Crack the code on your card processing bills. Part 1.
No one likes bills, especially those types of bills that are filled with cryptic codes and dozens of line items. That’s a pretty good description of a statement from a credit card processor or – if you already have one – your merchant account provider.
In order to accept credit cards like Visa, Mastercard, American Express (AMEX) or Discover, you’ll want to partner with a merchant account provider. For these services you pay the provider a monthly fee plus a percentage of your processing volume.
Many merchant account providers advertize low rates to lure new customers. Problem is, your bill can be so complicated that it is almost impossible for you to figure out how much you are actually paying. We analyze the statements of clients who have been processing with other firms before switching to SBB and identified common fees you should be looking out for:
1. Quoted Rates and Actual Rates
Often you’ll be quoted rates of 1.80% or even lower, but if you compare the quoted rate with your statement you find a huge discrepancy. In one client’s case, she was quoted 1.95% initially from her former merchant account provider. Over a period of 3 months, her small business was processing $24,720 and was paying $791.04 in processing fees. That’s an effective rate of 3.20%, almost double her quoted rate.
Solution: Regularly review your statements and compare your quoted rates with the actual total amount charged. Demand a detailed explanation of your merchant account provider why the amounts differ and what can be done to eliminate the discrepancy.
2. Not all credit card charges are created equal
A monthly credit card processing statement shows your daily tally of credit card sales and fees charged to process them. As an example, you paid $5.40 for a transaction worth $299.95 or in other words 1.80%.Visa and Mastercard have very strict regulations that determine the risk associated with every transaction. If certain conditions are not met a transaction will be “downgraded” and surcharges applied.
Some downgrades are unavoidable, like if your customer is using a rewards or corporate card. Most downgrades however can be avoided by providing a strong and tight integration of your payment system (terminal, online shopping cart, etc.) with your merchant account provider’s payment portal and the associated banks and networks that run in the background.
Solution: Take a look at your statement. If you have downgrades at 20% of your total transactions or more, consult with your merchant account provider. Ask him to analyze your statement and find ways to lower the downgrades. Beware that a higher bill to you generally means a higher profit to the merchant provider. Ask him to switch to an interchange plus payment model to avoid incentivizing your merchant provider to fix such issues pro-actively.
3. Beware billbacks
Billbacks are a particularly tricky tool to make your processing statement confusing to you. To cover high interchange rates and downgrades, you’ll be charged a low discount rate in a given month and then billed any and all surcharges in the following month. Such billbacks are marked as “BB” on your statement.
Solution: While billbacks do not increase your costs in any way, they make it difficult to determine your real processing costs. Your merchant provider should be able to provide you with a detailed description of all billbacks and analyze these carefully to minimize them. Billbacks on 20% or more of your total transactions typically indicate room for improvement.
Next issue, we’ll provide you with more tips & tricks how you can crack the code on your credit card processing statement, such as why rates are not everything, why you can’t find the single largest hidden cost on your statement and why you should avoid bucket rates in most cases.
Read Part 2 of this post here.
Kind Regards,
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Nice article- The problem with many statements is that a merchant has tiered pricing. Unless you are pricing a merchant at Interchange + they will never receive a “detailed” statement. Tiered pricing is like putting a dollar in a vending machine for a .75 cent item and then getting no change. Many ISOs would never propose Interchange Plus as it would eliminate the layer of fees where they make their commissions.