Effective November 1st 2011, the MasterCard Processing Integrity fee will increase by $0.01 to an amount of $0.055. Unless your merchant account is on a special type of bundled pricing, all merchants will see this on their November 2011 merchant statement, delivered in early December.

WHAT IS THE FEE FOR? This fee is applied to authorized transactions that are not followed by a matching MasterCard cleared (settled) transaction (or in the case of a canceled transaction, not properly reversed). The fee can be avoided by clearing (settling) your transactions. If an authorization is not needed, the authorization must be electronically reversed within 24 hours for face to face authorizations and reversed within 72 hours for Card absent authorizations.

WHO PAYS IT? All merchants pay the fee if triggered by the fee rule.

HOW WILL I KNOW IF I RECEIVE THE CHARGE? All merchants on “interchange pass through” or “interchange plus” pricing will see these charges listed as a separate line item, when the fee applies. If you are not on this type of pricing, then it’s up to the processor how your fees are bundled, though in most cases, I think merchants will see this fee regardless of the type of pricing.

HOW CAN I CANCEL OR REVERSE AN AUTHORIZATION AND AVOID THE FEE? This varies by many factors, including how you are processing.

• Yahoo stores now have a Reverse Authorization button on the Order Details page.
• Authorize.net has issued an API. Shopping cart engines are integrating the API, but it is not yet widespread.
• Check with your processor or POS software provider.

Can you give me an example of when this fee would be applied? An ecommerce store receives an order for an item. The item is backordered and will be back in stock in 3 weeks. The merchant does not want to cancel the order and does nothing. The authorization will be automatically dropped because it exceeds the 7 calendar day maximum. The merchant will also incur the MasterCard Processing Integrity fee.

The fee does NOT apply to:

MCCs 3351-3441 (Car Rental Agencies)
MCCs 3501-3999 (Lodging-Hotels, Motels, Resorts)
MCC 4411 (Cruise Lines)
MCC 7011 (Lodging-Hotels, Motels, Resorts –not elsewhere classified)
MCC 7512 (Car Rental Agencies – not elsewhere classified)

NOTE: The penalty for failure to reverse authorization is $.055 but the merchant per transaction fee is likely even higher. Unfortunately merchants will be hit with two fees in order to reverse an authorization for the benefit of the customer. Here’s a better idea to improve consumer satisfaction. Why not require card issuing banks to fund  consumer accounts faster when merchants issue refunds?  The money comes out of the merchant account per the merchant termsn, usually upon settlement, but the consumer doesn’t see there money usually for 3-5 days, sometimes longer.

At what point does it make financial sense to convert from a Paypal to a regular merchant account? I frequently recommend new small businesses start out with a Paypal account initially. There are factors you need to consider in making this decision, including risk of chargeback and whether you’ll be in front of your customer at the time the payment is needed. Below we examine two  business scenario’s and solutions. Both have customers that pay mostly by check or cash so credit card volume is low.

• A home improvement company meets with customers in person. Multiple salespeople are in the field so traditional wireless devices could be expensive. Some customers make a decision later and fax over their signed contracts.
• A boat towing service company has a fleet of part time captains that respond to emergencies on the water. Most customers pay cash so the credit Traditional wireless devices are impractical due to the number needed and inability to withstand weather elements.

All companies have their service personnel call in the credit card information for an approval over the phone, or they key enter it back in the office later.

Charge slips are impractical and expose the company to risk of a data breach whether through internal or external theft. Paypal is month to month, enabling new businesses to test the waters and build credit card volume before seeking prices from traditional merchant services companies. On the negative side, deposits to your bank account will usually take 3-5 days.  A merchant account will deposit funds to your bank in 1-2 days automatically, and deduct fees once per month.

Paypal is $30 per month plus the table below:

Paypal -month to month, no application fee. Deposits to your Paypal account, then you have to manually transfer it to your bank account which takes 3-5 days. Fees are deducted from every transaction, so you receive net transaction deposit. Some find this to be inconvenient for accounting.

Merchant account- Usually a 3 year agreement, and penalty for early termination and application fee may apply. Deposits to your bank account in 1-2 days and fees are deducted via ACH monthly.

How much will a merchant account cost? All credit card processing fees are based on interchange rates.  There are hundreds of rates. Hardly anyone charges $30/mth, so if your volume is low, be sure to include this when calculating your effective rate.

