Accurately Decipher Your Credit Card Processing Statement

INC. MAGAZINE PUBLISHES STEPS MERCHANTS CAN TAKE TO MORE ACCURATELY DECIPHER THEIR MONTHLY PROCESSING STATEMENTS

Inc. Magazine, a publication targeted for entrepreneurs and small business professionals, recently published an article entitled Cracking the Code, which provides merchants with some pointers on how they can more effectively decipher their monthly processing statements. An excerpt of the article follows below.

Credit card processing bills are a jumble. Here's how to read yours. No one likes a bill, especially one filled with cryptic codes and indecipherable jargon. That's a pretty good description of a statement from a credit card processor. Such firms authorize credit and move funds through the banking system so that you get paid. For these services, you pay the processor a fee, known as the discount rate. Many processors tout low discount rates to lure new customers. Problem is, your bill can be so complicated that it's nearly impossible to figure out if you're paying that low rate--or a lot more, thanks to a host of surcharges and fees. You need to take the time to get educated.

While bills differ from processor to processor, here are some common fees you might see on yours.

1. That low rate? It is really low? Many monthly statements show your daily tally of credit card sales and the fees charged to process them. By way of example, this line might show that you paid your processor $6.86 to process $385.42 worth of MasterCard. That's 1.78% which is the discount rate you likely "think"you are paying. The processor uses those funds to pay the interchange rate, a fee that goes directly to the card issuing bank, and keeps the difference for themselves. But not all credit card transactions are created equal; rewards cards and online transactions, for example, often come with higher interchange fees--and higher processing fees. There's a good chance your processor hasn't told you this.

2. Beware of "billback" fees or "surcharges" noted elsewhere on your statement. Look under the "Financial Detail" or "Financial Advice" headings on your statement or possibly "miscellaneous fees". You may see an item labled as "BB159" for example. To cover higher interchange rates, some credit card processors use billbacks (in other words, the additional fees are "billed back" to you in the form of a surcharge). They'll charge a low discount rate on all of your transactions in a given month--in this case, 1.78 percent--then bill back surcharges on certain transactions. Cards such as Rewards cards cost more to process (and carry a higher interchange fee). The processor is passing on the additional cost of handling those transactions, and in many cases tacks on something additional for themselves. Unfortunately, you can't see the actual rate you're paying because many processors don't provide the total dollar amount of these transactions, thus making it impossible for you to do the math. Do you ever wonder why they do that??? Hmmm!!

3. Be sure to calculate the markup. It's not hard to estimate your actual rate. Take your average sales value (sometimes called "average ticket" on your statement) and multiply it by the number of transactions for a given billback. Divide the surcharge by that amount and you'll find out how much (or at least close to) what you are actually paying on those transactions. As was mentioned earlier, processors can freely add on any "additional fees" they think appropriate over and above the actual interchange rate. Again, one of the reasons so many statements are "encrypted" in this fashion is it gives enhanced ability to "hide" actual fees. There's nothing wrong with making a profit, of course as long as it's reasonable for the risk and services provided. But you have a right to know the rate you're being charged, nonetheless.

Take the time to sit down with your statement and examine it closely. If there are things that simply aren't outright clear and understandable, get some answers. Contact your processor's customer service department and dig into all your charges. You should be able to negotiate a better deal for yourself. Or, you could entertain accepting competitive bids from other providers. But, before doing either of the above, you need to become more thoroughly educated in this area of your business so you know the right questions to ask.

What does it all mean? Because Visa's and MasterCard's interchange fees are so complex, processors sometimes categorize transactions as qualified, mid-qualified, and nonqualified. One rate covers all the transactions that fall into a category. Suppose we're looking at the statement of a restaurant. When a customer pays with a generic Visa card, Visa charges an interchange fee of about 1.63 percent. The processor considers that a qualified transaction and charges a discount rate of 1.74 percent. If someone uses a Visa rewards card, however, the interchange jumps to nearly 2 percent (if it's a Rewards 2 or 1.64% if it's a Rewards 1) . The processor labels it as mid-qualified and charges 2.85 percent. Every processor sets its own tiered pricing, so one type of credit card transaction may be considered mid-qualified by one and qualified by another. It's up to you to find out how your processor defines things.

