Where does all the money go for your credit card processing costs?

We’ve answered this before. Most of it goes to the banks. In a few moments, you’ll read about their blatant promotions to make more money at your expense.

If you process a transaction at the best interchange qualification, they make a little money. If you process a transaction that downgrades to a higher interchange qualification, they make more money. In fact, the worse you qualify, the more money they make.

This is a key reason why banks may not be the best choice for your credit card processing. With their inherent conflict of interest, do you trust your bank to help you hit the best interchange? You can influence your interchange qualification. It’s complicated. It’s more than what customers can do, it’s up to professionals like us to not only spot problem areas, but to take the corrective actions to fix the underlying causes- either behind the scenes, through programming changes or by contacting you and providing tips for staff.

Today I received a direct mail piece from a bank. The promotion rewards me for SIGNATURE BASED gold debit mastercard purchases. Pin based debit transactions are ineligible. That’s right. The bank is strongly encouraging consumers not to enter their pin number. They make lots of money that way.

How can you combat this kind of promotion and encourage pin based debit?
1. Do you have a pin pad? Consumer oriented businesses processing $1M annually, will almost always benefit. Call us for a free analysis.
2. Are you processing $1,000,000+ per MONTH (all card type transactions), please call me regarding new technology that will dramatically lower your debit processing costs.

Are you confused by quotes that are all over the place from sales reps?

This online prospect, a small restaurant, had one offer that was interchange plus 19 basis points. He said he was currently paying 54 basis points. He also had another quote for 41 basis points.

Is the quote real? Was he really paying interchange plus to start with? After questions by several others in the payment processing business it’s still unclear. The current costs were definitely not just interchange plus. Additionally, small businesses like this don’t get offered interchange plus. Why? Risk and reward. Interchange plus is generally reserved for larger businesses, of at least $1,000,000 or more, or restaurants that are part of a hotel operation.

Should the businessman take the 19 basis points? Without seeing the contract details, it’s tough to answer. On the surface it sounds…incredible. We do know there is a 3 year minimum and $299 minimum termination fee. As a general rule, if it sounds too good to be true, it probably is.

What’s really funny is one of the experts said that all the offers were too high; that he knew people who only charge $.07 per transaction, plus straight interchange. This type of comment is exactly why business owners are confused. Let’s do the math. $250,000 in annual revenue with average ticket is 5000 transactions X $.07= $350 for the processor. Now the processor and the sales rep will split that amount, let’s say 50/50. $175 each per year. Deduct the cost to print and mail monthly statements and let’s call it $150. Deduct the cost to process the application (even if merchant is not charged) and it’s zero profit the first year. Restaurants are high risk, small businesses even riskier. I don’t know ANY processor who is willing to take on that risk in the hopes the business will still be around to collect $150 for the second and third year. What’s the point of being in business if you can’t make money?

The scenario described illustrates a couple of important items.
There are merchant processors willing to work for peanuts. Will they still be around later? Or is this just a ploy to build account numbers so they can sell their business portfolio?

Will the payment processor take care of the customer if the merchant has problems? Given the potential profit, I can’t see how they would have a good support team.

Will the payment processor work to help the customer qualify for better interchange rates? Again, at these rates, they can’t afford to.

If the restaurant is doing $2.5 million per year, the whole picture changes. In that case, the merchant must select the processor that will provide the greatest interchange management support, not the processor with the lowest ‘basis points’ add on (merchant discount). Why?

A downgrade can cost the merchant up to 70 basis points and that number continues to increase. Which is better for you? Managed interchange where you hit the lowest rate possible for your transaction, or the lowest merchant discount, where you might have a high number of transactions downgrading? I’ve seen the downgrade percentage as high as 100%. Yes, the customer had every transaction downgraded! Why is another story, but the point is with the right management team on your side, you’ll pay a little more on the surface, but you’ll more than make up for it with better interchange qualification.

If the last paragraph was confusing, that’s OK. It’s confusing to most of the people in the industry, especially those offering cut rate deals. You hire the most skilled people for every position in your company. It only makes sense to hire the most skilled team to assist you with managing your payment processing costs.

You can eliminate the per transaction fee normally charged.

AMEX Split-Dial
Your terminal is programmed to dial Amex direct American Express transactions, and your other merchant number for VISA, MasterCard and other transactions. When this happens, the transaction fee normally charged (.25 cents for each transaction) is eliminated.

AMEX Reverse PIP
You can also offer reverse PIP which further reduces fees through split settlement. By using split-dial for American Express® , and reverse PIP (”split-settle”) you’ll eliminate any costs from your processor and only incur direct Amex costs.

Both of these are achieved through terminal programming. If your representative cannot help you with this, it’s time for a new processor!