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
Showing posts with label merchant accounts. Show all posts
Showing posts with label merchant accounts. Show all posts
Wednesday, March 16, 2011
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.
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.
Tuesday, November 30, 2010
Credit Card Processing Rates! Enlightened, Confused, or Mad? Make it better!
I've been in the merchant services business for many years and rarely, if ever, have I come across a merchant that feels that their fees for processing credit cards are FAIR. I think part of that comes as a result of a lack of transparency that is provided to them. There are numerous types of pricing models that can be implemented and, as you might imagine, most of them are more in favor of the processor, not the merchant. While in the field, I have always utilized the consultative approach with my merchants and taking care of their credit card processing needs. I ask numerous questions regarding their business and how they typically transact business. I'm always looking to determine what the absolute best, least expensive, pricing model will be for them. In addition, I search for other tools that may help them increase business with things like gift cards or check services. I never recommend equipment or services that won't be beneficial to their bottom line. Unfortunately, I'm sad to say, many in our business don't come close to taking that same approach.
American business owners, like yourself, are fed up with the unfair, hidden, and excess fees imposed by the banks and processors (you do know that those fees make up the majority of your Discount Rate, don't you?). In October, Visa and MasterCard posted their new Interchange Rates. Typically, adjustments are made twice a year (April and October). This time around, there were NO INCREASES that I was able to see but yet, I know of many merchant services providers, that imposed increases to their merchants (primarily those that are on a Tiered pricing model). Does this seem fair to you? I'm guessing the answer is a resounding NO. This, once again, is why, as I've written about many times in the past, is all the more reason for being priced in a more transparent form utilizing a Cost-Plus Pricing model. This way, no increases that aren't actually imposed on the provider, can be passed on or "hidden" from you.
Studies have shown that Americans pay the highest swipe fee rates in the industrialized world. Forty-four countries around the world have enacted some form of swipe fee reform that has brought rates down. In my opinion this industry has been broken and unregulated for far too long. Back in the early 1980's, big banks, Visa and MasterCard demanded that credit card swipe fees (a huge source of income for them) be shielded from free market forces. Well, guess what....they won that fight and the result has been an unfair, uncompetitive system of escalating swipe fee charges to you during a time that, do to advanced technology, their actual cost has gone down.
Senate Bill 1212 has been proposed to STOP THE BLEEDING . This bill is a great starting point to the interchange fee situation prevalent in the US. The bill simply stands for the proposition that powerful credit card companies should have to play fair and disclose prices and terms. I encourage you to stand up, join business owners like yourself, take action and be heard and add your name to the petition by going to THIS SITE .
With all that being said, you know how quickly things move through the legislative process so what can you do for yourself in the meantime? You got it....you need to be more proactive and get a better, more thorough understanding of how this industry works. More importantly to you, is the need to get a better grasp on how pricing works and absolutely make certain that you know EXACTLY what you're paying in fees for every card and transaction type in your business. What are you waiting for? Pick up your phone, right now, and get your rep or your processors Customer Care on the phone and ask the questions. If you don't feel like you're getting the straight story or an outright runaround, start looking elsewhere. Thanks for reading!
American business owners, like yourself, are fed up with the unfair, hidden, and excess fees imposed by the banks and processors (you do know that those fees make up the majority of your Discount Rate, don't you?). In October, Visa and MasterCard posted their new Interchange Rates. Typically, adjustments are made twice a year (April and October). This time around, there were NO INCREASES that I was able to see but yet, I know of many merchant services providers, that imposed increases to their merchants (primarily those that are on a Tiered pricing model). Does this seem fair to you? I'm guessing the answer is a resounding NO. This, once again, is why, as I've written about many times in the past, is all the more reason for being priced in a more transparent form utilizing a Cost-Plus Pricing model. This way, no increases that aren't actually imposed on the provider, can be passed on or "hidden" from you.