5. Interchange fees on Visa and MasterCard debit transactions are lower than they are for credit cards. The processors, though, aren't required to pass these savings on to you. The restaurateur in the above example, is paying at least 1.74 percent on each transaction, including debit cards. But Visa and MasterCard charge about 1.30 percent on typical restaurant debit purchases. Make sure your processor gives you a break on debit possibly by using a 4 Tier Pricing system.

6. Watch out for "skimming". Some processors take a percentage of their fees when they reconcile your account at the end of each business day (this is called "daily discounting"). As a result the figure called "total card fees" on your monthly statement is not a total at all (just another way of misleading merchants and disguising true fees). To estimate your true costs, look for a line on your bill that reads "less discount paid." It may be buried near the bottom and not be as obvious. That's how much your processor skimmed off your sales throughout the month. Add it to your "total card fees" to determine how high your fees actually are.

7. Hidden fee No. 1 - AVS AVS stands for address verification service. When you take a credit card order over the phone or online, that transaction qualifies for a better interchange rate if you key in your customer's address. That's because Visa and MasterCard consider AVS a way to combat fraud. Your processor may--or may not--pass these savings on to you. In fact, it might tack on an additional AVS fee to process these transactions. Not all processors do, so be sure to ask.

8. Hidden fee No. 2 - Per-transaction fees. Many processor charge some "per item" fee for every sale, refund and authorization. Per-transaction fees typically range from 10 to 15 cents but can go higher. For companies with only a few, high-value transactions a month, this fee doesn't matter much. But if you have lots of smaller purchases, it can add up.

9. Find your "real net effective rate". The easiest way to determine what you're actually paying your processor is to divide your total fees by your total montly credit card sales.

If you still find that you are having difficulty with all this, please post your comments here or visit our website at: CCPK 101.

Visa Announces No Signature Required Program

VISA SPRING RELEASE: NEW VISA MCC CODES ELIGIBLE FOR NO SIGNATURE REQUIRED PROGRAM

Visa has just announced that they are adding eight existing Merchant Classification Codes (MCCs) to be eligible for the No Signature Required (NSR) program. Additionally, Visa will allow two CPS programs to be eligible for the program. These changes are effective this April and the following eight additional MCCs will be added to the No Signature Required program:

5251 = Hardware stores
5331 = Variety stores
5411 = Grocery stores and supermarkets
5441 = Candy, nut and confection stores
5451 = Dairy products stores
5462 = Bakeries
5942 = Book stores
5947 = Gift, card, novelty and souvenir shops

In addition, the following Custom Payment Systems (CPS) Retail fee programs will be added to the list of CPS fee programs that support the NSR program:

CPS/Supermarket Debit
CPS/Supermarket Credit

This No Signature Required program is meant for transactions under $25. The primary purpose is to help speed up the check-out time and still provide total protection for the merchant.

To further enhance your knowledge of the credit card processing industry, click on over to our website at:

www.creditcardprocessingknowledge.com

MasterCard announces new standards for POS receipts

MASTERCARD ANNOUNCES REVISED STANDARDS FOR POS TERMINAL/ATM RECEIPT REQUIREMENTS

MasterCard has announced that the standards for POS terminal and ATM terminal receipts will become effective on October 1, 2008. Following are the revised requirements:

Cardholder receipts generated by an electronic point-of-sale (POS) terminal (attended or unattended) or by an ATM must:

Include only the last four digits of the primary account number (PAN), replacing all preceding digits with fill characters that are neither blank spaces nor numeric characters, such as “x”, or “*”, or “#”, and exclude the card expiration date.

