From the blog “But we have a great rate!” Are you sure?
When you walk into a store and see the price tag on a shirt, you know for certain that is the price you will pay when you walk up to the counter to purchase it. If only all pricing was so transparent!
One of the most confusing areas for many businesses is confirming their true costs for accepting credit card payments. The pricing and fees outlined on credit card processing statements (aka merchant statements) is a source of great frustration for businesses. Too often pricing and fees are deceptive, making it difficult for businesses to determine whether their program is fair or punitive. Often, we hear businesses say “oh, I have a great rate!” It may be true that your credit card processing program is optimized for your business, and you are paying a fair, competitive cost for the services, but how can you be sure?
Merchant processing sales groups are good at marketing a great “rate” then burying additional markups and fees in the contract and on the merchant statement. In fact, this is unfortunately a common practice. We believe knowledge is power. Understanding the main cost components of a credit card processing program can help you determine if you do in fact have a fair program, or if you are being deceived.
There are four cost components that make up the fees for accepting credit cards. All fees paid should fall into one of these cost components. Each is explained below, with tips to help you confirm how good your so called “rate” really is.
4 Cost Components of Card Acceptance
Interchange, Dues & Assessments (IDA)
IDA should represent about 80% of the fees for accepting credit cards. These fees are the true cost of accepting cards. These fees cannot be negotiated – sales volume has no bearing on these fees. However, these IDA fees can vary greatly depending on the type of card used: consumer vs. business, credit vs. debit, US vs. International, and level of cardholder rewards. In fact, there are about 300 different cost types that businesses can see from IDA. The key is your business should be getting interchange passed through to you at cost, meaning these IDA fees should be transparent and unaltered – and optimized for your type of business. Often, providers will add additional markups and still label it as “interchange pass-through.” If you see any words like “qualified” or “non-qualified” or you only see 1-3 different rates on your statement, these are Red Flags.
Processor/Acquiring Bank Fees
These are the fees charged by the company underwriting the merchant processing for your business and providing the billing capability. These fees should be clearly disclosed on your statement as a small percentage and a transaction fee, and these fees are negotiable based on sales volume. Included in the processor/acquirer fees are statement fees (should total about $15/month at most) and PCI fees of about $10-$15/month. If these statement and PCI fees are significantly higher, this is yet another Red Flag.
Sales Group Fees
There will always be a sales group that sells and possibly helps to support the processing program for your business. Again, these fees should be clearly disclosed vs. buried in other fees on your merchant statement. Too often the sales group fees are not transparent – this should be a Red Flag. If unsure, call your sales group and ask exactly where their fees are disclosed. If they are dismissive or confusing in their answer, this is yet another red flag.
Depending on your card acceptance solution – a terminal, a PC accessed solution, or a point of sale – these costs can vary greatly. These fees may even be billed off your merchant statement. By now you should hear a common theme – transparency. All fees associated with your credit card processing program should be disclosed and understandable by you. If you are unsure of the fees you are paying for equipment/software, ask. Then tie these back to your processing agreement to ensure these fees are not marked up. Be wary of “free” equipment as this is a tactic often used as a hook to get you to sign a long-term contract with termination fees. Also, never lease equipment as this is an extremely costly option.
Of course, breaking down a merchant statement and all the cost components can be difficult to understand. If you need help, just ask. Talus Pay is always happy to conduct a “health checkup” on your account and provide you with all the details you need to know for sure if your program is right for your business.