The Spring Surge....NEW CREDIT CARD PROCESSING REPS...YUK!!!

Well, spring is approaching and the flowers will be blooming and all the dormant life will be springing back to life…..aaannnddd, if you’re in business, you’re going to start seeing “new life” coming forth in the form of credit card processing reps. Yep, that’s right, especially here in the Midwest and eastern states when the weather warms, even slightly, we see a new hiring frenzy in the merchant services industry.


You see, this industry has the potential to make for a very lucrative career for the successful rep. However, not many people have a burning desire to be out knocking on doors in sub zero temps and slop and slush oozing into their shoes. So, come spring time, we see a lot of adds enticing sales reps to apply. Unfortunately, the way it goes is typically, those that do get hired, receive maybe a half day or so of training, usually done in some hotel conference room. Then the trainer (sales manager) sends them to the street with their “pitch” or "deal-du-jour". They’ll attempt to entice you with what sounds like the lowest rates you’ve ever heard of. If you show even the slightest bit of interest, since they are new, they are encouraged to get the manager on the phone. It’s the typical TO (Turn Over), to the more knowledgeable (maybe???) experienced guy. Their whole motivation is to get you to sign on the spot….DON’T DO IT! Even if what they offer does, on the surface, seem to be a better deal than you are currently paying, take your time to really dig into it before making any decisions.

Usually what happens is that you will see a noticeable increase in sales calls from merchant services reps whether it be thru your door or on the phone. The biggest majority of these “newbies” don’t make it much past a couple months, if that long. It’s a very tough and competitive business and most business owners get so fed up with it that they rarely give any of them the time of day. Consequently, after a while, the faint of heart, or those that have their feelings hurt easily, decide to give up and seek out some other form of employment. They just can’t take all the rejection. Then, the same company will hire and “train” (if you want to call it that) a new batch and send ‘em to the wolves (uh, that would be you...the merchant). I can pretty much guarantee that if you were to simply collect business cards from every one that calls on you, you’ll see numerous different reps from the same company calling on you.

So, what’s the purpose of this article anyway? Well, I guess it’s simply this. I’ve been in this business for a lot of years and, quite frankly, I’m still doing business with merchants that I originally signed up over ten years ago. Why? Because I have demonstrated to them that I am interested in the mutually rewarding long-term relationship, not simply “getting the deal”. That’s what you should be most interested in too. How close of a relationship do you have with your current rep/provider? Do you see them on a fairly regular basis? Have they been willing to answer any questions you have about any of your fees? Are they responsive to you and your needs? If you can answer “Yes” to those questions, then don’t bother looking elsewhere. Every provider out there has the exact same cost basis since all the Interchange Rates are set by Visa and Mastercard. The only difference from one to the other is how much they feel they can make off of you and there is, quite frankly, no controls in the industry….yet, that is. So, if you have a good individual that you are currently working with, make an appointment to sit down with them and go over all your numbers and hey, while you’re at it, ask for a rate reduction. It will be time well spent….I promise you

Another thing that I have always strived to do with my merchants is to work with them to control their costs for accepting plastic in any way we can. In addition, I have also shown them numerous ways to help increase their sales creatively by utilizing gift cards, capturing customer’s emails for future marketing and social media marketing as well, especially of late by using Mobile Text Marketing.

Look, the bottom line here is, spring has sprung and if you’re like most businesses across this great country of ours, you’ll soon be seeing increased traffic and business. Don’t let this seasonal surge in credit card reps distract you from your main focus. Take the time to get a review from your current provider before it gets real busy or, seek me out if you feel that I may be of service to you. I wish you great success in 2011 and beyond. Don’t be afraid to think outside the box a bit going forward

Do You Understand Your Merchant Services Statement?

Each month, you receive your monthly credit card processing statement from business transacted during the previous month. Of course, when it comes in the mail, you’re anxious to open it up and see all the money you made, aren’t you? Yah right…if you open it at all, you simply cringe at all the charges that have been taken away from your sales. But hey, it is a privilege you know to accept credit cards and pay all those fees….aren’t you thrilled?

Okay, let’s be honest here for a minute. If you weren’t accepting plastic as payment for the goods and services that you sell, you would most certainly be missing out on potential business. So, with that said, let’s just accept the necessity of it all and move on to better understanding what you’re paying for. How does that sound to you?

When I was active in the field, I found that frequently while marketing my services, merchants would hand me their unopened statements with which to do an analysis for them. When presented with a sealed envelope I would always ask if this was an unusual situation or did they simply never look at them. Unfortunately, the latter answer seemed to be the one most often received. Believe me, I understand why this is so because all too often, these darn things are downright complicated.