Studies have shown that Americans pay the highest swipe fee rates in the industrialized world. Forty-four countries around the world have enacted some form of swipe fee reform that has brought rates down. In my opinion this industry has been broken and unregulated for far too long. Back in the early 1980's, big banks, Visa and MasterCard demanded that credit card swipe fees (a huge source of income for them) be shielded from free market forces. Well, guess what....they won that fight and the result has been an unfair, uncompetitive system of escalating swipe fee charges to you during a time that, do to advanced technology, their actual cost has gone down.
Senate Bill 1212 has been proposed to STOP THE BLEEDING . This bill is a great starting point to the interchange fee situation prevalent in the US. The bill simply stands for the proposition that powerful credit card companies should have to play fair and disclose prices and terms. I encourage you to stand up, join business owners like yourself, take action and be heard and add your name to the petition by going to THIS SITE .
With all that being said, you know how quickly things move through the legislative process so what can you do for yourself in the meantime? You got it....you need to be more proactive and get a better, more thorough understanding of how this industry works. More importantly to you, is the need to get a better grasp on how pricing works and absolutely make certain that you know EXACTLY what you're paying in fees for every card and transaction type in your business. What are you waiting for? Pick up your phone, right now, and get your rep or your processors Customer Care on the phone and ask the questions. If you don't feel like you're getting the straight story or an outright runaround, start looking elsewhere. Thanks for reading!
Friday, October 22, 2010
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.
"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.
Wednesday, October 13, 2010
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:
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.
- 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
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.
Combat Skimming of Credit Cars at Your Business
The fraudsters are getting even more active these days than before. They're out to steal credit card numbers in any way they can and they're not just after the processors and major retailers any longer. The term often referred to is "skimming" which is defined as the "unauthorized capture and transfer of payment data to another source for fraudulent purchases". According to ADT Security Services Inc., skimming nets fraudsters approximately $350,000 daily in the United States. And payment consultancy Celent LLC estimates skimming drains the global economy of $1.2 billion annually. So, you can see why the bad guys are actively searching for any opportunity or target that they can.
Skimming can be accomplished by stealing the data directly off of payment cards or by infiltrating payment networks via POS terminals, terminal locations, wires, communication channels, switches and so forth. One of the most common types of attack occur directly at the Point of Sale terminal and usually takes place with the merchants own personnel. Staff and outside contractors are "targets" of fraudsters, either through "bribery or coercion," The people that fall for this "temptation" are people who have both criminal intent and they have direct access to the customers credit card and aren't really observed or monitored much at the time of payment.
One specific industry is particularly prone to this situation and that would be in restaurants. Typically, the wait staff disappears with the diners' credit cards and can skim the card numbers in private or simply write down the appropriate information for later sale to the bad guys. If you happen to be in the restaurant business, you may want to seriously consider obtaining a few wireless terminals that can be taken directly to the customers table. Not only will this protect you but your customers will feel more at ease as well. And, a side benefit to this would be that now you will be able to capture pinned debit transactions and the resulting savings that go along with it.
You may have read in the news not long ago about huge data breaches at a couple major retailers as well as some of the largest payment processors in the business. Even they weren't immune to these sophisticated crooks. However, security measures have stepped up dramatically in those places so the cons are looking for easier targets. Smaller merchants are particularly vulnerable to skimming attacks. Mom-and-pop operations are busy with the day to day running of their businesses and might overlook signs that their terminals, or elsewhere in their business, have been compromised.
The security standards council has prepared a FREE 25 page supplement for merchants that provides photographs of how merchants can detect evidence of tampering. The report also recommends that merchants routinely inspect their businesses from the POS to the point where the cables leave the building. There are also pictures available to show merchants what actual tampering devices look like. For example, a key logger attached to an electronic cash register, for example can be smaller than a quarter and can easily be mistaken as part of the register.
Another suggestion is for merchants to limit the access to payment locations that customers and vendors have. These tampering devices can be quickly placed virtually anywhere in the system path. Installing surveillance cameras would also be a good idea and worthwhile investment. Times are tough these days and the fraudsters, either through bribery or coercion target staff and outside contractors to assist them in their endeavors.
