merchant account pricing be so complex?
Knowledge is power.
merchant rates and fees can save you money.
Rates, Per Item Fees, Interchange Rates, Dues and Assessments, Network Access
Fees, Downgrades, Reclassifications, PCI Program Fees, IRS Reporting Fees,
Statement Fees, Minimum Fees, Non-Compliance Fees... where does it end? As the
number of components and the complexity determining merchant pricing continues
to increase, the frustration of small businesses continues to rise. Reconciling
all the charges to is no simple task. Most businesses don't even try.
step is to understand the various fees and where they come from. Let's break it
Interchange .62% - 3.25%
Interchange is the amount paid to the Card Issuer as compensation for expenses
incurred in providing lines of credit to card holders.
The interchange rate is non-negotiable
• It is
set by the networks (Visa, MasterCard, and Discover)
makes up the largest component of merchant costs
Interchange rates are one of the most complex areas of merchant rates. There are
now over 350 Interchange categories. The networks regularly publish the rates
for each base on Card type (debit card, credit card, reward card, business
card), Industry type (retail, restaurant, hospitality, super market, etc.),
Processing Environment (swipe, mail/phone, Internet, etc.), and transaction
amount. All banks and merchant providers pay the same rate.
Assessments .10% - .12%
This is a
flat amount paid to the Credit Card Association (Visa, MasterCard or Discover).
rate is non-negotiable
• It is
Visa, MasterCard and Discover's cut of the merchant charges
makes up the second largest component of merchant costs
is the same same for everyone and is not negotiable.
Discount Rate + Surcharges = Processor Fees
Interchange and Dues & Assessments that have set pricing, the Discount Rate and
Surcharges (sometimes grouped together and called Processor Fees) is the part of
the transaction that is "anything goes." The less the merchant understands, the
more they will pay. There is no limit/cap on the fees the merchant account
provider can charge. Nor does the processor have to disclose their discount rate
which makes it easier for them to charge anything they want.
Discount Rate .01% - 4%
put, this is the additional transaction percent the Merchant (you) pay to your
Merchant Provider. It is part of the Merchant Provider's cut of the transaction.
Sound simple? Well, not really. Generally, merchants are offered one of two
types of discount rates, either Tiered Pricing or Interchange Plus. Some
Merchant Providers offer a mix of these two types. The belief that
Interchange Plus offers the "best rate" is a common misconception. More on
Surcharges .10% - unknown
Account Providers can use several deceptive billing billing tactics to charge
additional fees and percentages. This is the area where minimum charges,
statement fees, support fees, network access fees, downgrades,
reclassifications, etc. come into play.
vs. Interchange Plus
Merchant Providers only offer a Tiered Pricing structure to their Merchants. As
discussed earlier, the Interchange rates vary by card type, industry type, and
processing environment, which results in over 350 categories or rates charged.
To simplify this for Merchants, most Merchant Providers break the associated
fees into three categories -- Qualified, Mid-Qualified and Non-Qualified --
which together are called Tiered Pricing.
rate advertised by Merchant Providers is the Qualified rate. The actual rate
charged to the Merchant is determined by first setting a baseline rate known as
the Qualified rate. (If you accept debit cards, you may have two Qualified
discount rates: one for credit cards and one for debit cards.) The next highest
tier is the Mid-Qualified tier, which is the sum of the Qualified discount rate
and the Mid-Qualified surcharge. The top tier is the Non-Qualified surcharge
tier, which is the sum of the Qualified discount rate and the Non-Qualified
determine if a transaction falls into the Qualified discount, Mid-Qualified or
Non-Qualified tier, the Merchant Provider creates and maintains what is called a
qualification matrix. The qualification matrix uses the interchange
reimbursement fee the provider is being charged to determine which tier rate the
merchant must pay.
Merchant Provider determines what transaction types fall into each of these
categories and their surcharge amount for Mid-Qualified and Non-Qualified
transactions. The fantastic advertised rate of just 1.69% may only apply to a
small percentage of your daily transactions. You need to know what a Merchant
Provider charges for Mid-Qualified and Non-Qualified transactions. And because
each Merchant Provider creates their own qualification matrix, you need to
review your statements to see what percentage of your business falls into each
tier. This can vary greatly from one Merchant Provider to another.
national retailers, such as Costco, have Interchange Plus structured merchant
accounts. Merchants with an Interchange Plus structure pay three fees: The
published Interchange rate, the Dues & Assessments, a negotiated Interchange
Markup percentage and a transaction fee.
earlier, the Interchange rate is a published rate and non-negotiable. The Dues &
Assessments is a flat percentage paid to Visa, MasterCard or Discover and is
non-negotiable. The transaction fee is a flat authorization or communication fee
(such as pre-authorization) charged, usually $0.10 - $0.15 each.
