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In my years in the field consulting with merchants about their credit card processing, it never ceases to amaze me how little they know about the process or the deal. But hey, it’s not your fault because most of the time you don’t know all the questions to ask and reps usually 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 to ask whether you are an existing merchant or a new one looking for merchant services. So here are some ideas for you to seriously consider because it is imperative that you inform yourself:
- What is the term of my agreement?? Typically, you’ll find they’re for three years with an “early termination fee” for withdrawing 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 industry representatives, all the time, and they have a way of making things “look” better than they actually are. So, armed with the information 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 your new proposal shows an anticipated savings of $25 per month based on your average volume and your average ticket. Well that would be a savings of $300 over a twelve month period. So with that in mind, and assuming you have an early termination fee of $195 to leave your current provider, it would take you just under eight months to start getting on your feet with the new ones. If, on the other hand, your early term fee is $295, it would take you almost a year to get there. Just know your costs vs. potential rewards, do the math, and make an informed decision.
- What rate am I paying for fixed debit transactions?? Now, if you’re using a PinPad and your average transactions are less than $50, you could rack up some savings here by capturing more pinned debit sales. As you may or may not know, set debits will cost you less than swiping like a credit card. For example, suppose you make a $50 sale and your customer hands you a debit card that goes through the NYCE network. As of the April 2010 debit network fee schedule, a debit anchored in that $50 sale would have a “cost basis” of about $0.55 (plus any transaction fees your processor charges you). Those same transactions slipped, since a credit card would have a “cost basis” of about $0.68 (and you know your processor is charging something more significant than that. So, here again, ask the question, based on your pricing structure (whether you’re 3-tier, 4-tier, or Cost-Plus pricing), you absolutely know what you’re being charged for and can train your staff accordingly for maximum savings.
- What rate am I paying for swiped generic credit cards?? You see, if you’re on a Cost Plus pricing program (which, by the way, is the most transparent form of pricing), you’ll absolutely know what you’re paying for all the different types of transactions and card types just by knowing what your “plus” is. “. is and have access to the Exchange Rates. The problem arises when priced in any form of tiered pricing because the processor can literally make their own decision which “bucket” they want to put their transactions into. And, you can bet, it will usually benefit them… and not you!
- What rate am I paying for the Rewards Cards?? Now this, especially these days, can be big. Again, if you’re priced at Cost-Plus…it’s not a big deal once you know what your “plus” number is. The reason is that you will simply get the exact Interchange Fee for the card or transaction type, plus the “plus”, each time. Once again, the problem arises when you are in a tiered structure. Go directly and ask your representative, and ask them to show you in writing what you are paying for these Reward Cards. Let’s face it, more people have and are using some type of credit card that pays them some kind of “reward” every time they use that card. And guess who pays the most to accept that card and indirectly help return the reward to the customer… that’s right… you, the merchant. And hey, look at your own expenses using plastic these days. If you had the option of using your simple generic card or one that pays you a reward, which would you use? The problem with a tiered structure is that the processor can put those transactions into any “bucket” (Level 2, Level 3, or Level 4) they want, and furthermore, they can change which buckets they go into at any time, as they wish. Here This is where the next point comes into play.
- Check your monthly account statements, in detail. On numerous occasions when I consult with a merchant, I am handed their most recent statements, still sealed in the original envelope. They have given up trying to figure them out because they feel there are more important things to attend to. Let me tell you, if you just spend some time with them and ask your representative or customer service to explain each line item in detail, they are not that hard to understand. And after all, who has a more compelling reason to understand them than you, the owner? In addition to looking at your statements each month, you’ll want to compare them to previous months to look for changes in either overall rates or charges. If you find any, call and ask to have the changes explained to your satisfaction. Another thing to look out for is the “Statement Message” or something along those lines that is usually on the first page of your statement. This is where reputable processors will alert you to upcoming changes. And, some even give you helpful tips to improve your costs.
- When was the last time you requested a rate review?? Most traders don’t even think about doing this. All it takes is a phone call to your representative or Customer Service and say something like this: “I’ve been with you for a while and doing business consistently, and I’d like to have my account reviewed for any fee reductions I can.” have a right to”. This is an especially good step to take after you’ve received a competitive quote that “looks” better than what you currently have. Don’t give your current employees the rates you’ve been offered, just tell them you’re considering an offer and want to give them a chance to be “more competitive” to keep your business. Hey, it’s worth calling, don’t you think?
- Here are some other ideas you want to ask about: You will likely find many other charges on your statement, some of which are justified and worthwhile and others that are simply profit-generating for the processor. Again, look for and ask for justification for these types of fees: debit access fees, minimum monthly fees, statement or service fees, gateway fees, “merchant advantage” or something similar to this (usually for replacement or paper fees), PCI/DSS fees (if you see them, ask if they are monthly, annual, or a combination of both and ask what benefit you get from them), and just any other fees you don’t understand what they’re for .
Well, I guess that’s what I would consider to be the most important thing to understand about the merchant services or credit card processing agreement. This is your business and it is your money that is spent on this service, so it is absolutely imperative that you know everything there is to know about this cost center in your business. I encourage you to learn more about credit card processing because the people who sell you this service usually don’t want you to know everything there is to know…for obvious reasons. Blessings for you and yours!