The FREE report has helpful tips to help merchants quantify their risk levels. There are more than two dozen questions posed to merchants that are designed to evaluate whether they could be classified as low, medium or high risk to skimming attacks.
The second appendix is basically a checklist that allows merchants to document the details of their POS terminals and systems. "Take a picture of your device," Russo said. "What's the serial number? Where's it located? Where is the label? Is the label on the right side or the left side? So that when periodically somebody goes around and looks at these things to check them, they check them against this list to see if there's anything that looks different from what they had before."
Skimming can be accomplished by stealing the data directly off of payment cards or by infiltrating payment networks via POS terminals, terminal locations, wires, communication channels, switches and so forth. One of the most common types of attack occur directly at the Point of Sale terminal and usually takes place with the merchants own personnel. Staff and outside contractors are "targets" of fraudsters, either through "bribery or coercion," The people that fall for this "temptation" are people who have both criminal intent and they have direct access to the customers credit card and aren't really observed or monitored much at the time of payment.
One specific industry is particularly prone to this situation and that would be in restaurants. Typically, the wait staff disappears with the diners' credit cards and can skim the card numbers in private or simply write down the appropriate information for later sale to the bad guys. If you happen to be in the restaurant business, you may want to seriously consider obtaining a few wireless terminals that can be taken directly to the customers table. Not only will this protect you but your customers will feel more at ease as well. And, a side benefit to this would be that now you will be able to capture pinned debit transactions and the resulting savings that go along with it.
You may have read in the news not long ago about huge data breaches at a couple major retailers as well as some of the largest payment processors in the business. Even they weren't immune to these sophisticated crooks. However, security measures have stepped up dramatically in those places so the cons are looking for easier targets. Smaller merchants are particularly vulnerable to skimming attacks. Mom-and-pop operations are busy with the day to day running of their businesses and might overlook signs that their terminals, or elsewhere in their business, have been compromised.
The security standards council has prepared a FREE 25 page supplement for merchants that provides photographs of how merchants can detect evidence of tampering. The report also recommends that merchants routinely inspect their businesses from the POS to the point where the cables leave the building. There are also pictures available to show merchants what actual tampering devices look like. For example, a key logger attached to an electronic cash register, for example can be smaller than a quarter and can easily be mistaken as part of the register.
Another suggestion is for merchants to limit the access to payment locations that customers and vendors have. These tampering devices can be quickly placed virtually anywhere in the system path. Installing surveillance cameras would also be a good idea and worthwhile investment. Times are tough these days and the fraudsters, either through bribery or coercion target staff and outside contractors to assist them in their endeavors.
The FREE report has helpful tips to help merchants quantify their risk levels. There are more than two dozen questions posed to merchants that are designed to evaluate whether they could be classified as low, medium or high risk to skimming attacks.
The second appendix is basically a checklist that allows merchants to document the details of their POS terminals and systems. "Take a picture of your device," Russo said. "What's the serial number? Where's it located? Where is the label? Is the label on the right side or the left side? So that when periodically somebody goes around and looks at these things to check them, they check them against this list to see if there's anything that looks different from what they had before."
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.
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.
Wednesday, June 9, 2010
Processing Rates Increasing Because....
Over the past week or so, I've had merchants contacting me saying that their processor has given them various reasons for raising their credit card processing rates. Sometimes rate increases are necessary and warranted. In your business, when your costs increase, don't you also consider raising the price of your goods and services to help offset, at least a little, the increased costs you have incurred? It's no difference in the merchant services industry but when I hear what some of the merchants have been told, my blood starts to boil because they are simply flat out lies.
One processor told their merchants that they were going to have to increase some of their Non-Qualified or Fourth Tier rates, by .30% and $.10 due to "interchange increases". Well, if there was actually increases to that magnitude, I could certainly see the justification. However, the problem is, that in April, Visa/MC had very minimal (and I do mean minimal) increases only on a very few card or transaction types. So, the processors "justification" in passing on this type of increase is ridiculous. It's simply a profit generator for them.
