The merchant services industry is extremely competitive, and yet most credit card processors will charge you far more than you should be paying… unless you know what is negotiable. Here are some tips on how you can lower your monthly credit card processing bill.
1. Understand what fees and assessments are industry-wide
You receive two charges for accepting plastic that aren’t negotiable. The first is the INTERCHANGE RATE. This fee is charged as a percentage of your profit. The issuing bank (the bank that issues the consumer a credit card) charges you a percentage of your profit to cover the risk that the credit card holder defaults. Part of this percentage is also paid to the credit card company for the privilege of using their network to process the transaction. These rates are determined by the credit card companies and issuing banks.
For example, as of April, 2012, Visa’s most common interchange is 1.19%. That means if someone purchases $100 of product using their Visa card, you pay $1.19 on that transaction.
ASSESSMENTS charged by the major credit card companies are termed “fees and rates.” They are the same for all processors. An example is Visa’s Fixed Acquirer Network Fee.
2. Know which fees are flexible
The only part of your monthly processing fee that is negotiable is the markup a processor charges on interchange and assessments. For example, the processor is going to pay Visa’s common interchange of 1.19% and then charge it to your account. They also charge you a markup on that percentage. This markup is negotiable.
Most merchant service providers will try to set you up on something called tiered pricing, meaning they hide their markup inside expensive mid-qualified and non-qualified tiers. Don’t let a salesman talk you into this opaque system! Request you be set up on something called interchange pass through pricing. This is a far more transparent processing method. It allows for you to see exactly what’s charged by the credit card companies like Visa and MasterCard and what’s charged by your processor. A processor shouldn’t be charging you any more than.5% over the card company’s set interchange rate!
The second markup a merchant processor charges is the “cents per transaction.” This can be as high as 25¢ per swipe. Don’t settle for anything more than 10¢ per swipe!
3. NEVER sign an equipment lease!
The most common card reader is the Verifone Vx510. You can purchase this piece of equipment for roughly $300. If a salesperson tries to sign you into a lease on this machine, stop doing business with him/her immediately! The most common monthly lease payment is $40; therefore, in a year’s time, you will have paid $180 over what the machine is worth. *Hint*: processors will often impress you with their “low rate” and then sign you into a lease. The best companies in the industry give you a machine for free. They treat it like the cable company which gives you a cable box for free as long as you pay your monthly cable bill.
4. Watch out for Annual Fees
Most companies charge an annual fee in order to process credit cards. It will range from $90.00 to as much as $150.00. However, if the salesperson is unwilling to waive this fee for you, they don’t want your business badly enough.
As a future business owner myself, I wouldn’t accept anything more than a $5.00 monthly statement fee,.5% markup on interchange, and.10¢ per swipe. There aren’t many companies out there that will give you this, but you can find them. And if you’re in a contract already, don’t hesitate to call your current provider and demand the rates you deserve!
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