All right, let me scold you that fall into this category just a bit here. You absolutely must start opening and, more importantly, understanding, these things immediately. So let me see if I can break them down a bit for you here to make the process a bit easier. Most of them are broken down into several categories as follows:

• IMPORTANT NOTICES OR STATEMENT NOTIFICATIONS

Typically, this will be on the first page and will be where your provider will alert you to any changes to your statement such as pricing information changes, industry news. To me, this is one of the most important sections to always READ THOROUGHLY. This is especially important in the months just prior to April and October each year. In each of these two months, Visa and MasterCard adjust interchange rates which have a direct impact on your pricing. So, always be sure to be alert and get answers to anything you see posted there.

• TRANSACTION SUMMARY

In this section, you will typically see a total breakdown by card type of the number of transactions and total dollar volume for each. This is a good place to do a quick analysis to see what your average ticket is on plastic. Simply take your total volume divided by the total number of transactions and there you have it.

• CARD FEE SUMMARY

Not all processors will use the same terminology but, in this section, especially if you are on a tiered pricing structure, you will see a breakdown of total volume/transactions for each tier type like Qualified, Mid-Qualified, Non-Qualified or 1st, 2nd, 3rd, 4th Tier pricing. You’ll see the rate and per item fees listed. If you’re in a Cost Plus pricing model, this section will be much longer, and more revealing as it lists each card and transaction type with appropriate fees.

• DAILY DEPOSIT DETAILS

This section could take up numerous pages and really doesn’t warrant a thorough analysis on your part. It is simply a display of your daily batches per terminal and the numbers you see here, should match up with deposits made to your bank within 48 hours of each batch. If you see any descrepancies, contact your provider.

• SUMMARY OF ALL FEES

This is the section that gives you a great analysis of what you’re REALLY PAYING for this privilege of accepting credit cards. Here you will find totals for Batch Fees, Debit Access Fees, Statement Fees, Merchant Advantage Fees, Equipment/Supplies Fees, PCI FEES, Monthly Service Fees…..FEES, FEES, FEES (some of which you may not even know what they are for so, ASK THE QUESTIONS). Regardless, take the “Total Fees for all Terminals” number and divide that by the total dollar volume that you did for the month and that will give your “Net Effective Rate”. So, for example, if total fees were $1,157.72 and total volume was $41,700.85, the Net Effective Rate is 2.78%. These, by the way, are actual numbers from a statement that a merchant recently handed me saying, “I doubt you can beat my rate….I’m at 1.51% plus $.25” which, of course, is what his provider focused on when originally selling him on the relationship. As you might imagine, after giving this merchant a thorough education on this industry and customizing a proper pricing strategy for him, you know who he is processing with now.

The bottom line here is that I really want to drive home to you is this….READ AND UNDERSTAND YOUR STATEMENT, MONTHLY. Actually, processors know that a majority of merchants simply don’t take the time to do so and quite frankly use this to their advantage and get more deeply into your pocket. Keep more for you and give less to them. Until next time, I wish you a prosperous 2011.

October 2010 Visa and MC Interchange Rate Changes

Well, it's that time of year again when Visa and MasterCard make adjustments to their Interchange Rates. Typically, these adjustments take place in the spring and the fall, usually in April and October. If you're unfamiliar with what Interchange Rates are, let me present what Visa identifies them as on their website:

"Visa uses interchange reimbursement fees as transfer fees between financial institutions to balance and grow the payment system for the benefit of all participants. Merchants do not pay interchange reimbursement fees; merchants pay "merchant discount" to their financial institution. This is an important distinction, because merchants buy a variety of processing services from financial institutions; all of these services may be included in their merchant discount rate, which is typically a percentage rate per transaction."

Now, as you can see, they also call them "interchange reimbursement fees". Let me break it down for you a bit more clearly. You, as the merchant, pay your credit card processing provider, the acquirer, a Discount rate. This Discount rate is what you see quoted on your statements in various ways which, in many cases leads to your ultimate confusion....by design. This rate was either negotiated by you with your provider or was more than likely provided as a comparison to what you may have had with a previous provider. The Discount rate that you pay represents a markup above what the Interchange Rate is which is where your processor (the acquirer) make their profit for providing the service to you. In turn, the acquirer pays the interchange reimbursement fees to the card issuing entity and those fees are utilized for the "benefit of all participants" as indicated above.