Another processor has told their merchant (a retailer) that increases were coming on many of their transactions because they weren't breaking out the transaction and separating the cost of goods/services and sales tax. So, consequently, they were going to have to charge them more. How ridiculous! I'm sure you're aware that when you run a transaction thru your POS system, it simply asks for a total and not separate amounts for the product and the sales tax. What a crock!
It's precisely these types of things that happen that further encourages me to always recomment Cost Plus pricing to merchants. It is by far the most transparent form of pricing and simply, the processor can't manipulate rates or "hide" fees on you. If you're not currently priced this way...it's time to get on it.
One processor told their merchants that they were going to have to increase some of their Non-Qualified or Fourth Tier rates, by .30% and $.10 due to "interchange increases". Well, if there was actually increases to that magnitude, I could certainly see the justification. However, the problem is, that in April, Visa/MC had very minimal (and I do mean minimal) increases only on a very few card or transaction types. So, the processors "justification" in passing on this type of increase is ridiculous. It's simply a profit generator for them.
Another processor has told their merchant (a retailer) that increases were coming on many of their transactions because they weren't breaking out the transaction and separating the cost of goods/services and sales tax. So, consequently, they were going to have to charge them more. How ridiculous! I'm sure you're aware that when you run a transaction thru your POS system, it simply asks for a total and not separate amounts for the product and the sales tax. What a crock!
It's precisely these types of things that happen that further encourages me to always recomment Cost Plus pricing to merchants. It is by far the most transparent form of pricing and simply, the processor can't manipulate rates or "hide" fees on you. If you're not currently priced this way...it's time to get on it.
Monday, April 19, 2010
What's in your contract
Yesterday I received an email from a reader of this blog. It seems that her credit card processor has decided to add a Monthly Minimum to her account. I explained to her that the only time this would come into play, and affect her, is if she didn't do enough volume to generate enough fees to exceed the minimum. It's not in addition to Discount Rates and fees, it would be instead of.
She questioned the rights of the processor to do such a thing since she had already signed an agreement (contract) when she met with the rep and he assured her there was no Monthly Minimum. I suggested that she pull out her contract and look for any part of it that said that they could do just what they had proposed. Here's what she sent me which was an excerpt from her contract with this unnamed processor:
18. PROCESSING FEES.
a. Merchant will pay Processing Fees in the amount specified in the FEE SCHEDULE
attached to the Application or as otherwise provided for in this Agreement or an
Addendum thereto. Merchant will pay monthly fees equal to the greater of (i) actual
fees incurred, or (ii) the minimum amount of fees as specified in the Application.
Merchant will pay a Corporate Fee for each location equal to $90.00, to be collected via
ACH transfer within 150 days after the initial approval of this Agreement, and within
30 days after each anniversary of the effective date of this Agreement. Merchant Bank
may increase the Processing Fees and annual fees and/or impose additional fees by
giving Merchant thirty (30) days advance written notice effective for Charges and Credit
Vouchers submitted on and after the effective date of the change.
Yep, that's right, they are fully within their rights to add, increase or adjust fees to the original agreement simply by giving the merchant 30 days advance written notification. Typically, this notification comes via the "Important Information" section usually found on the monthly merchant statement. Do you ever read those things? It's been my experience that the majority of merchants never look at that section and, in fact, rarely even look at their statement in any great detail....sad, but true.
Now, let me say this about the above referenced processor. They are not unlike any other merchant services provider out there. In the credit card processing business, we are all affected by interchange. Interchange is one of the factors that affects the processor's cost basis. And, like any other business on the planet, when their costs increase, they have the right to pass on those increases to their customers, or absorb it and incur the reduction to their personal bottom line.
So what is your recourse if this same scenario happens to you? Well, you can grumble and complain all you want, honestly but, the fact remains, that you signed a contract and probably didn't read all the fine print. But, how much does it really matter since every credit card processing agreement that I've ever seen, has some form of the same verbiage in it as the above.