PAYPAL VS MERCHANT ACCOUNT FEE COMPARISON

The chart below shows examples of multiple scenarios of credit card processing for card not present transactions.  Foreign cards can have a major impact. Paypal charges 1% for foreign bank issued cards and most merchant accounts will pass through the extra fee which varies from .4% to .6% depending on the card brand. The chart assumes NO foreign cards which is a bit unrealistic.

Every situation will vary by number of transactions, types of transactions and actual merchant account fees. For your convenience, you can download the excel spreadsheet above and put in your own numbers. This spreadsheet is offered FREE for your convenience. It may not be used for commercial purposes, nor modified and distributed without express written permission from 3D Merchant Services.

Click to download the xls file Paypal vs merchant account fee calculator .
If you need a Paypal merchant account, click the image below.

The Merchant Solutions review examines themerchantsolutions.com web site advertised credit card processing offers. Every so often I see ads that I know are too good to be true. In your heart you know it too, but that doesn’t stop you from at least looking right?

I stumbled upon this site because it was at the top of google when I was searching for something and it caught my eye. This review lays out facts based on direct observations. I hope this helps you in evaluating any company for merchant services. Draw your own conclusions.

INTERNET MERCHANTS HOME PAGE OFFER

• 1.59% + 0.15 per transaction
• FREE Payment Gateway Software/Terminal
• FREE Gateway Access
• No set up, application fee or annual fee

ACTUAL OFFER (based on standard industry card not present):

Gateway – choose from authorize.net, $149 application fee, or PC Charge Pro, $249 application fee; both carry a $10 per month fee.

AUTHORS Comments: The home page says “free payment gateway terminal”. That’s true, the terminal is free, but the gateway is not. I knew that, but it’s a trick question. Are gateway fees negotiable? While the fees may vary, authorize.net and PC Charge are never free. They are for-profit businesses. The only way you can get them for free is if you are being charged somewhere else for it to make up the hard costs. I’ve never seen that happen and you should beware if offered. Whenever a cost is bundled, you can bet you’re going to pay extra for built in profit margin. END COMMENTS.

The actual offer continued.

Credit card processing

• 2.19% + 0.27 per transaction
• $10 per month statement fee
  
• No set up, application fee or annual fee
• CROSS BORDER FEES will be added and listed separately

The rest of the costs are found in the fine print: If you are a Direct Mail/Telephone Order Merchant (non-magnetic swipe read transactions) and each transaction you submit meets all of the following requirements will be priced at the rate quoted. Any other transaction, including all foreign transactions and commercial card transactions in addition to transactions using Visa Rewards Card, Visa Signature Card, Visa Infinite Card, and MasterCard World Card, will be priced at the rate quoted plus 1.14%.

REQUIREMENTS:

• Obtain an electronic authorization and settle for authorized amounts (one reversal permitted on Visa transactions to make authorization amount equal to settle amount).
• Address Verification Request in authorization on cardholder billing address.
• Purchase date (settled date) is ship date.
• Send order number with each transaction.
• Settle and transmit batches same day via your terminal/electronic system.
• Send level 3 data (line item detail, sales tax, customer code) with every eligible commercial card transaction. NOTE: Card Not Present transactions involving one-time, recurring, or installment bill payment transactions are subject to additional card association requirements which must be complied with to avoid NQS. Electronic commerce transaction requirements are also subject to additional card association requirements which must be complied with to avoid NQS. Please refer to Card Acceptance Guide for additional requirements.

AUTHORS Comments:

• There is no explanation as to why no transactions will process at the home page ad rate of 1.59% and $.15. However, Visa debit interchange for card not present is 1.60% + $0.15 as of April 2010. This does not include network fees incurred by processors or any profit margin. The home page advertisement would lose money for the company on every transaction, unless offset by other fees.
  
• A monthly statement fee is also a hard cost, so is not unexpected.
• Cross border fees are hard costs and it appears they are being passed through with no mark-up, which is good.
• Which transactions will qualify at 2.14% and which at 2.14% plus 1.14%, or 3.28%? First of all, does your business model meet the requirements listed? If you authorize on one day, but capture/settle on a future date, the transaction would not qualify. You may not be aware of it, but data captured does not always equal data passed on to the processor. For example, Authorize.net does not support level 3 data. I was unable to confirm if PC Charge does at this writing. At the other end, the processor also needs to accept the level 3 data from the gateway. Verify this with your processor. Statistically, about 50% of all consumer transactions are now with debit cards, so if you met the requirements above, and have a consumer oriented business, about half of your transactions would qualify at 2.19%. The majority of credit cards today are some type of rewards cards;  rewards cards rate is 3.28% in the above offer.
• “The Merchant Solutions (TMS) is a registered ISO/MSP of Wells Fargo Bank, N.A., Walnut Creek, CA” is on the home page and all web pages. I like to know more about companies I might do business with so I always research the entity.  Here’s what I found:

