We all want to save money with our merchant accounts, right? Accepting credit cards and the fees associated with them are a necessary cost of business. But credit card doesn’t have to be expensive, and there are many things you can do to reduce fees, increase security, and lessen the risk of charge backs. Rick Montgomery of Northern Air Merchant Services is on a mission to help small business save money. That’s why I asked him to write a few articles about the subject. Here is the five part series, in its entirety that ran in our email newsletter a few weeks back. Whether you missed an segment, or this is your first time reading it, the information will help you save money with your credit card merchant account.
Five ways to save money with your credit card merchant account
Do you want to save money on your credit card merchant fees? Rick Montgomery of Northern Air Merchant Services will offer a new series to Rely Local Newsletter called “Tips, Tricks and Teach”. The goal will be to help your business be more efficient, educated & profitable by understanding the world of accepting credit/debit cards.
1: Swiping transactions
Swipe, swipe every card to get the lowest possible fee structure. Keying transactions introduces a higher fraud risk thus a higher fee rate. If you have to key, make sure you have the “AVS” feature with your processor. This requires inputting an address, zip code, and 3 digit security code to avoid an even further fee “Downgrade”. The AVS feature will often only cost about $.05 rather than possibly $1.00 for the downgrade without the additional info. Swipe fee of 1.59% or a keyed downgrade 3.50%, which will keep more $ in your pocket?
2: Batch and close daily
Batch and Close your transactions daily. Skipping days can cause your processor to “downgrade” all your transactions in that batch. Generally a card issuer requires a transaction to be batched and closed within 48 hours. If a merchant swipes a card today and it is approved, that is a guarantee to the merchant they will get paid for that sale. If the card holder goes on a shopping spree and limits out their card, or the card gets stolen later that day and the thief limits it out and the merchant fails to close it out for a few days, the card issuer is on the hook to pay the merchant even though they may not actually collect it from the card holder. So to account for the higher possible risk the card issuers will charge a higher fee on all transactions if they are over 48 hours old and the processor will pass that higher fee to you.
3: Interchange rates
Do you know what Interchange Rates are? Don’t feel bad, most business owners don’t. After all you’re not in the card processing business, all you know for sure is that today about 50% of your customers pay with plastic and that % is rising daily and you have to offer it as a payment form or they will find a place that does. This is the fee a card issuer charges you to take the card from your customer….HUH?? Yep, you heard right, when a bank issues a credit or debit card to an individual they assign it an Interchange Rate. Whatever that rate is, is what you pay them for the privilege of letting the customer pay you in that form. Most of the fee’s you pay a processing company go directly back to the banks that issued all the cards you take in. The processing company is tasked with collecting these fees and paying the issuing bank. Neither your customer nor you know what that IC rate is at the time of transaction, but all are published online by Visa, MC, Discover and AMEX on their respective websites by card type. Next time we will cover the different ways fees are charged. Stay tuned….
4: Card Processing Billing Structures
How is your card processing company charging you? Are you on Tiered Pricing, IC Plus, Enhanced Bill Back, and Flat Minimum? If you answered “I don’t know” to any or all of these types and methods of charging, you may be doing yourself a huge dis-service and costing your business un-necessary charges. IC Plus is probably the least expensive and the most transparent fee type in the industry. With this method you are charged the Interchange (IC) Rate Plus a processing fee to handle the transaction. As we covered in the last article the IC is the rate the issuing bank charges you to take a card. This rate is set in stone and is constant no matter what processing company you use. Where you have power is in that “Processing Fee”, and where you can negotiate lower fees. These 2 charges are separated and you see exactly what you paid on each transaction, very transparent. Tiered Pricing is just that, usually a 2 or 3 tier system that encompasses and includes the Interchange Rate and a processing rate. Tiered is always more expensive to you because all the different IC rates are lumped into tiers, so you never get the advantage of a low IC rate that may be assigned to a particular card. If you don’t know how you are being charged, speak to a professional in the industry and find out, it will be to your benefit.
5: Periodic Reviews
As a business owner you should treat your card processing like you do your insurance, savings rates, mortgage interest and any other expense you have and review it often and go out and get the best possible option. Just because you may have gotten set up to take cards through your bank or trade association, you don’t have to stay with that company. All banks and trade associations use a 3 rd party resource and contract with them to offer you Merchant Services, they don’t actually do your card processing. And they receive a portion of your fees in return for placing your account with that particular company. All processing companies will deposit your sales into whatever bank you want. Your bank account is not synonymous with your card processing. So you may be able to save yourself quite a bit in fees by contracting directly with a card processor rather than going through a bank or trade association. But, be careful; make sure you are working with a “Primary Processor”. There are only about 8-10 primaries in the industry, all others are simply re-sellers contracted to a primary just like banks and trade associations, and some of them are even with the re-sellers.