My advice is simply this...make certain that you are looking at, reading and understanding your monthly processing statement each and every month. This is a huge and ever-increasing cost center for your business. You absolutely MUST understand what you are paying and why. Don't ever hesitate to contact your rep or the companies Customer Care department and ask the questions. In fact, you should be calling at least on average of twice a year asking for a rate review and reduction. If you don't ask, they certainly won't voluntarily call you and lower your rates. Hey, it's your business and your profits are at stake here so I'm sure you'll see the value in taking a few minutes and making the call
Thanks for coming by and please don't hesitate to comment on this article or contact me with any specific questions.
Ping blog
She questioned the rights of the processor to do such a thing since she had already signed an agreement (contract) when she met with the rep and he assured her there was no Monthly Minimum. I suggested that she pull out her contract and look for any part of it that said that they could do just what they had proposed. Here's what she sent me which was an excerpt from her contract with this unnamed processor:
18. PROCESSING FEES.
a. Merchant will pay Processing Fees in the amount specified in the FEE SCHEDULE
attached to the Application or as otherwise provided for in this Agreement or an
Addendum thereto. Merchant will pay monthly fees equal to the greater of (i) actual
fees incurred, or (ii) the minimum amount of fees as specified in the Application.
Merchant will pay a Corporate Fee for each location equal to $90.00, to be collected via
ACH transfer within 150 days after the initial approval of this Agreement, and within
30 days after each anniversary of the effective date of this Agreement. Merchant Bank
may increase the Processing Fees and annual fees and/or impose additional fees by
giving Merchant thirty (30) days advance written notice effective for Charges and Credit
Vouchers submitted on and after the effective date of the change.
Yep, that's right, they are fully within their rights to add, increase or adjust fees to the original agreement simply by giving the merchant 30 days advance written notification. Typically, this notification comes via the "Important Information" section usually found on the monthly merchant statement. Do you ever read those things? It's been my experience that the majority of merchants never look at that section and, in fact, rarely even look at their statement in any great detail....sad, but true.
Now, let me say this about the above referenced processor. They are not unlike any other merchant services provider out there. In the credit card processing business, we are all affected by interchange. Interchange is one of the factors that affects the processor's cost basis. And, like any other business on the planet, when their costs increase, they have the right to pass on those increases to their customers, or absorb it and incur the reduction to their personal bottom line.
So what is your recourse if this same scenario happens to you? Well, you can grumble and complain all you want, honestly but, the fact remains, that you signed a contract and probably didn't read all the fine print. But, how much does it really matter since every credit card processing agreement that I've ever seen, has some form of the same verbiage in it as the above.
My advice is simply this...make certain that you are looking at, reading and understanding your monthly processing statement each and every month. This is a huge and ever-increasing cost center for your business. You absolutely MUST understand what you are paying and why. Don't ever hesitate to contact your rep or the companies Customer Care department and ask the questions. In fact, you should be calling at least on average of twice a year asking for a rate review and reduction. If you don't ask, they certainly won't voluntarily call you and lower your rates. Hey, it's your business and your profits are at stake here so I'm sure you'll see the value in taking a few minutes and making the call
Thanks for coming by and please don't hesitate to comment on this article or contact me with any specific questions.
Ping blog
Monday, March 22, 2010
You should be aware of this
Well, it's been a couple months since I posted last. As you can see from the picture, I've been quite busy. My family and I spent two months in Costa Rica so my mind was elsewhere. However, this business that I'm in (merchant services) is in the blood and I have never really strayed too far away from the pulse of what's going on in this industry.
As one that's always been concerned about long-term relationships with my merchants, I feel compelled to bring up areas of concern that I feel you should be aware of. You're probably aware of the new credit card laws that went into effect in February. Well, along with that, many card issuers have increased interest rates and consequently, many card holders have reduced their spending. So, the card issuers are coming up with some programs to encourage consumer spending, once again.
There are some that believe that the economy is starting to show some signs of recovering from our most recent sluggish past. Many of the credit card issuers are now ramping up their rewards programs. Some are offering double reward points on purchases in general. Still others are offering more frequent flyer miles for each $1 spent. You may also see that some card companies are offering increased points or "rewards" for purchases at "partner" merchants. No matter what their doing, the bottom line is that these new purchases will affect your bottom line.