Interchange Markup fees are percentages added onto the interchange reimbursement
fee. The percentage is measured in units called basis points. One basis point is
equal to 1/100 of a percent. So, a transaction with a 25 basis point markup is
0.25% over the Interchange reimbursement + Dues & Assessments fees.
time, Interchange Plus pricing was available only to large national merchants.
Today, due to competition and Merchant education, this pricing structure is
becoming more widely available to smaller merchants and new businesses.
Structure is Best -- Tiered Pricing or Interchange Plus?
find an unbelievably long list of Merchant Providers offering Interchange Plus
today. This fact alone should raise a red flag of caution. All of these companies proclaim that Interchange Plus is the only way for a small business to get good rates.
Unfortunately, this is not necesarily true. For example, do you know what Interchange Plus "markup percentage"
(basis points) represents a better rate than you are currently paying? And don't
forget all the hidden Surcharges, which can add up quickly.
structure is best depends on many factors. One business will benefit from a
specific tiered structure over some interchange plus structures. In most cases,
what determines which structure is the least costly depends on the specific
provider and how the tiers and/or surcharges are setup. Some Merchants even
offer a base Qualified rate, then all non-qualified credit cards are charged at an Interchange Plus rate.
Next? How do I lower my total cost for accepting credit cards?
your most recent statement from your Merchant Provider. What percentage of your
transactions fall into the Qualified, Mid-Qualified and Non-Qualified
categories? What other fees are you being assessed?
simple math: All Fees & Charges* / Total Credit Card Charges = Your
total Cost as a % of Sales
* Total Amount Submitted (all credit card charges) - Total Amount Funded
(deposited in you bank) = All Fees & Charges
number should definitely be south of 4% and in most cases better than 3.6%.
Armed with this information, start talking to Merchant Providers. If you are
paying more, you should start shopping for a lower over all rate today.
these Rules when shopping for a good Merchant Provider:
1 - Comparison: A good Merchant Providers will ask to see a copy of your
most recent Merchant Card Processing Statement. This a copy of your statement,
they cannot evaluate how to best serve you. If they feel they can ask you a few
questions and find you a good program without seeing your current statement..
just walk away.
2 - Fees: Ask about their fees. Transaction fee, monthly statement fee, PCI
compliance fees, non-compliance fees, etc. Everyone will pay Transaction fees
and PCI Compliance fees, but the fees amounts will vary between Merchant
Providers. The Transaction Fee should only be 10 cents per transactions. PCI
Compliance fees may be assessed monthly or annually.
3 - Setup Charges: Find out if you will be charged for an application fee,
set-up fee or installation fee. A reputable Merchants Provider will have no
application fee and minimal if any setup and/or installations fees.
4 - Service Contracts: Does the Merchant Provider require a minimum length
of service contract? In most cases, you should avoid being locked into a
contract. Generally, contracts should only be required if you are a new
business, you have poor credit or you have negotiated and are locked into a very
low rate and fee schedule.
#5 - Support & Customer Hours: Many Service hours and cost. Top notch
Merchant Providers actually provide free 24/7 customer service. Do not sign-up
with a company only available from 8 am - 5 pm on weekdays.
6 - Technology: Does the company use up-to-date technology? Are they PCI
Compliant? If the Merchant Provider is not well versed on PCI compliance or does
not know much about the current credit card terminals... just thank the for
their time and say goodbye.
7 - Gift Cards: Do you sell gift cards or would you like to sell gift
cards? If so, this is a very important topic. Ask how the Merchant Provider
handles gift cards. What additional fees are associated. Do the they charge each
additional % fees and if so how much. Are you charged for balance look-ups and
customer inquiries? This is often another very lucrative area for Merchant
Providers. They charge for the cards, charge a % when the cards are used, and
even charge you when customers check their balances. The best Merchant Providers
have their own Gift Card programs and do not charge any additional fees, other
than the purchase of the cards themselves.
8 - Get Referrals: Often the best source to find a good Merchant
Provider is through a referral from another business owner. Ask other businesses
who they use, then compare the company using Rules 1 - 7 above.
If you would like assistance lowering your credit card fees, give us a call. We can quickly assess your credit card needs and educate you how to negotiate the best "actual" credit card rate. Once you are armed with this knowledge, we can refer you to seasoned merchant reps who can help you achieve your goals.
Call POS Hotline @ 866-767-1230 and ask for Kevin.