Last issue we talked about rates, rates and you’ve guessed it: billbacks. This 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.
1. Rates are not Everything
Especially in today’s economy businesses are eager to cut costs and to swap your merchant service provider may seem like a great opportunity to slash your credit card processing rates. A solid and – this one’s important – regular review of your merchant service provider is crucial to gain the lowest rates possible, but it’s not everything.
In the first part we already untapped some of the factors that influence your bottom line credit card processing costs. Often times the rates quoted by the merchant acquirers are not the bottom line rates you end up paying. Watch out the fine print and any fees above and beyond processing rates such as termination fees, minimum length contracts or bucket rates and credit card transaction qualification levels.
Solution: Read the fine prints and prioritize. Are you looking for the cheapest offer or the best value for the price? What’s important to your business? Is it solely cost driven or would a great technological integration with your ERP system and online shopping cart given you a competitive edge? The merchant acquirer provides an integral part of payment services and can help to get it all integrated to fit your specific needs and business opportunities.
2. Bucket Rates and Qualifications
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 this statement is that 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. 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. Large organizations generally use a system called “cost plus”. In a cost plus system the interchange charged by Visa and Mastercard is forwarded to the merchant at cost, plus an additional fee to cover for the merchant acquirers services. Corporations prefer cost plus due to its full transparency, which makes it much easier to understand the credit card processing bill.
Solution: Ask your merchant provider if they offer a cost plus system as well. It depends on your businesses’ particular needs; however, a serious merchant account provider will at least offer you the opportunity to transfer your account to a more transparent cost plus system.
3. Hidden Costs (that’s a biggie)
Especially for medium and large businesses processing $10 million annually and upwards, rates are much less an issue than other factors such as the technological integration of their payment acceptance points (PAP) with the credit card network back-end. Often a perfectly valid credit card transaction gets flagged by the credit card network as possibly fraudulent transaction which increases the risk to the merchant acquirer, thus charging much higher rates for the transaction.
The credit card network is a complex system linking many financial institutions and parties together. If the system is not perfectly optimized for the individual business, chances are that many transactions are captured at a rate which can be up to 350% higher than a regular transaction.
Solution: If you’re running a medium or large business ask your merchant provider to provide a cost-savings analysis based on better technological integration. Your provider should be able to tell you what you can do to lower unnecessary mark-ups on your transaction and provide assistance during the implementation.
Read Part 1 of this post here.
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Merchant Guide
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