Here's what to look for on your end. First, if you're priced on a three tier pricing structure, thes "rewards" type cards fall into your Mid-Qualified or Non-Qualified category. There are numerous types of rewards cards offered by Visa and MasterCard so, you need to call your provider and ask them point blank, which level these rewards cards clear in. Honestly, the processor can, at their will, determine which category to put each card type in and if you aren't informed thoroughly, you're needlessly giving up profits. I know of a processor, that not long ago, informed their merchants (you know, in that little paragraph or two on the first page of the monthly statement that nobody seems to read) that they were "reclassifying" Visa Rewards 2 cards and moving them from Mid-Qualified to Non-Qualified (at rates that are, at a minimum, 1% higher). If you're on a four tier pricing model, these reward cards will be in either Tier 3 or Tier 4....make sure you ask where your transactions are priced.
Now, if you're in a Cost-Plus pricing model, you don't need to worry about being priced in a "bucket" where you don't need to be. All of these rewards cards will, by their very nature, simply be routed to the proper category and pricing. The bottom line is that if the credit card issuers ploy to increase rewards to their card holders, encourages them to spend more, then you reap the benefits of increased business. You simply want to make sure you absolutely know what you're paying for these transactions. After all, who is most interested in the profits and viability of your business....you or your merchant account provider?
Being in business these days is tough enough as it is. Anything you can do to cut your costs and, subsequently, increase your profits is a good thing to do. With that in mind, knowledge is king and the kind of knowledge that I offer to you, is typically not offered up by the majority of credit card processing reps. So, if you want to really stack the cards in your favor, GET EDUCATED. I have prepared a 40 page eBook on the topic and will give you the A-Z's of how the credit card processing industry works and how it affects you. Take a spin on over to my website and check it out for yourself. I'm confident that you won't be disappointed.
Wednesday, November 11, 2009
How much are you paying customers to shop with you?
There isn't a week that goes by that a new credit card offer doesn't show up in the mailbox. Credit card issuers are constantly trying to lure new customers to transfer balances or, at the very least, apply for a new and improved credit card. New and improved in that every time you use it, you will earn some form of "reward". Sounds good to the consumer who uses plastic anyway so why not get paid something back for doing so.
But, here's the issue. These newer breed cards are great for the consumer but not so great for you, the merchant. Every time you accept one of these cards for payment, you are paying an increased discount rate over what you would pay for a plain old "generic" credit card.
Today, I met with a merchant (hair salon) that is currently on a Four Tier pricing model. Thirty two percent of her volume is in Tier Three which is clearly rewards type cards. She is paying over 3.08% + $.03 for each of these sales. Also in this category would be card not present type transactions which she says, they do maybe ten of those a year. In taking a look back during the same time period last year, her Tier Three volume was a much smaller percentage of the total. So, it's obvious that more of their customers are receiving, and using, these cards for the perks they receive.
So, obviously, we'll be moving her over to a Cost Plus Pricing model so that at least, since she's already receiving these cards, she'll be able to pay less for them. It's a tough game out there these days people, just trying to stay profitable. You need to look at any way you can to reduce your cost of doing business.
Let me encourage you...take a detailed look at your monthly credit card processing statement...EVERY MONTH. Compare to the previous month and even, take the time to compare to the same time period a year ago. Look for any noticeable changes. Also, make sure that you totally understand all the fees that you are being charged. Ask your rep, if you can even find them, to explain in detail what everything is. If they don't know, themselves, which isn't too uncommon, find someone that can enlighten you. My contact info is also available here if you so desire.
The bottom line here, and in all my posts is to GET EDUCATED. Accepting credit cards for payment in your business is a necessary evil. You must, therefore, do all that you can to ensure that you are paying fair and accurately for the "privilege" of this service. Thanks for reading!
But, here's the issue. These newer breed cards are great for the consumer but not so great for you, the merchant. Every time you accept one of these cards for payment, you are paying an increased discount rate over what you would pay for a plain old "generic" credit card.