Check the receipts that you are currently printing out. What kind of numbers do you see? If it appears as though that both the customer and your copy, are not compliant with the mandate coming in October, you need to get it fixed. In most cases, all that will need to be done is to have your current terminal reprogrammed. Contact your processor's help desk for assistance.

Merchant receipts must exclude the card expiration date. Additionally, MasterCard strongly recommends that merchant receipts reflect only the last four digits of the PAN.

Credit card fraud and mishandling of card-holder information is increasingly becoming a major problem. You, as a merchant, want to take all the steps you possibly can to protect both you and your customers.

If, in the event, you need to recall a specific transaction, to issue a refund, let's say, you will be able to retrieve the necessary information from your processor's customer service desk. Simply provide them with the transaction number from the receipt.

Continue to increase your understanding of how the credit card processing industry works and begin saving more money on these necessary services. Visit us at:

www.creditcardprocessingknowledge.com

3 Tier Pricing for Credit Card Processing

It wasn't that long ago (3-4 years or so) that when you set up a merchant account for credit card processing, you would get 3 Tier Pricing. In fact, many of you that accept credit cards in your business may still be set up this way. So what is it and how does it work? Let's take a look.

Typically, with 3 Tier pricing, you will have three different categories of card transaction types. Let's take a look at how they work.

First will be "Qualified". This will be for either a credit or debit card that is swiped thru your credit card terminal or POS system or for what is more commonly called a "card present" transaction. This will always be your best rate on 3 Tier Pricing. The rate could be either bundled (quoted simply as a rate like 2.52%) or unbundled which is a rate plus a transaction fee(quoted like 1.79% + $.25). Depending on your type of business and the averags size transaction that you process, will dictate whether bundled or unbundled is best for you.

Your second tier would be classified as "Mid-Qualified". Now, each processor can determine, on their own, which types of transactions fall into this category (or "bucket" as some refer to it). This could be for "card not present" (or hand-keyed), Rewards, business, Travel & Entertainment cards, etc. These transactions will show up on your statement as a "surcharge" or "interchange fees" in addition to the Qualified Rate you already paid on these sales. The tricky part is that most processors statements will only list the fees you paid without telling what the additional percentage was. Have any ideas why they do it that way? The bottom line is that these types of transactions do cost more to process but, quite honestly, this is where many processors, because of the vaguery that exists, are able to make the bulk of their fees off of you. All processors will add some uptick in the base Qualified Rate on these transactions of say .75% but many I've seen will add over 2.00% and most merchant won't ever catch it. Consequently, you could be paying in the 3-4% range on those line items.

The third category in described as "Unqualified". Simply this is just another category that different card or transaction types are lumped into. Most often, these will be corporate type cards but many processors could also throw in some of the Rewards Cards in this category (which by the way, we are seeing tons more of those in the marketplace these days, for obvious reasons). Again, these transactions will fall under "surcharges" or "interchange" on your statement and will be another area where you could potentially be overcharged based on what costs really are.

All this may sound confusing to you, the merchant, but it doesn't have to be. As with anything in life, if you simply take the time to become educated in the particular field of interest, you will position yourself to make more informed decisions.

You will find a very helpful tool at my website that will give you a more thorough education, in about an hour or so, than the majority of reps trying to sell to you have. You owe it to yourself and your bottom-line to check it out. Here it is:

www.creditcardprocessingknowledge.com

Who is making all the money on credit card processing fees?