So, these fees are for numerous things like the cost to issuing banks of issuing cards, maintaining accounts, sending statements, monitoring transactions for authorization, collecting payments from card holders, etc, etc. These fees are also used for paying rewards to those card holders that have such cards. You, in turn, pay higher rates for accepting these cards and therefore, in a way, are paying your customers for shopping with you. With the huge and ever increasing numbers of these types of cards ("What's in your wallet? ") in existence these days, you better know what you're paying for the privilege of accepting them.

As of this writing, we know there will be adjustments and, in fact, your provider may have already notified you on your September statement of just how much they will be increasing your rates, effective with your October processing month. Neither Visa or MasterCard has posted the October rates yet, however. So, what I would recommend that you do, RIGHT NOW is to go the VISA SITE and the MASTERCARD SITE find, and download the April Interchange Rates. Then, in a couple weeks, go back to these sites or even sign up for their RSS feed so you will be notified, and get the October rates when they become available. Do the comparisons to see where the actual increases were, compare them to what you're paying and see where you stand. I'd say, you should then probably get with your rep (if you can locate them) or Customer Care and get a total rate review of your account.

If you've read any of my articles in the past, you know that I am a strong advocate of becoming more thoroughly educated on credit card processing. It is an ever-increasing cost center in your business and it's crucial that you are fully aware of what your costs are and if there is anything that can be done to reduce them.

Thanks for reading and if you have found this article to be helpful, please pass it along to others that you know could benefit from it. I wish you continued, prosperous endeavors in your business.

Net Effective Rate for Credit Card Processing Fees

When you look at your monthly credit card processing statement, (and I'm sure you do in great detail every month... don't you?), have you ever calculated the Net Effective Rate? Really, this is simply a tool to determine exactly what you are paying, in total, for ALL of your fees. This would include all of the following:

• Discount Rates
• Monthly Service Fees
• Statement Fees
• Batch Total Fees
• PCI/DSS Fees (Data Security)
• Debit Access Fees
• Amex Per Item Fees
• Administrative Fees
• Any other miscellaneous Fees

Here's what you should do to come up with a concrete number so you know exactly where you are. Look at your statement for something called "Total Fees Charged" or something similar. Now that you have that figure, locate the total amount of all credit card sales. As an example, a merchant recently sent me a statement showing $519.84 in Total Fees Charged. This was on volume of $19,062.63 for the month of May. Divide the total fees by the total volume and you come up with a Net Effective Rate of 2.72%.

This comes in real handy when you are getting rate comparisons from different companies. Of course, when someone is trying to lure you away from your current provider, they'll present you with their "best rate" which would typically be for a swiped debit card. Let's just say they tell you that is 1.15% + $.25. At a glance, that may sound pretty good compared to what you think you are currently paying.

So, here's what you absolutely must do. Have the merchant rep from the processing company that is trying to attract your business, give you a complete and thorough comparison of ALL fees as compared to one of your current processing statements. Then, do the math and come up with the Net Effective Rate to see how it stacks up with what you are currently paying. Unfortunately, in this industry, reps are very skilled at telling you just enough to make their proposal "look" like it is better than what it ultimately might really be. After all, the bottom line in all of this stuff is... YOUR BOTTOM LINE! Do the math so you don't take a bath.

Merchant Services and Early Termination Fees

Every merchant services or credit card processing agreement that I have ever seen, has a contract term. Typically you will find that they are three years in length. If you terminate early, for pretty much any reason, you will be assessed an "early termination fee". And, usually, this fee will be automatically deducted from the bank account that is on record with the with the credit card service provider.

Whenever you consider starting a relationship with a new credit card processing company, you will always want to make certain that you actually read the fine print of the agreement. The primary part of any new agreement that merchants agree to that they actually look at, tends to be the "Schedule of Fees". Even those aren't necessarily clear in all instances but should be thoroughly understood before signing on the dotted line. Most merchants rarely look at all the Terms and Conditions. Now, that said, most contracts have the same verbiage but the "Term and Termination" portion can be quite different from one processor to another.

Get out your current copy of your merchant account agreement. Take a look at the back and look for the before mentioned section. Most often, here is what you will see or something very close to this:

"This Agreement shall remain in full force and effect for an initial term of three (3) years. This Agreement shall be automatically extended for successive one (1) year periods (underlined to draw your attention to this part) on the same terms and conditions expressed herein, or as may be amended, unless Merchant gives written notice of termination as to the entire Agreement or a portion thereof at least 60 days prior to the expiration of the initial term (underlined once again for emphasis) or any extension or renewals thereof, in which case this Agreement will terminate at the end of the then current term. Notwithstanding anything to the contrary set forth herein, in the event Merchant terminates this Agreement in breach of this Section 13, the lesser of the following amount(s) shall be immediately due and payable to the services provider--(a) the maximum amount permitted by applicable state law, or (b) $295, if such termination occurs within the first twelve (12) months period of the initial term of this Agreement, or $195, if such termination occurs after the first twelve (12) month period of the initial term of this Agreement..."