1. The wording on the application changed to “The Merchant Solutions (MSC) is a registered ISO/MSP of HSBC Bank, USA, National Association, Buffalo, NY”. Note both the company abbreviation and the associated bank name have changed.
2. The agreement terms and conditions are with Global Payments Direct, Inc. There is no mention of The Merchant Solutions (TMS).
3. I found no listing with the state of California for The Merchant Solutions under multiple name variations I searched for.
4. I performed a reverse phone number check at whitepages.com and got no results.
5. I performed various address check versions at whitepages.com and couldn’t find a company with any similar name at the address.
6. I searched Hoovers.com and didn’t find the company listed.
7. The online application does not use SSL technology (no https or lock symbol)  for taking your private data, including bank account and social security information. This is a significant security risk.
8. The application terms have significant penalties for early termination on the 3 year agreement. “… all monthly fees assessed to Merchant under this Card Services Agreement and due for the remainder of the then existing term of the Card Services Agreement, including all minimum monthly fee commitments, shall be immediately due and payable”.

FINAL REVIEW NOTES:

I’ve pointed out a few ways you can perform basic checks on a company for any service you find online, as well as reading between the lines for a merchant offer. Merchant services in particular involves highly confidential and sensitive information. Before sharing your private data, check out the company.  The sources mentioned in this article don’t measure company reliability.

For the record, you can verify 3D Merchant Services here:

http://sunbiz.org Registered Corporation, state of Florida, whitepages.com, hoovers.com.

We frequently address questions from merchants currently using the Costco Wholesale Merchant Processing. Costco’s merchant partner is Evalon, formerly Nova Information Systems.

Earlier this year, some Costco member merchant rates were increased, though on the surface it looked like a decrease. It really depends on your business whether you’d be better off or not. In most cases, businesses will pay more.

COSTCO PUBLISHED MERCHANT RATES, April 2010.

Visa/MasterCard Qualified (Traditional Credit & Signature Debit) 1.48% plus $0.20 (reduced)
Visa/MasterCard Qualified Rewards 2.20% plus $0.20 (increased)
Visa/MasterCard Partially Qualified 2.96% plus $0.33
Commercial Non-Qualified 2.96% plus $0.33
MasterCard Non-Qualified 3.80% plus $0.33
Pin-Debit Transaction Fee $0.12

Previous blog readers know these numbers above are pretty meaningless for comparing merchant rates. What really matters is your effective rate. You get the qualified rate when the customer uses their check card and signs for it instead of entering the pin number. Debit card usage is definitely on the rise so the lower rate is a good thing. But how many of your transactions will qualify for the qualified rate vs the other rates? Reference this article for a more important number to use when comparing rate plans.
how to calculate credit card processing effective rate
In addition to the above fees, processors are passing along .30% or .40% international fees launched in 2009 by Visa and MasterCard, also called cross border service fees. These are fees for foreign issued cards. There’s no way out of this one. Everyone pays it. Since no one knows how many foreign cards you’ll be presented with, it’s usually an extra line item on your merchant statement. I’d be vary wary of any deal that did not separate out these fees.

Based on the April rate changes, I’m staying neutral on processing up to $100,000 annually via the Costco membership plan. Anything over that, I’d look at other options.

Effective April 17, 2009, MasterCard will assess a Network Access and Brand Usage Fee (NABU) of $.0185 for all U.S. issued transactions settled with MasterCard.

These costs are certain to be passed along to all merchants.  All merchant agreements include language to pass along costs to merchants from Visa, MasterCard, and more recently, Discover.

Merchants will likely see these costs in their June statements. If you are on “pass through interchange” pricing, the costs will be a line item, without mark up. If you are any other type of price plan, the costs may be hidden within other costs, or they may be a separate line item, depending on your overall price plan.  The costs may be passed through as is, or part of a broader cost increase for your fees.

The MasterCard NABU fee comes at the same time of annual Visa and MasterCard interchange updates, and therefore will be included with other fee changes customers will experience in their May or June merchant statements.

How many people do you think click on the ad “1% Credit Card Processing”? It offers FREE Equipment, Same Day Approvals & 24/7 Support. When you click through, you land on a web page that offers no explanation as to how you’ll get 1% Credit Card Processing.

