hold on their cowboy, you best give this a little more thought.

Typically, most processors contract terms are for three years. If you've been with your current provider for less than three years, you'll likely incur the dreaded, and usually unexpected early termination fee if you make the switch. Get out your original contract and check out the fine print for yourself. You'll find fees of $250 or more. That kind of cost could literally wipe out any potential savings you may receive from making the switch. So, what do you do? Here's some ideas.

First, you could consider contacting your current provider and let them know that you have an offer on the table that beats their rates. Oftentimes, they will match, or even beat, the rate (as long as it is a legitimate one...in writing) to keep you in their portfolio. If you absolutely have problems with the current provider and want to leave anyway, here's another suggestion.

Many times, processors will charge you a Monthly Minimum fee (normally $5-20). Typically, it never comes into play because your processing volume and subsequent fees are more than what the minimum is. So, let's look at some numbers here. Let's say that you've got a good deal on the table and you really want to make the switch. You check your existing contract and discover that you have an Early Termination Fee of $250. And, let's further assume that you have a year to go on your original contract. Make your switch but instead of calling and cancelling your prior contract, just keep paying the Monthly Minimum for the next twelve months. So for example, let's say it's $10 monthly, you end up only paying $120 instead of the $250. The one thing you want to keep in mind is to be sure and contact the previous processor near (not after) your original contract term expiration and cancel then. Otherwise, it will automatically renew for a year and you'll be paying the minimum for the next twelve months.

It's important to stay on top of what's going on with your credit card processing rates. We have seen several increases in interchange this year and some, if not all, have been passed on to you. If you don't fully comprehend your statements and all your rates and fees, get in touch with me and I'll help you to

GET EDUCATED