You see, whether you realize it or not, service providers have expenses in setting up and maintaining your merchant account so, therefore, they feel if you bail early, they're entitled to some compensation. Simply put, you absolutely need to know what the terms are before you make any commitments.

So, let's just say that some new merchant account rep (or as they're called in the industry MLS or Merchant Level Salesperson), performs a statement analysis for you. When they're all done, they show you the results and, of course, tell you they can save you a "ton of money". Your first inclination is to want to make the change because, of course, you want the projected savings in your pocket. But, wait a minute, where are you in your existing contract? Well, you know that if you outright cancel to make the move to the new provider, you WILL PAY AN EARLY TERMINATION FEE. So, what are your alternatives? Well, it's really all about math so get out your calculator and look at the numbers.

Okay, so the new guy/gal has shown you a $20 a month savings....not bad but how's that all shake out? Assuming your early termination fee is $195, it would take you about ten months before you would actually start realizing those savings (after paying the early term fee) if you decide to make the change. Here's another option that you may consider. Does your existing contract have a "Monthly Minimum" fee. Quite often you will have a $10-$25 Monthly Minimum in your Schedule of Fees. This means that even if you don't process a dimes worth of credit cards in any given month, the processor is still getting something. Let's suppose that you have say eight months to go before your existing contract expires and you have a $20 Monthly Minimum. You could make the switch, not call in to "officially" cancel, take advantage of the savings and just pay the $20 minimum fee to the previous guys (in this example, it would be $160 for the eight months so it's less than the $195). The risk you take here is that the provider just happens to notice that you aren't running any transactions thru them any longer and they automatically assess the early term fee per the agreement. Oftentimes, however, they really don't notice. But, the other thing that you need to be alert of is you will still need to contact them and " give written notice of termination as to the entire Agreement or a portion thereof at least 60 days prior to the expiration of the initial term" or it will renew for one more year and they will likely, sooner or later, catch up with you and collect the fee. These fees can easily eat away at any "projected" savings by the new provider and cause great frustration on your part.

As I've written many times before, it is crucial that you have any proposal made to you, explained in detail so that you fully understand all that is being promised. Sometimes, when someone has given you one of those "huge savings" proposals and you are still in the midst of a contract, you can use that with your current provider to negotiate a better rate with them. Simply call Customer Service and tell them you've received a quote for better rates and ask them what they can do for you to encourage you to stay. Don't tell them the numbers that you've gotten but just tell them that you have been offered what appears to be a "much better deal" and you wanted to give them the opportunity to sharpen their pencils or you may entertain going elsewhere. It's just a thought to consider especially if the service you're currently receiving, is up to your requirements.

One last thing while we're on the topic of Early Termination Fees. There are still some contracts out there that I have experienced that say something to the effect of "Early termination fees can be $295 or projected loss of revenue, for the balance of the contract, whichever is greater" So, let's just say that the credit card processor has calculated that they were going to be making $50 a month on your account and you had eighteen months to go....do that math. Now, that one could really sting so, once again, make sure you know what you're getting into. And, definitely get out your existing agreement, read the fine print and get fully acquainted with what your currently obligated to.

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!

Interchange Rate Comparisons 2006-2010

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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What happens when a credit card is processed?

Have you ever considered what actually happens when a credit card is presented for payment of goods or services?  Merchants pay a credit card processor for this service and are charged a Discount Rate.  Here's a look at what the process looks like and costs involved:

• When a credit card is presented for payment of goods or services, the merchant swipes the card thru their credit card terminal.


• The transaction is electronically routed thru to their credit card processor

• The credit card processor electronically routes it thru the network (Visa or MasterCard) and the network earns an Access Fee (Visa @ .0925% and MasterCard @ .110%) on every transaction

• The network then electronically routes it thru the card issuing bank for approval or denial and this issuing bank earns the Interchange Rate (there are well over 200 different rates based on the card or transaction type)

• Then the whole process reverses back from the issuing bank, thru the network, back thru the merchant services provider, and finally, back to the merchant’s terminal with the approval. The processor charges the merchant a Discount Rate for providing the service which shows up on the merchant statement in various formats each month. It is the difference between the Interchange Rates and Assessments and what the merchant is paying that the processor earns for providing the service.

Well, that's how it all works, behind the scenes, and it happens all in a matter of seconds. 

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.