It can be difficult to compare merchant services quotes from one provider to the next. The problem is that most merchant account providers quote a qualified “rate as low as” price then surcharge “non-qualified” transactions. It is important to first recognize that as a merchant, you will accept a diverse mix of credit and debit cards for payment and failing to find out how specific card types like signature debit, rewards, enhanced, world, business, corporate and others will be billed leads to higher bottom line costs.
Start with an understanding of Interchange
Interchange fees are paid to cardholder-issuing banks and these rates are set by MasterCard and Visa card associations. Interchange pricing depends on your industry category, your card acceptance method and the type of card you accept.
Regulating credit card Interchange is making news headlines with the proposed Credit Card Fair Fee Act creating an antitrust exemption for retailers allowing them to collectively negotiate agreements for the Interchange fees assessed on credit card sales.
Two opposing views of Interchange can be studied below but it remains that small and mid-sized businesses must insist on an Interchange pricing method just as the largest merchants already pay to get the best bottom line processing costs.
The Electronic Payments Coalition is a broad-based group of payment card networks, financial services companies and financial services trade associations whose primary goal is to educate policy-makers, consumers and the media about the value of electronic payments systems. They promote protecting consumer value, choice and competition in electronic payments systems.
The Merchants Payments Coalition, which counts 13 trade groups among its members, including the National Retail Federation, is working to regulate the fees card-accepting merchants pay issuing banks.
Learning about Interchange will give you the knowledge you need to negotiate your best merchant rates.
Identify the rates for your industry by charge type, transaction size
Certain industries qualify for reduced incentive Interchange pricing levels. Examples include supermarkets, business-to-business, schools, non-profits, public sector, movie theaters, taxis, tolls, quick copy, news stands, dry cleaners, car washes, convenience stores, quick serve restaurants and more. For example: Restaurants can qualify for reduced Visa Interchange rates for credit and signature debit (check cards) transactions under $15. Check availability for your industry. The types of cards you accept play a role in determining your overall processing expenses.
There are over 200 million Visa check cards in the market accounting for over 40% of Visa sales volume. Make sure you compare quotes for credit and check card rates independently. 2/3 of consumers have a rewards credit card, many with 2 or more. If you are not being quoted a rewards card rate, carefully examine the fine print for the definitions of mid/non qualified rates! Visa transactions may account for nearly 70% of your bankcard acceptance. Consider card market share and price structure when shopping for the lowest rates available.
Get merchant account rate quotes for MasterCard, Visa and Discover separately and inquire if any incentive rates are available. Realize the importance of how your rates will be billed. Avoid tiered rate plans that include Non-Qualified rate surcharges. The best pricing model is direct Interchange pass through.
Get all merchant rate quotes in the same format
Interchange is the largest component of your discount rate pricing. Visa and MasterCard publish their Interchange rates so you can monitor these costs. The transparency of Interchange with a mark up to cover the service delivery costs of network communications, risk management, customer service, account funding and reporting is your best pricing method. Identifying merchant service providers that simply pass through Interchange will make it easier to compare rate quotes.
Visa & MasterCard now publish their Interchange on their web site.
- Visa USA Interchange rates are published at http://usa.visa.com/merchants/operations/interchange_rates.html
- MasterCard Interchange rates are published at http://www.mastercard.com/us/merchant/how_works/interchange_rates.html
Use an Interchange rate calculator like the one found at www.MerchantRates.com to instantly calculate processing rates for your business..
Read the merchant agreement fine print
Three-year contract terms are normal and early termination fees can run from hundreds of dollars to tens of thousands of dollars. For most merchants, taking simple steps goes a long way toward protecting their interest.
- Recognize that there is contact fine print governing the operation of your merchant account.
- Obtaining a copy of the legal T&C before signing the application.
- Read all the numbered headings and make sure you have a full copy not a summary.
- Pay close attention to the term and termination section.
- Discover who is ‘party’ to the agreement and who has authority to legally waive contract terms.
Contract language also plays an important role in determining your true cost of service. Consider the difference if you pay for all authorization attempts vs. only settled transactions. Or the different ways companies define Mid-Qualified and Non-Qualified rate surcharges. Or will the Interchange fees be returned when issuing cardholder credits?
The best way to keep your processing expenses low in a competitive industry is to insist on a month-to-month contract. Don't settle for getting the term and termination fee waived; true month-to-month agreements are available. The bottom line is read and understand the fine print before you select a merchant services provider and establish your merchant account.For more merchant services resources, visit www.vantagecard.com.
Gregory Pyne
Invite as author
Right on the money