There seems to be a great misconception regarding who is making all the money off of merchants that accept credit cards for payment. The last numbers I recall seeing were from 2006 (2007 numbers aren't quite available yet). During 2006, there were over 7 million merchants in the U.S. alone accepting credit cards. Collectively, they paid over $30 billion in fees for this "privilege".Well, here's how it works, in a nutshell. First, it's important to understand that it's not the credit card processors that are making the lions share. The card issuing banks (in other words, the bank that you received your credit card from, i.e. Chase, B of A etc) earn 80% or more of the fees that merchants are being charged.Banks co-issue debit and credit cards with Visa or MasterCard brands on them. This is what makes the cards acceptable anyplace you see a Visa or MasterCard logo. Visa and MasterCard are essentially membership associations owned by the issuing banks, and collectively own about 70% of the market (the balance woud be Discover and Amex as an example). Every time a customeer makes a purchase in your business using a Visa or MasterCard, you get charged a "Discount Rate" and many times a "per item" fee. For example, let’s assume that a business is paying an net effective rate (you need to know what yours is) of 3.0% to accept credit cards. Roughly 80% of that 3.0% is going to the issuing bank. The rest of the 20% is divided among Visa or MasterCard, the credit card processor, and if there is one, the Independent Sales Organization (ISO). As you can see, the "processor" is making very small amounts typically but is doing so on millions of transactions annually.You may ask, "aren't the issuing banks making enough off of card users with the ridiculously high interest rates they charge for cards"? Well, in a word, NO, at least not in their minds anyway. If you're like the majority of the population in the US, your credit card usage has likely grown over the years for a number of reasons. Maybe it's because you get 15 to 45 days to pay for your purchases (sorta like a short-term interest free loan and you get instant gratification). Maybe it's because you get some sort of reward or other perks, or the fraud protection that you receive. Or possibly it's just because you get a monthly accounting of all purchases. Or like many I speak with it's simply because plastic is more convenient than cash or check.All of these that you have justified in your mind, cost banks money. They have costs associated with fraud, bad debt, customer support, rewards and other perks, and float (they pay for your purchases before you pay them). So, they justify the charges (referred to as interchange, to help offset their costs and risks.Now let's take a look at some numbers to give you a better handle on this. Let's say you're a retailer and your average ticket is $50. I come in to your business, make my selection of goods and come to the register. I whip out my Visa card (at this point you don't know if it is a plain vanilla type Visa or one with some sort of perk attached to it). Anyway, you swipe the card thru your POS terminal and the transaction is processed. Your "Qualified Rate" is 1.79% + $.25 so your cost on that transaction is $1.15 in fees (interchange, that goes to the issuing bank is 1.54% + $.10 or $.87 and the Visa "assessment" that goes directly to Visa is .0925% or $.046...let's call it five cents). So, as you can see in this example, the processing company only made $.23 (which by the way, this number is very high).What if that card I gave you was actually my Visa branded debit card instead of a credit card? Well, again, in the above example, if your "Qualified Rate" is 1.79% + $.25, you paid $1.15 in fees. Currently, Visa Interchange on a swiped debit card is 1.03% + $.15 + .0925% assessment. So, the actual "cost" is $.71 and now the processor is making $.44 off of you. Has any of this ever been thoroughly explained to you? Not likely!Let's take it another step further now. Let's assume for a minute that the card I gave you is my brand new Visa Rewards card. To you, at the point of sale, you won't likely know the difference and it doesn't matter anyway. Since you have the Visa logo in the window, you have to accept ALL Visa cards. Now when you swipe it, your terminal automatically reads the magstripe on the back and identifies it as a Rewards Card and routes it accordingly. You won't be getting that "Qualified" rate on that transaction though since the interchange rate is higher on those types of cards. It will show up on your statement under "miscellaneous fees" or something vaguely described. You know, that section of your statement that you can never really seem to get a handle on. Don't you just hate trying to decipher it all?The particular rate that is charged on any given transaction depends on a number of variables, including: 1) the type of card being used, i.e. debit, credit, rewards, business, international, etc. 2) the type of establishment where the card is used, i.e. restaurant, retail, gas station, B2B, internet, etc. 3) How the card is used, i.e. swiped thru a terminal or POS system, over the phone or on a website 4) Also, what kind of information did you capture like name, address, tax ID, item description etc.5) Did you settle the transactions within the prescribed time frame from when it was authorized? If not, the transactions will be downgraded (in other words, you will be charged more).Unfortunately, the credit card processing or merchant services business is plagued with many unscrupulous players. Vaguery and misrepresentations seem to be way to get business. Many merchants are misled into believing they're paying the "low rate" they were originally sold on. Digging deeper into actual statements and transactions most often reveals a much different picture. But hey, most of the guys on the street, know that merchants don't really understand this stuff so it's how they make the most money off of them by not telling them everything.Let's face it, when was the last time you sat down with one of your monthly processing statements and was totally able to decipher it and understand all of your charges? Has your rep or provider been helpful and willing to explain it all to you? They use these unreadable and difficult to understand formats by design. It's what enables them to make the most money off of you constantly eating into your hard earned profits.Over the past several years, Visa and MasterCard have increased "interchange fees" over 117%. And, it doesn't show any signs of slowing down any time soon due to dramatically increasing credit card fraud. So what's a businessperson to do? If you sell any kind of goods or services, you pretty much have to accept plastic or you're losing business.The only thing you can do is to arm yourself with proper knowledge to at least put yourself in a better position. That is precisely what is offered to you at my website. You see, I'm a very well seasoned professional in the merchant services business. I am semi-retired with quite a comfortable ongoing residual income because of my constantly growing client-base. I don't "need" your business (although I wouldn't turn down the opportunity to educate you) so this blog is not about soliciting you. I would highly recommend you go to my website shown here and check out what I can offer you. I promise you, it will be time well spent. Thanks for coming by.