Today, I met with a merchant (hair salon) that is currently on a Four Tier pricing model. Thirty two percent of her volume is in Tier Three which is clearly rewards type cards. She is paying over 3.08% + $.03 for each of these sales. Also in this category would be card not present type transactions which she says, they do maybe ten of those a year. In taking a look back during the same time period last year, her Tier Three volume was a much smaller percentage of the total. So, it's obvious that more of their customers are receiving, and using, these cards for the perks they receive.
So, obviously, we'll be moving her over to a Cost Plus Pricing model so that at least, since she's already receiving these cards, she'll be able to pay less for them. It's a tough game out there these days people, just trying to stay profitable. You need to look at any way you can to reduce your cost of doing business.
Let me encourage you...take a detailed look at your monthly credit card processing statement...EVERY MONTH. Compare to the previous month and even, take the time to compare to the same time period a year ago. Look for any noticeable changes. Also, make sure that you totally understand all the fees that you are being charged. Ask your rep, if you can even find them, to explain in detail what everything is. If they don't know, themselves, which isn't too uncommon, find someone that can enlighten you. My contact info is also available here if you so desire.
The bottom line here, and in all my posts is to GET EDUCATED. Accepting credit cards for payment in your business is a necessary evil. You must, therefore, do all that you can to ensure that you are paying fair and accurately for the "privilege" of this service. Thanks for reading!
Monday, September 28, 2009
PCI Compliance…Are you at risk?
AS A MERCHANT, HAVE YOU EVER...
- Processed a credit card transaction at your business and noticed the receipts contained the full credit card number and the expiration date? How about your copy of the receipt? If so, you are NOT COMPLIANT AND AT RISK.
- Stored credit card numbers in a binder or on your computer in a spreadsheet for recurring billing? NON-COMPLIANT!!!
- Configured your router or computer and used a easy, generic password such as 1-2-3-4? HACKERS LOVE THIS….YOU, AND YOUR CUSTOMERS ARE AT RISK. Create your own password and never use default passwords.
- Had your terminal go down and started keeping credit card data written in a spreadsheet on your computer to charge the client later?
- Imprinted a card and written down the CVV data (3-digit security code on back or 4-digit code on the front of the card)?
- Not renewed your anti-virus software on your computer?
- Spent years storing your receipts in a shoe box in your back office?
You may have seen in the news in recent months of the huge data breaches that took place which resulted in millions of credit card numbers being compromised. A couple huge payment processors and a major retailer were hacked into. You would think that these types of entities are the main targets of these international fraudsters. However, due to increased security being put into place, hackers and thieves are beginning to focus their attention on small, local, mom and pop type organizations. Consequently, you absolutely need to be aware and alert for the safety of you, your business and your customers.
PCI DSS is the real buzz phrase in the payments industry these days. It stands for Payment Card Industry Data Security Standards. Compliance is a standard of security established for any business that processes credit cards. Whether you have a computerized POS system, process over a phone and do manual imprints, process through a credit card terminal or have an e-commerce website taking orders, PCI establishes a series of best practices and minimum security protocols that must be observed for your business type.
Through the Fair and Accurate Credit Transactions Act of 2003, Public Law 108 to 159, the U.S. congress preempted what some individual states mandated on credit and debit card truncation to set a national standard. Under Title 1, Section 113 of the act, only the last five digits of the card account number can be printed on electronically printed receipts provided to the customer. The laws vary by state regarding truncation of the merchants copy. Some states carry it even further and say that the expiration date can't appear on receipts either. To be on the safe side, I would suggest that you make certain that both copies are truncated totally. If your receipts are showing more than is allowed, contact your processor, or POS vendor, immediately and have them assist you in becoming fully compliant.
While you're at it, ask your processor about any PCI compliance fees they may now, or in the future, be charging you. Some are using this as a new revenue stream and charging excessive monthly, annual or a combination of both, fees with no corresponding benefits.
