Credit Card Processing Fees
Paying Too Much For Your Credit Card Processing Fees?
It is fair to say that most merchants would much rather doing anything but look into their credit card processing fees. However, in today’s tough economy, merchants have no option but to look into their credit card processing fees and see how they can reduce them. It’s important to first dissect what these fees are and your options in reducing your fees. Once you have an understanding of what the fees mean, then it is important to know the best way in reducing your fees.
Though there may appear to be a variety of fees involved with your credit card processing, there will only be three fees a merchant should expect to be charged regardless of their processing environment (i.e. face to face, online, or MOTO). These fees will be applied the same regardless of which processor the business chooses (it is the discretion of the processor on how to charge the merchant for the total cost). These fees are as follows: Assessment, Interchange, and Processor Pricing.
The fee of Assessment is paid to the Visa and MasterCard associations. This is a fixed fee that everyone has to pay, MasterCard charges 9.5 bps and Visa charges 9.25 bps. Out of the three fees involved with credit card processing, Assessment is the least important as it will always stay the same.
The fee of Interchange is the next fee we will dive into and is one that is important for you as a merchant to understand as it is the highest of the three (the fee is so complex with over 300 rate possibilities, it is advisable to research articles strictly on interchange). Interchange has also been a hot topic in the news and discussed on capitol hill in regard to anti-trust matters due to the constant hike in fees. These fees are paid to the card issuing banks and they are used to cover the banks potential risk of fraud. Of course, 9 out of 10 times, it is the merchant who pays for any type of fraudulent activity and thus this part of the fee falls into the profit category for banks. Interchange also covers the cost to use the financial networks for each transaction. This portion of the fee is very minimal.
Though this article will not go into great lengths about Interchange and how to optimize each transaction efficiently, I would like to bring to your attention a couple rates to keep your eye on that are paying a significantly higher Interchange rate. EIRF and Standard are both rates that you may assume are harmless but are referred to as downgrades and they are fees that are costing your business potentially thousands of dollars due to a much higher rate. When pieces of data are missing on a transaction, a downgrade occurs. If you see either rates on your statement, ask your processing representative on on how to fix the downgrades and what are causing them (also ask for the most recent Visa and MasterCard Interchange matrix). If you looked at your credit card processing statement and only saw terms like “Qualified”, “Mid Qualified”, and “Non Qualified”, you have been set up on a tiered structure and instead you should be looking into how many “Non Qualified” transactions you have processed. If your a merchant on a tiered pricing structure, it is probably guaranteed that you are paying too much in credit card processing fees. With that being said, the following sections of this article are particularly important in providing you the information necessary to find a better rate.
Processor pricing is the third fee with rates that vary all across the board as to how much they want to charge you. As discussed up above, if your business is placed on a tiered pricing, you are unfortunately being charged much more than you should. A tiered rate essentially means that the processor is condensing the 300 possible Interchange Rates into only three buckets which does not allow the merchant to receive the best rate possible. The most optimal pricing structure for a merchant is Interchange Plus that allows you to only pay for the exact cost Interchange and Assessment on the transaction.
In regard to reducing your rate with your processor, unfortunately, the system is highly flawed. It is flawed because the business is blind at the negotiation table due to not knowing what pricing they should be receiving in the marketplace and the industry has garnered the reputation of being the “used car salesmen” of the financial industry. A merchant has about the same chance of getting the lowest rate as a person buying a car would have the chance of receiving a great deal as a person walking blind into a car dealership expecting a good deal, information is king. .Due to this disadvantage, many merchants have started to use a credit card processing broker to assist them in this process. It is highly recommended that if you do not have the time nor sufficient industry knowledge, you will receive the best results if you use a broker to do the negotiating for you.
Not all brokers are the same and though you will get varying results from all, the brokers who will obtain the most significant savings in your credit card processing fees are independent and who act on your behalf. The Processing Brokerage out of New York City has been one of the leaders in achieving results for their wide base of clients and would be a a natural place to start.
I hope this posting has helped your efforts in reducing your credit card processing fees.