If you believe you can get these rates, then you need to learn a lot more about how merchant rates for Visa & MasterCard are determined, and we have plenty of that information this blog. 1% would be below cost for most merchant transactions, assuming this is not a PIN DEBIT transaction. They advertiser doesn’t even bother to explain how you can get that 1% rate. In fact, it’s not mentioned anywhere on their web site. It’s just a gimmick to get you to click through.

Do you want your credit card processing with a company that tricks you to visit their web site? Merchant processing fees are complex enough without having to sift through deceptive advertising practices.

Costco offers a discount credit card processing solution with it’s partner Nova Information Systems.

Is this a good deal? It really depends on the merchant, their volume and their business set-up. Read the fine print – “Rates listed are for qualified transactions. Reward cards process at a higher rate. ”
What’s a qualified transaction? For the merchant agreement that I reviewed, it is defined as a transaction for a check card ie a debit card. Debit cards have a debit card symbol on them. For most businesses, check cards represent 1-25% of their credit card transactions. That means, the majority of cards presented will not be qualified transactions.

50%-65% of cards presented at consumer retail operations are REWARDS CARDS. This means you need to find out what your rate will be for these as it is likely to be your most common card. If you look at the Costco web site, and most other sites, you do not find out this information until after you complete a ‘pre-application’. The APPLY NOW form almost always includes a disclaimer that the information you are providing is for information only, it is not really an application, because additional information is needed that is not requested in the online forms.

What is the rewards card rate? This can vary depending on your price plan, but with the Nova credit card processing solution, it is a fixed rate, that changes only when there are interchange rate changes.

The Retail and MOTO rates for Costco Members in 2007* were:

Retail / Restaurant:
Qualified 1.64% + $0.20
Qualified Rewards 1.78% + $0.20
Partial Qualified 2.83% + $0.31
Non-Qualified 3.35% + $0.31

Mail/Telephone Order (MOTO) / Internet Accounts:
Qualified 1.99% + $0.27
Partial Qualified N/A
Non-Qualified 3.36% + $0.31

$20.00 Monthly minimum in fees
$.59 Debit transactions
2 Year contract / $95.00 early termination fee

* These rates may since have increased with interchange rate increases.

Based on the information above, the typical transaction for merchants will be 3.36%, since most consumers use Rewards Credit Cards. I’ve seen new businesses paying 4-7% for credit card processing. The Costco deal brings certainty to pricing for start-ups and is certainly lower than some other solutions.

This article should help give you the information needed to compare deals with 3 tiered pricing- qualified, partial qualified (or mid-qualified) and non-qualified. It’s important to get the definitions for each tier, because it may vary by processor.

An established business processing more than $500,000 per year, may benefit from a different type of price plan, one that gives more than 3 price levels.

Are all credit card processing salespeople alike? Of course not.

Do all credit card processing salespeople share the same information with their customers and prospective customers? No.

Nearly everyone I consult with will hear information that NO ONE ELSE has shared with them. Information that makes a big difference in their merchant processing costs. So it is fair that the merchant then goes back to their current processor and says, “hey, I just found out all this stuff and you should be giving me a much better deal. I want this, this and this.” And the merchant processor that has been collecting the biggest fees they could for years suddenly says, ” Oh yeah, I reviewed your account and you qualify for that now.” (That last line is usually just something they make up to save face.)

No it’s not fair, but that’s the world of business. If you can get your current vendor to meet your demands, then you don’t have to change, and we all know that CHANGE can be scary.

Case in point, I recently had a call back from someone I consulted with last year. He went through the motions, got a better deal with his current processor, and is calling me again. The question is, why? He wants to save money and he’s not confident his vendor is looking out for him. He didn’t have time to deal with it last year, and yet now he’s going through the entire process again.

The next time you are thinking about doing that to the vendor who brings you the insider secrets, ask yourself these questions.

• If I hadn’t brought this to their attention, would they ever have given me a better rate on their own?
• What else aren’t they telling me? What might I miss out on later?
• Will I really lose my preferred loan and other banking relationship rates if I move my credit card processing?
• Can they explain things to me in terms I can understand?
• They’ve agreed to make some price changes, but will they provide account services that include regular reviews and account management to ensure I’m hitting the lowest interchange rates possible?
• If I stick with the same processor now, am I confident that I will never have to look at this cost center again?

The last two items are the most critical. With our consulting services, you can be confident that you have someone watching out for you, and it will be the last time you’ll ever need to change processors again.