Merchant Services Credit Card Processors - How to Find a Great One!
9 Things You Must Know When Shopping for a Merchant Service Provider
Let’s be honest the Credit Card Processing industry is often viewed as a necessary evil. It can be complex, frustrating, and worst of all expensive. There is nothing worse than paying for something that you don’t understand. In our experience we have found that most merchants shop by rate alone and, unfortunately, this has lead to, shall we say some unethical sales tactics. The qualifications to become a sales agent in the merchant services industry can be very – well – loose. This has led to many, many frustrated business owners who have had terrible experiences when trying to switch credit card processors to save their business money. We find merchants who have been lied to and taken advantage of all the time. So how do you as a business owner make sure that you are not paying too much for your credit card processing services while at the same time make sure that you are dealing with a professional and ethical merchant services provider?
Well for the most part merchant service providers work on incredibly thin margins to conduct their businesses and provide service to yours. They count on processing large volumes of credit card transactions to operate. Most business owners simply want to be able to accept credit card payments a fair price, with 24hr funding, a reliable processing network, and ethical professional service. So without getting too complicated the following 9 short items are things that you must know when comparison shopping for your card services provider.
1. First demand that all proposals are in what is called a true Inter Change Plus format.
In general there are only two legitimate pricing structures; which are tiered and Inter Change Plus (or Pass Through Plus) pricing. It is important to understand that in reality there are actually over 200 plus credit card categories each with its own cost. This cost is the raw cost to your credit card processor and is called Inter Change In other words every card that you process every day may have a different rate based on your industry and that individual card’s “risk” factor. I liken it to car insurance – if you have accidents and tickets you will pay more than someone who does not. For instance who pays for all those “rewards” that credit cards offer their customers? Well the banks surely won’t so of course a rewards will cost more per transaction than a Plain Jane Visa card that your bank issues.
A. The most common rate structure is to have what are called tiered rates. This is where your business will have different rate categories such as Qualified, Mid Qualified, Non Qualified, Rewards, and Debit - each category is a called “bucket” for the numerous different card types. This can be a deceiving style of pricing when comparing credit card processing proposals depending on how each processor in question has set up those “buckets”. In other words every processor can sort the buckets of rate categories in any way they like and when VS/MC makes rate adjustments to an individual card type it may allow the processor to change the rate for the entire bucket! This type of rate structure should be avoided at all cost because it makes it impossible to fairly compare the rates from one merchant service provider to another.
B. The most transparent and economic way to ask for a proposal is to have the salesperson put it into an Inter Change Plus format. This means that every transaction will be charged the hard cost for that card plus a few basis points and a few cents per transaction. A basis point is equal to 1/100th of 1% or .01%. An example would look like this: “Inter Change plus 25 basis points and .10 cents/transaction”. This pricing structure will ensure that you pay the exact same margin on all your transactions and shield you from hidden rate increases or bucket changes. It is the only way to truly compare the rates and fees of one merchant service provider to another.
2. Make sure that your card services account is set appropriately for the way you accept credit card payments.
By this I mean if you accept credit card payments via the phone or internet but you receive a proposal or are set up as a “card present” or retail location you are/will be paying much more than quoted. This is a common practice when it comes to tiered rate proposals because it allows the sales person to quote a really low rate, unfortunately, your business will never see that low rate. This is because a card present retail location carries a much lower rate structure than a MOTO (Mail Order/Telephone Order) business, however, every transaction at a retail location that is hand entered (not swiped) will default to the next highest rate which is actually much higher than the MOTO rate. So if you do a majority of your credit card processing payments one way or the other then it benefits you to be set up appropriately. If you accept credit card payments at about a 50/50 split between MOTO and Card Present then you may want to consider having two merchant accounts (one for each type of transaction).
3. Be aware of the fine print concealing promotional rates.
This is a highly common practice that is not commonly disclosed properly. After your promotional period is up you will not have much control over your rates. The most well known offender of this practice is believe it or not Costco!
4. Make sure you will have service when you need it.
Collecting credit card payments quickly and efficiently can make your business more profitable so if there is ever a problem you want to make sure that you can resolve it quickly and easily. All processors will claim 24/7 assistance but ask them if the service is conducted “In-House” or if they contract it out to a call center. This is important because you want your credit card processor to be “responsible” and accountable for the service they say they provide. We all know how frustrating it is to sit on hold for ever and then get an unknowledgeable and uninterested person on the line from thousands of miles away.
5. Pay attention to any additional fees.
Make sure that your salesperson has been comprehensive in their written proposal of all the fees involved not only on a monthly basis but any and all applicable annual and set-up fees. These can be numerous and many times are not disclosed until you have signed your contract. You should not have to pay any set up fees, application fees, annual fees.
6. PCI Compliance fees.
An often sore subject but it is important to know that this is now a Federal Mandate and you must be compliant. The annual fee for your compliance can vary greatly depending on your business model, what approved companies your processor works with, and if they have marked up the fees in any way. So ask what the PCI compliance annual fees are and what the PCI non compliance fees are.
7. Make sure your merchant services contract is fair.
Most contracts in the industry are for a 1-3 year period with cancellation fees ranging from $200-$500. Watch out for contracts that lock you into estimated real damages for the remainder of your contract period – these can be very costly if you desire a change of service for any reason.
8. Be weary of “FREE” credit card processing equipment offers.
Free equipment is one of the most common marketing methods in the industry but we all know that free is not really free right? Credit card terminals can be fairly costly ($200 - $500 on average), however, if your business accepts a fair amount of credit card payments then you are probably better off just paying for the equipment. This is due to the fact that most “free” credit card equipment offers will have rate and monthly minimums attached to them which will limit your ability to negotiate the best rates and terms for your business.
9. Pay attention to your merchant services bill!
This may sound fundamental but once your account is set up make sure you read your entire credit card processing statement. Your salesperson does not see a copy of it and if there is anything you don’t understand or out of the ordinary you need to call them. Notifications of industry issues, new fees, rate increases, and other important information will be put on your bill and assumed that you read it. Mistakes can be made and the more you understand the better off you are.
So do not get taken advantage of by over zealous sales people – remember knowledge is power! Be smart with your business.
Please leave your questions, comments, or concerns below.
Inter Change vs Tiered Rates
PCI Compliance in 12 Easy Steps
More by this Author
Square is no longer PCI compliant under the latest guidelines. What this means to Square, to you, and what are your options.
Find out who comes out on top when it comes to being able to accept credit cards on the go - Square or Phone Swipe with the Merchant Doctor. A honest comparison of the two services.
If you use Square, Phone Swipe, GoPayment or another to accept credit cards there is finally a solution to provide your business with a Gift Card Program that will increase sales and profits.