Merchant Guide

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.

If you want to know more about Social Business Bank, visit socialbusinessbank.com.

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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,

Social Business Bank

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