I was reading the copy on a popular merchant accounts for lawyers web site and there was so much false information, it’s amazing. Many law firms are fairly new to accepting credit cards, so maybe it’s easier to believe what’s written from a vendor that has an attorney for an owner. Below I clarify information about fees that I found misleading.
What are the costs associated with accepting credit cards? Fees include:
Discount Rate or Sales Discount: Negotiable. This is the fee the Merchant/Acquiring Bank keeps for profit. For example, you call a credit card processor and open a merchant account. The credit card processing company you deal with charges a discount rate, which is itemized on better prices plans, but buried in other costs on more profitable price plans. How much profit is fair? Every business has overhead and needs to make a profit. What’s fair? That’s negotiable, though some businesses may have internal rules for their sales force. The fee can be a combination of a per transaction fee or percentage of transaction, and other itemized fees that include a combination of actual cost plus profit.
Interchange. Non-negotiable, but can be influenced. Interchange is a fee paid between the merchant’s acquiring bank and the card issuers bank that serves to balance costs in the payments system. The rates depend on the card, the payment method (sometimes) and many other factors. It’s complex and every card has multiple interchange rates associated with them, except regulated debit.
On the best price plans, the merchant will typically have a discount rate and itemized interchange fees. On others, typical of small businesses, they’re combined into a merchant discount fee.
Merchant Discount fee: Negotiable. It is not simply the cost of moving money. It’s interchange plus profits (discount rate) bundled. Quite simply, it’s easier for the merchant to understand and easier for the salesperson to explain. It’s never the best deal for the merchant, because to keep it simple, everything is rounded up to be sure all costs are covered.
Network Fees: Non-negotiable if on a pass through interchange price plan, which will be indicated on your merchant agreement. Non-negotiable examples include DISCOVER DATA USAGE FEE, MC NETWORK ACCESS AUTH FEE, M/C INTERNET AUTH FEE,MC ACQUIRER AVS BILLING. VI TRANSACTION INTEGRITY FEE, and many others. These add up up but are still a minor part of what merchants pay overall.
REGULATORY PRODUCT FEE. Non-negotiable. Some processors are now charging this as an annual fee.
Other fees: Sometimes negotiable. These may be hard costs for vendor, as fees can vary by banking relationship, or they may be negotiable. AVS (address verification service, needed for card not present transactions, statement fee, authorization fee.
How do I know if I have a good offer on a merchant account? This is the $10 million dollar question. Here’s my critical requirements checklist for you:
- Get a virtual terminal (works with swipe and mobile if needed). Find out how long data can be searched for. They range from 6 months and up. Ideally 7 years access to data to match IRS audit needs.
- Does it support expenses from operating account and deposits to second account?
- How will the solution help you manage interchange fees, the largest component of accepting credit cards? This is where most solutions will fail and sales knowledge weaknesses become evident.
- How will the solution help you reduce the burden of PCI Compliance, mandatory data security standards? (Hint: online pay page, client managed payment method storing and updating, fax authorization forms that replace sensitive payment data with a random alphanumeric ‘token’)
- check out my videos, including 60 seconds to see if you have a great deal (for existing merchant accounts)
Protect your firm and protect your client relationships. Just because a merchant services provider specializes in legal credit card processing relationships does not mean they have the best solution for you. Without innovation and change, they’re just a company that had a great marketing years ago.