Friday, January 30, 2009
Check your statement monthly
I can't tell you how many times merchants hand me their credit card processing statement still sealed in the original envelope. But, I can't say as I blame them as many of these statements are difficult to decipher. In fact, most processors know, from experience, that a very small percentage of merchants really take the time to look at them. Good for them....bad for you.
If you feel that it is near impossible to really understand your statement, and all it's various charges, you need to ask the questions. You could contact your rep, if they're still around. The Customer Care department of your service provider, would be another suggestion, and they should be happy to walk you thru it, line by line. Or, you could contact me and with my years of experience, and I'll be able to help you figure it all out.
Often, you will see at the top of your monthly statement, something called "Important Notice" or "Statement Messages". Here is typically where you will see notes on upcoming changes to your statement and subsequently, your processing costs.
Here's an example of what I'm talking about. With the increased credit card fraud and data breaches of late, most processors are passing on some sort of "fee" to you to help "protect" you and your business. Typically, they will notify you in the Statement Message section of your statement of upcoming charges. One processor I know of, notified their merchants of a monthly $9.99 Data Breach Service fee that was going to be charged to them. They gave merchants a couple months for free with the opportunity to call in and opt out if they didn't want it. However, the majority of merchants never read those little notes and months later, some of them start calling in asking what the fee is and who authorized it.
I've also seen merchants that are still getting statements from processors that they previously did business with, and are still paying monthly minimum fees to because they never cancelled the agreement. This, of course, is just money being thrown away.
Probably the most disturbing thing I find is that, over time, a merchants rates have continued to rise, without the knowledge of the merchant because they haven't looked at their statement in detail each month. Or, there are services they are paying for, but not utilizing and therefore costing them unnecessarily.
So, the bottom line here is....how is this affecting your bottom line? Let me urge you, please, please, please, take the time, each and every month, to look at your statement in detail. Make certain that you fully understand every charge and why you're paying it. If, when you make your call, you feel as if you're getting the runaround, please don't hesitate to contact me utilizing any of the contact methods found on this blog.
Thanks for taking the time to check out my blog. Be blessed and be a blessing.
If you feel that it is near impossible to really understand your statement, and all it's various charges, you need to ask the questions. You could contact your rep, if they're still around. The Customer Care department of your service provider, would be another suggestion, and they should be happy to walk you thru it, line by line. Or, you could contact me and with my years of experience, and I'll be able to help you figure it all out.
Often, you will see at the top of your monthly statement, something called "Important Notice" or "Statement Messages". Here is typically where you will see notes on upcoming changes to your statement and subsequently, your processing costs.
Here's an example of what I'm talking about. With the increased credit card fraud and data breaches of late, most processors are passing on some sort of "fee" to you to help "protect" you and your business. Typically, they will notify you in the Statement Message section of your statement of upcoming charges. One processor I know of, notified their merchants of a monthly $9.99 Data Breach Service fee that was going to be charged to them. They gave merchants a couple months for free with the opportunity to call in and opt out if they didn't want it. However, the majority of merchants never read those little notes and months later, some of them start calling in asking what the fee is and who authorized it.
I've also seen merchants that are still getting statements from processors that they previously did business with, and are still paying monthly minimum fees to because they never cancelled the agreement. This, of course, is just money being thrown away.
Probably the most disturbing thing I find is that, over time, a merchants rates have continued to rise, without the knowledge of the merchant because they haven't looked at their statement in detail each month. Or, there are services they are paying for, but not utilizing and therefore costing them unnecessarily.
So, the bottom line here is....how is this affecting your bottom line? Let me urge you, please, please, please, take the time, each and every month, to look at your statement in detail. Make certain that you fully understand every charge and why you're paying it. If, when you make your call, you feel as if you're getting the runaround, please don't hesitate to contact me utilizing any of the contact methods found on this blog.
Thanks for taking the time to check out my blog. Be blessed and be a blessing.
Monday, February 4, 2008
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.
Wednesday, January 30, 2008
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:
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:
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:
Tuesday, January 15, 2008
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
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.
Tuesday, November 6, 2007
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
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