A telemarketer called from “Express Processing Payments”, with the pitch, “Have you heard about new regulated rates that Visa and Mastercard introduced for small businesses only?” And further, “…reduce your rates 20-50%.” Let’s dispel this claim right now. There’s no such thing.
The only ‘recent’ government regulation regarding rates, are those from the Durbin Amendment, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In August 2011, I reported on the proliferation of robo calls that followed the federal legislation for debit card transactions:
Under the final rule, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction will be the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction. This provision regarding debit card interchange fees is effective on October 1, 2011.
What does this mean to merchants?
- The maximum the issuer (if they meet regulated size) can receive is .05% plus $.21 plus $.01 if qualified.
- What merchants pay are determined by the salesperson selling them.
- Visa debit interchange rate for CPS Retail was 0.80% + $0.25 per transaction prior to the new legislation. If a small business received a 50% reduction in debit fees, the average small business processor still increases their profits significantly.
Question posed by Fred in California who owns an auto tire and repair shop.
In a nut shell- no.
Fred only accepts cards if the owner is present and can show a valid photo id such as a drivers license. They never take cards over the phone. They get a lot of special cards such as Pacific Gas & Electric and very little consumer cards.
Volume: a few thousand per month
Let’s make some assumptions and create scenario’s:
Estimated total processing at $36,000 per year
Average 4% or $1440 in processing costs.
He switches and reduced his average cost to 3.2% or $1152.
Merchant annual savings of $288.
Costs:$950 of $1152 are direct costs
The processor makes $200 per year.
The sales person makes a fraction of that.
What kind of service can a business expect from an account that makes them $200/yr?
More than likely, no one is going to help the merchant optimize processing, because it would take too much time for little return. The reason the cost is at 3% , 4% or higher for small businesses is because of the cost to maintain the account. Think about statement printing, postage, support etc. It’s a loser for the processor unless then tack on enough dollars to make it worth it.
Is $288 worth the effort for the merchant?
In the long run, maybe.
If the merchant expects growth, then a contract without an early termination clause is a must.