November 16th, 2016 by MSI Newsletters
25 things your bank doesn’t want you to know about your merchant account
Filed in: Monthly Newsletters |
Your qualified discount rate means nothing:
Don’t be fooled by a 1% lead in offer. This rate is your qualified debit card rate. Most likely less than 30% of your transactions will qualify for this rate. What really matters is what your overall effective rate comes out to which is the total cost of your processing fees divided but the total sum of the transactions you accept per that billing period.
You personal bank is probably the most expensive place to get a merchant account:
They already have your trust and they use it to offer services at a significantly higher price than what you can find in a competitive environment. Banks are notorious for high fees, egregiously aggressive contracts and leases, and most of the time they actually use an independent company to actually handle their client’s credit card processing.
Your processor loves you when you key in your transactions:
Your processor makes more money every time you key in your transaction. Often times an additional 1 to 2 % surcharge is added to the cost of this transaction.
Address verification (AVS) and CVV2 is important:
In addition to providing some security, missing CVV and/or AVS information for non-swiped transactions will cause your transactions to downgrade costing you more money.
Ditto for rewards Card and business Cards:
Good excuse to add 1 1/2% to a transaction that may only cost the processor an additional .20%.
Your processor has a conflict of interest with your chargebacks:
That’s right, your processor can shut your account down if you have too many chargebacks meanwhile they are making $10 to $25 on every chargeback you receive.
Your bank has an even bigger one:
Issuing banks are the party who actually controls the chargeback process and who rules on the outcome. They account for the majority of the fees you pay to accept credit cards while collecting an even larger premium from their credit card holders in the form of an APR on their credit cards.
Processing EMV cards properly is important:
Besides protecting from fraud from duplicated cards, some banks are issuing automatic chargebacks for transactions not using the chip reader.
Your rates are going to go up twice a year after you sign up:
Sadly, each year, officially in October and April, the card brands (MasterCard, Visa, Discover) adjust their rates and there is usually an upward hike on everyone’s cost. While it may only be a few basis points each time, it will add up after a number of years. That’s why it’s always a good idea to do a rate review on your account every couple of years.
A PINpad can save you money:
Especially if you have a high ticket or a large number of customers who prefer to pay using their debit card and PIN number. The average the cost of a transaction could be the difference between 65 cents vs $1.00 for just a $50 transaction. Saving will be even more for higher transactions. PIN debit is also virtually impossible to dispute, so there is some protection from chargebacks for PIN debit transactions.
A PINpad can lose you money:
Since the Durbin debit regulations, PIN debit is often more expensive to accept than signature debit for small transactions, and the debit networks such as Star, Pulse, etc., can now charge a monthly fee. If you do not routinely accept transactions using a PINpad, or have a low ticket size, you may be better off just running debit cards like you would a credit card without having your customer enter their PIN number.
PCI compliance is important:
Not only is becoming PCI compliant important for security sake but most likely your processor is charging you a fee if you are not compliant. This non compliant fee has become a huge source of income for the processing industry.
If you process less than a $1,000 a month, you should probably just use Square:
It’s not hard to beat the Square processing rate (2.75%), and they are all but non-existent on customer service, but because of zero monthly fees, Square is often the best deal for low volume merchants. This may change in the future if Square moves away from their no monthly fee model or increases their rate because they aren’t profitable, but it doesn’t appear to be under any immediate threat of being withdrawn.
Leasing Equipment is not a smart decision:
Normally the machine you leased can be purchased for a 1/4 of the price of most 36 month leases, often even less. There are many companies, including us, that will steeply discount or give you a terminal to use for free.
Leasing is often bad but watch out for Free Equipment Deals as well:
Many times free equipment deals comes with strings attached such as higher fees or a very onerous contract. We’ve seen contracts with $5,000 or more termination fees and 3 – 5 year contract terms tied to free equipment programs. Some contracts even try to only give a 2 week window to terminate the contract or it automatically renews. In the case of anything, if it’s free, be conscious that they may be making up the money somewhere else or they may be aggressively locking you into a processing contract.
Termination Fee is Optional:
Most processors can waive the termination fee any time they want. This becomes less of a possibility when signing up with free equipment programs and complex setups such as POS systems or processing involving multiple independent parties.
At the same time, termination fees aren’t the end of the world:
Despite what many people think, gaining a merchant account customer and setting up an account isn’t cheap and takes a lot of work. It’s tough to see another company, often falsely, lure a customer away often only offering pennies of savings. Companies that charge reasonable termination fees can be the ones with the most honest rates and best customer service. Don’t assume a termination fee in itself is a measurement of the quality of company but watch out for excessively long contracts, expensive termination fees or liquidated damages clauses, or extremely narrow closure windows.
Next Day Funding is an Option:
Most companies can provide next day funding but the default is always for an extra day delay. There is almost always a cutoff time in the afternoon or evening for next day funding to work which can make the benefit negligible for bars, restaurants, and businesses that stay open late.
There is a special way to set up accounts for Large ticket Business to Business and Government transactions:
It’s called Level 3 Processing and it can lower your interchange cost up to 40%.
Small ticket merchants have special rates also:
If your average ticket is below $15, there is special pricing to lower your transaction fee.
Under some circumstances you can now charge your customers a surcharge or convenience fee to cover your credit card costs:
Some states prohibit this but in most states a merchants may charge extra for a credit card purchase.
You don’t have to accept all brands of credit cards:
That’s right, if you don’t want to accept Visa Debit, you don’t have to.
There is also a special set up for Emerging Markets:
If your business qualifies for one of the following business types/sic codes, there are special interchange rates for you. Government (MCC 9399, 9211, 9222), Schools (MCC 8220, 8211, 8299), Insurance Companies (MCC 6300, 5960), Fuel Dealers (MCC 5983), Child Care Services (MCC 8351), and Direct Marketing Subscription Merchants (MCC 5968). MCCs 5960 and 5968, Telecommunication Services (MCC 4814), Real Estate Agents and Managers-Rentals (MCC 6513), Charitable Organizations (MCC 8398), and Cable, Satellite, and Other Pay Television & Radio Services (MCC 4899).
A bank cannot require you to have a merchant account as a condition for a loan or other service:
This is called bank tying and was specifically prohibited by Congress in 1970 yet it remains a frequently used condition when business open business accounts or apply for credit or financing for their business through their bank.
Nobody is really going to save you a ton of money if you have a decent setup:
The merchant account industry has fixed costs across the board, whether you process with a small company like ours or a billion dollar bank. So, unless you are truly getting a bad deal, or you are an extremely large business where the smallest of changes in rates results in a large different in cost over time, nobody is going to be able to save you a ton of money. A .10% rate change in processing fees is only $1 for every thousand dollars processed. Obviously this can add up over time, but haggling over tenths of a percent in processing fees is unlikely to yield worthwhile gains for most businesses.
However, there are huge differences in the quality of support and customer service between companies. This is an industry revolving around your business’s money, and really your business’s ability to thrive and exist, don’t just trust it to anyone without figuring out what kind of a company you’re dealing with or by chasing the lowest offer out there.
Concluding thoughts
Many of these issues can be addressed and prevented by always insisting on cost plus fee structures with your merchant account. While it may make a processing statement more complicated, it’s the most transparent way to process as industry costs are passed transparently to merchant account holders. As always please feel free to contact us if you are interested in processing services from the merchant store or would like additional information about any of the above.