www.creditcardprocessingknowledge.com

Understanding Credit Card Processing Fees and Charges

Discover How to Finally understand Credit Card Processing

Fees and charges

Imagine being able to keep more of your hard-earned money and

pay less for the "privilege" of accepting plastic

In 2005, industry trade journals indicated for the first time ever "payment for goods and services with credit cards, has exceeded that of checks and cash" (Green Sheet). As a result, more of your bottom line is going out in fees to a Merchant Services Provider. It’s more crucial than ever to get a more thorough understanding of how your rates and fees are calculated. It’s likely that your current rep hasn’t, or won’t, enlighten you.

Credit card processing bills tend to be filled with cryptic codes and indecipherable information. It’s like trying to figure out logarithmic formulas, in many cases. Take a look at your current bill, for example. Are there charges that you don’t understand or feel are excessive?

Here’s an exercise for you. Take your total fees paid for the month and divide it by your total processing volume. Make sure you get "total" fees charged before doing this exercise. Some processors take some of their fees off each daily batch (referred to as Daily Discounting). Look for a line that says, "less discount paid" and add that to your month end fees. This will give your true Net Effective Rate. Is that number anywhere near what you were originally quoted as your "Discount Rate"?

Your Discount Rate (the rate they always lure you in with) is typically your Qualified or Tier 1 Rate. This will only be for your generic type Visa or MC credit or debit cards, swiped through a terminal. Most processors promote low discount rates but what they don’t tell you about is the host of surcharges and other miscellaneous fees. You could have Mid-Qualified, Non-Qualified, Tier 3 or Tier 4 rates. Do you have bundled or un-bundled rates? What about service, monthly statement, batch or annual fees? Have those been willingly explained to you? Keep in mind, every processor sets its own tiered pricing. One type of credit card transaction may be considered Mid-Qualified by one processor and Qualified by another. It’s extremely important to become better educated.

After many years in this industry, I am blessed with an extremely high customer retention rate. When you take time to educate and build relationships with your merchants, trust is earned. I’ve helped merchants save thousands in processing costs over the years. But, I can only touch and assist so many in my local market. So, in an effort to help thousands more, nationwide, I’ve developed an informative website and subsequent eBook on the topic of credit card processing. Take the time to come on by for a very profitable visit. You’ll find us at

http://www.creditcardprocessingknowledge.com/