Processing credit cards can be one of the biggest expenses any business has to cope with. In some cases it can be more than 3% right off the top – Ouch! To make matters worse, it seems like processing companies purposely confuse the process to keep you from comparing service. Which in someways is true. It’s not that you’ll be prevented from finding a good deal, but you need information so that you are in a better position to negotiate.
The Card processing business is very competitive, and because of it, most companies won’t give the rates until you are willing to sign a 2 year service contract. The last thing they want is for you to take the rate quote they provide and use it to negotiate with your current processor.
First, if you’re not familiar with Merchant Account terminology, I suggest you take a quick side-trip, to Wikipedia’s Merchant Account Article for a lesson.
The next thing you should read is your current card processing statement, if you have one. There, you’ll be able to determine what rates you’re being charged. Yes, rates. There is more than one tier and a little strategy at the till can significantly lower your processing fees.
For basic, every day credit cards that are swiped, you will pay the qualified rate. This first tier rate is the lowest and usually where the processor will focus your attention when showing how affordable they are.
However, if the card you just swiped is a rewards card, you just paid for someone’s flight to Hawaii. Ask yourself – Do you think the card companies are that generous? Of course not, and to pay for these points and other perks, they pass the cost on to you by processing the card in the second, Mid-Qualified, tier.
This second tier is also the rate you’ll be charged if you don’t swipe the card. The reason is that there’s a higher probability of fraud and mistakes if the card isn’t present.
There is a third tier called the Non-Qualified Rate. You’ll most likely find this rate on your statement if you manually enter a rewards card. So swipe as often as possible to push rates in to the lowest tier you can.
Debit cards could be your saving grace though. If you have an opportunity to swipe a debit card it might be in your best interest to have the customer enter his or her pin number.
Credit card rates are usually a percentage of the total plus a transaction fee. Debit cards usually have a flat rate no matter how big the ticket is. You can easily calculate what the break even point is and post this number by the cash register to remind your staff.
For example, if your qualified rate is 2.9% + $0.30 and your debit processing rate is $0.70, it will be cheaper for you to process as a credit card for anything under $14 because 2.9% of those small amounts, is less than you’ll be charged for a PIN transaction. On the other hand, transactions over $14, processed as a debit card will save big. In fact, with these example rates, $38 processed as a credit card will cost you $1.40 – twice as much as asking the customer enter a PIN number.
To negotiate for lower rates, the next item to take into consideration is your average ticket price. When your average ticket is a low number, you could accept a higher % for a lower transaction fee. Or a higher transaction fee and a lower % if you have a high average ticket.
Finally, don’t forget to consider your volume. If you have a high volume of business, you’re in a better position to get a better rate. The processor will be more likely to go with a rock bottom price if there are a lot of transactions to profit from so don’t forget to leverage that if you can.
Once you’re educated about the process and what your business needs to remain profitable, you should be able to get the rate you want. You may have to endure a steady stream of card processing sales people, to get it and you might need to fight tooth and nail on the extra fees they tack on, but you should be able to find a deal that cuts your costs significantly.