The most obvious answer is any credit card processing rate increase is bad and your business is going to get the squeeze. But there is another side to this story. A reporter from US News & World Report interviewed me the other day regarding this very topic. Here are the ways it can have a big impact on your business and why it might not.
The businesses most likely to be hurt by increased interchange rates are not just small businesses. It’s any business that is on a 3 tiered pricing plan – Qualified, non-qualified, and mid-qualified. It’s also any business that cannot see what interchange level they qualify for. Does your statement show CPS Retail, Commercial Card, Rewards card and a whole slew of other categories? If not, you are almost certainly going to be hurt by increasing interchange rates. Your costs are buried and hidden. You cannot readily see the relationship between interchange and your fees.
The first item I brought up is, “What’s a small business?”. In credit card processing, a small business has a different definition than the US Small Business Administration. If you’ve read other posts, then you know that interchanges rates are basically the same for all size businesses, unless you are truly have mammoth volume of credit card processing, in the hundreds of millions. In my own world, we define a small business as anyone doing less than $1 million per year in credit card processing. For the purpose of the interview, I suggested that the businesses doing less than $100,000 would be a small business. They really don’t have much control over what they pay. The processor who wants to make any money has to charge a lot because the volume is so low. So the small business must factor in a rate of 3%-4% into the cost of sales for credit card processing. If the rate goes up a little, they pay a little more.
But the bigger company, say doing $1,000,000 who gets hit by an increase, will pay a lot more in total dollars. At this point, it’s important the merchant look at all factors that affect the credit card processing costs. A company this size could actually lower their costs, if they have the right information.
The ultimate answer to the question “Can increasing credit card processing rates help your business”, the answer is YES, if the business seeks out a resource that will help them manage their costs. Getting a newer ‘better rate’ is not the solution or else the next rate increase they’ll be back at the same place they were over and over again. Cost management assistance is the permanent solution.