At Bindo we Speak to merchants on a daily basis regarding credit card processing.
We see all kinds of companies processing credit cards with a range of credit card processors. Though these merchants generally have a strong handle on their business operations, many of them Don’t know the actual rate They’re paying on credit card transactions. If you ask them, they will respond with a number, but that amount is often a huge misrepresentation of the real speed (aka effective rate). Because of the disconnect merchants will often stay faithful to a particular credit card processor, and lose out on a meaningful savings opportunity.
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Why do merchants make this error?
1. ) Processors like to market the”Qualified Rate”: If you search for credit card processing rates on the internet, you will see a wide range of rates cited. Obviously the lowest prices will catch your attention initially, but those super low prices are not representative of the actual rate you will payoff. Oftentimes that advertised rate is less than Visa and MasterCard’s lowest credit card interchange rate, which is a baseline for your credit card processor’s cost on a transaction. In other words, the speed that is advertised is significantly less than the chip’s cost. How can a processor provide a rate that is below their cost? They can do this because that rate will apply on a very small portion of cards that you take in your company (“Qualified” cards only). Any credit card which has a rewards or miles program attached to it Isn’t qualified. Processors will charge higher rates on cards which are considered”Mid-Qualified” or”Non-Qualified” and easily recoup losses in the extremely low rate which applies on Qualified cards.
Merchants will frequently be under the belief that their speed on all cards is the very low one the chip advertised initially. This isn’t right and merchants should look carefully at their processing bills to discover the true rate that they’re paying.
2. ) Snail mail rather than Documents: Your credit card chip probably does not need you to examine your credit card processing invoice. If you examine your statement you may realize that you’re paying a much higher speed than you thought, or you might find you are paying extra charges each month that you were not previously aware of. Processors make a barrier to assessing these statements by sending them in the mail on multiple sheets of paper with hundreds of lines. Some may send announcements as PDFs, but You Won’t find chips that make statements available in a spreadsheet format. On credit card processing statements you will see a line for each class of credit card which you took during the month, a corresponding speed, and a fee. You’ll see numerous sections with various fees recorded, and somewhere on there you will get the total fees charged, but it likely won’t be recorded near to where the complete volume processed is recorded.
Processors make it hard to examine your credit card processing statement because in case you don’t examine your statement you won’t understand the rates that you are actually paying.
3. Extra fees and other fine print: There are often additional fees recorded in the fine print of your credit card processing arrangement which will appear on your monthly invoice. These fees can make it so that your effective rate is much higher than the speed you think You’re paying. Frequent fees which appear on statements are”Monthly Statement Fee”,”Monthly Minimum”,”PCI Compliance Fee”,”Chargeback Fee” and much more.
- Merchant signs up for processing using an advertised speed 1.5%.
- Merchant processes $10,000 in credit cards in 1 month.
- 10% of those cards are eligible for the professional speed of 1.5%, whereas 60 percent are processed in a Mid-Qualified rate of 2.75%, and 30 percent are processed in a Non-Qualified rate of 3.25%.
- Merchant is billed $15 (Qualified) + $165 (Mid-Qualified) + $97.5 (Non-Qualified) = $277.50
- Merchant is charged a $10.00 statement fee
- Total charges on the merchant announcement are: $287.50
- Actual speed merchant is paying is 2.875%
Until the merchant in this example looks closely in their processing announcement, they may be under the impression that the rate they’re paying to accept credit cards is 1.5%.
What should you do?
If you are an existing business owner take a good look at your credit card processing invoice and if you are uncomfortable with crunching the numbers send it to someone who is.
If you are a new company and you do not have a statement to work with be careful and don’t sign any long term contracts. Do your best to find a chip that offers a fair rate. It is ok if you work with a chip whose prices are high as long as you have the ability to change chips. Take a good look at your initial statement and be certain it lines up with your expectations.