Guest Author Scott Salaske: Does your business accept credit cards? Learn how to lower your costs
Anytime most business owners hear the phrase “credit card processing”, they begin to get a cold chill down their spine and quickly want to change the topic. Fortunately, or unfortunately, credit card processing is a necessary function (or evil) in modern business. Fortunately, if you are reading this post you are likely a business owner and have customers who want to pay you for your product or service and often use credit cards as a form of payment. Unfortunately, the majority of business owners don’t know what they should be paying in credit card processing fees and have no way of finding out.
Credit card processing terminology, fees and the various parties involved can all be extremely confusing and complex. The credit card processing industry is extremely fragmented with thousands of credit card processors, merchant service providers and sales agents labeling themselves very differently from one another, but all ultimately provide the same service to a business, which is processing credit card payment transactions. This intentional complexity, confusion and lack of transparency allows credit card processors to make large profits from your business.
So what should you do to try and educate yourself to make sure your business is not overpaying for credit card processing services? First, you need to know how the credit card processing industry works and where all the fees go. The largest portion of the overall fees your business pays goes to your customer’s bank who issued them their credit card. These rates are set by the credit card brands (Visa, MasterCard, American Express and Discover) and are known as “Interchange” rates. Think of Interchange rates as the wholesale processing costs. All businesses of like type, such as a restaurant, should be paying the same Interchange rates, but in reality this is not what happens. The main reason for this is often because you as the business owner don’t know the actual Interchange rates to be able to hold the credit card processors accountable for the high rates and fees they are changing your business.
The card brands publicly post the Interchange rates on their respective websites. For example, the Interchange rates for Visa and MasterCard can be found using the following links: Visa Interchange and MasterCard Interchange. Interchange rates are charged based on your business industry and the type of credit card your customer uses to pay. Be warned, the Interchange rates are not easy to understand, but should provide you with fairly accurate estimate of the actual wholesale cost associated with processing a typical credit card transaction.
The next type of fees that are charged to all businesses are known as “Assessments”. Assessments are fees that are paid directly to the card brands (Visa, MasterCard, American Express and Discover) for the payment transaction to travel over the card brand processing networks. The Assessments you pay should be very small in relation to your overall total processing costs. The Assessment fees can be found by clicking the Visa and MasterCard Interchange links above.
So at this point we talked about Interchange and Assessment fees. These two types of fees are the only fees required in order to process a credit card transaction. However, since a business can’t process directly with the card brands they must use a credit card processor or sometimes referred to as a merchant service provider. This is where the high fees and overpayment typically begins. Credit card processors can literally make up fees and call those fees whatever they choose. Some examples of such “made-up” fees include: setup fee, cancellation or early termination fee, application fee, site inspection fee, re-programming fee, customer service fee, credit check fee, statement fees, terminal lease fee, terminal insurance fee, online reporting fee, etc. If you see any of these fees on your monthly statement, there is very high probability that you are overpaying for credit card processing services. Also, credit card processors often add large mark-ups to the (wholesale) Interchange rates and Assessments that the card brands charge to all businesses as another avenue to generate large profits.
One easy way to determine if you are likely overpaying for credit card processing services is if your credit card processor provided you with free equipment. As we all know, nothing is free and your credit card processing equipment is no exception. Depending upon the free equipment offered and the amount of monthly volume your business processes, the credit card processor can typically recoup its expense for the free equipment within the first 1-3 months, but the high fees they charge your business month-after-month will last forever.
The first step in lowering your processing costs is to make sure your business is on an “Interchange Plus” pricing plan for your credit card processing. Often times business owners think they are paying Interchange (wholesale) rates when they switch to an “Interchange Plus” plan, but they are really paying Interchange rates “Plus”, with the “Plus” portion still layered with large percentage mark-ups and ancillary fees (those pesky “made-up” fees).
Even better than Interchange Plus is a plan that offers a business true “wholesale” Interchange rates without a markup or “made-up” ancillary fees. There are only a few merchant service providers who offer businesses complete transparency and “true” Interchange pass-through pricing. Those merchant service providers are similar to Paymently in that they offer businesses the “true” Interchange (wholesale) rates for a small fixed monthly fee and flat per transaction fee. This type of pricing structure often saves businesses 40-50% off of their credit card processing costs and can amount to thousands of dollars per year depending upon the size of the business.
Don’t be afraid to educate yourself about credit card processing. Processing costs are typically a large expense for businesses that can easily be reduced without any change in the value you provide to your customers.
Scott Salaske is the CEO of Paymently, LLC. Paymently is a subscription-based payment processing company disrupting the credit card processing industry by helping businesses access unlimited credit card processing at direct cost for a flat monthly fee and no contract. Its low cost monthly subscription plans start at $39 per month and 0.20¢ per transaction. Small and medium size businesses can now access the same wholesale credit card processing rates normally reserved for the very largest companies. To learn more about Paymently, please visit Paymently.com, on Twitter at @PaymentlyHQ, and on Facebook at Facebook.com/Paymently.