Everything You Need to Know About Merchant Services
It's the most wonderful time of the year -- to take a look at your company's operating expenses! One place where you can easily find savings is in your merchant account fees.
As the owner of a national merchant account brokerage, I'm going to let you in on my top tips to help you save an average of 30 percent in 30 minutes or less!
1. Make sure your rep is reputable.
As someone deeply entrenched in this industry, I can say from experience that merchant services reps aren't called the "used car salesman of financial services" for nothing. This reputation comes from decades of businesses being duped and taken advantage of by slick salespeople. Be sure to find someone to represent you in this arena whom you can trust, who has experience and can explain the industry jargon in layman's terms.
2. Understand common pricing models.
There are three standard pricing models in credit card processing: flat rate, tiered pricing and interchange plus (also known as cost-plus pricing).
Processors such as PayPal and Square made flat-rate pricing famous. I tend to find that flat-rate pricing is best for merchants who are processing small monthly volumes. You end up paying more per transaction, but it's easy to understand, and in many cases, you don't pay any ancillary fees.
Tiered pricing generally feature three levels (sometimes more) called qualified, mid-qualified, and non-qualified tiers. Processors essentially bundle the rates it costs them to process transactions and offer you these tiers. As with flat-rate pricing, it's simple to understand, but in many cases, costs you more.
My preferred pricing model for businesses processing an average of $2,000 or more each month is interchange plus. The term interchange is synonymous with the wholesale cost that the card brands (Visa, MasterCard, Discover) charge a credit-card processor to process your transaction. You get access to those hundreds of wholesale costs and have a pre-negotiated rate that gets added to the top of it.
For example, a swiped Visa rewards cards is 1.76 percent and 10 cents on the interchange. If your mark up for all transactions is 0.5 percent and 10 cents per transaction, you'll add them to get 2.26 percent and 20 cents per transaction. This can be a more confusing model, but in nine out of 10 cases, it saves you money.
Does your rep know the differences among these pricing structures and have a good explanation as to why they're choosing one for you? If not, they're not the rep for you.
3. Ask the right questions.
There can be so many ancillary fees associated with a merchant account, so be sure to ask the right questions up front or when negotiating with a new provider. Here are some of the most frequent fees to consider:
- Are you being charged an annual fee? (This should be waived.)
- Are you paying a monthly minimum penalty? (This should be waived.)
- Are you signing a contract term and what is the early termination fee? (This should be month to month with no early termination fee unless you're getting free software or equipment in exchange, or the processor is paying you out of a contract.)
- What is the monthly service fee? (It shouldn't exceed $10 per month.)
- What is the statement fee? (This should be waived.)
- What is the batch fee? (This shouldn't exceed 10 cents.)
- What is my American Express transaction fee? (This shouldn't exceed 15 cents.)
- Is there a setup fee? (This should be waived unless you're purchasing equipment or software.)
- Is there an application fee? (This should be waived.)
- What is the PCI compliance fee? (This should not exceed $100 per year.)
- What are my funding times? (These should be 24 to 48 hours depending on how you transact your payments.)
- Do you have Amex One Point? (This gets you your Amex transactions funded as quickly as the other card brands and makes reconciliation easier.)
- Will my fees be debited monthly or daily? (This should be up to you to choose.)
- What type of online reporting will be made available to me? (This should be free and a demo should be offered if requested.)
- Are there fees to reprogram my existing equipment or payment gateway? (There shouldn't be any fees from the credit-card processor, but be sure to check with your service provider if you have a point-of-sale system as they often will charge a new integration fee.)
4. Know what customer service is available to you.
All reputable processors will offer 24/7 customer and tech support for no additional charge. Better yet, be sure that the rep who is setting you up will be available to help point you in the right direction when you need it. Your time is valuable.
5. Get up to date with your equipment and software.
If you take (or plan to take) swiped credit-card transactions via a credit-card terminal, you need to be up to date with EMV (EuroPay MasterCard Visa aka chip technology) equipment. Some providers are offering this for free to help you be ready for the October 2015 deadline to have this technology.
Ask what the cost is, and if there is a free equipment option in exchange for a reasonable contract term. Don't lease -- it will always cost you too much! If you're processing in a card-not-present manner, make sure your virtual terminal or payment gateway is offering all of the functions you need.
For example, would it save you time to have your customers' credit card charged on a monthly recurring cycle instead of having someone in your office charge it manually each month? Switch to an inexpensive ($10 or less per month) virtual-terminal solution such as www.PayHub.com that will allow you to do this without additional labor.
6. Understand your existing contract terms.
If you find that your current processor has been over-charging you for years, and you have another processor that you trust and want to move your business to, ask the new processor if they can help pay out your early termination fee. In many cases they'll split it with you if you sign a contract with them so that they can be sure they'll eventually recoup that investment.
In other cases, it's worth riding out an existing contract if there's only a short time left until expiration. If the savings offered by a new provider will far outweigh the cost to exit, pay out of pocket and enter into a month-to-month agreement with the new processor.
The credit-card processing industry is complicated. It's always best to have someone in your court who is advocating on your behalf and understands all facets of the business. This type of rep is paid by the credit card-processing companies, so take advantage of their knowledge and work closely to get you the best set up and rates. Ideally, the rep should be monitoring them continuously for you.
If you don't know where to turn to find such a person to help you, reach out to me or ask a business owner you know who has nothing but praise for their merchant services rep. They are hard to find, but when you do, you'll appreciate how much money and time you'll save!
Equipping yourself with this information will make you an educated customer who knows the right questions to ask to keep your provider honest. Don't continue to assume that "if it ain't broke, don't fix it." You could be sitting on thousands of dollars of savings that could be going right back into your business.
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