Efficient management of a merchant account
How different processing methods can reduce your fees
A retail merchant with a higher average ticket (100.00+) can reduce their fees by adding PIN based debit. It’s not as effective as it once was, but there is approximately a .30% (basis points) rate drop involved. Merchants with lower average tickets actually pay less by not using the PIN pad. Entering Zip code, street number, and invoice number on a Visa key entered transaction drops the rate at least .35%-.50%. B2B (GSA/P-Card) merchants save 20%-30% (you are reading this correctly) by implementing a Level III processing solution.
The “Effective Rate” vs. “Base Rate” comparison
First key in the total fees you were charged for the month in question – all the fees. (some processors break them up and position them all around the statement) Now, press the “divided by” key and enter the total Visa/MC/Discover volume (Exclude PIN debit and Amex). Hit the % key and you will see your overall “Effective Rate”. Compare this to your “Base Rate”. If there is a big difference, get an objective third party to review your account.
How to tell if you have hidden fees
It’s all about the “spreads” in between your base rate and the other rates. The spread is the true cost differential between card types. An easy one to spot is the “Key Entered” or “Card Not Present” transaction (Mid Qual). Nationwide there are many ISO’s, banks and processors, all of which have the same wholesale cost on these “Keyed” transactions: .29 on Visa and .31 on MasterCard. Simply “subtract your base rate from your keyed rate” and determine your provider’s spread. If the spread is more than .29 (basis points) on Visa or .31 (basis points) on MasterCard, it means your current provider is hiding fees. “Pass Through” (Interchange Plus pricing) eliminates hidden fees.
Common warning signs on a merchant statement
1) The base swiped rate is lower than 1.80%. The lower the base rate is, the more likely it is that the surcharged card types are being “padded”. This occurs most often on “3 tiered” statements. (Qual, Mid Qual, Non Qual). The “Non” Qual rate is probably in the 3%-4.5% range. In a typical environment more than 75% of the transactions come through at the “Mid” or “Non” qual rate, not the base.
2) Your Debit Cards are coming in at the same rate as your base rate. You do not need a PIN pad to get the Visa/MC mandated Debit card rebate, it is supposed to come naturally with each swipe. The regulated Debit card transactions should be clearly marked and on Visa should be 1.51% less than the base swiped rate, and 1.75% less than the base E-Commerce rate.
3) The Commercial Cards are coming in at the “Non” Qualified rate, no matter how much info is passed with the transaction. These cards are coming in at or around 3%-4.5%. Bottom line: If you see “Mid” Qual or “Non” Qual on the statement, it is time for an objective third party analysis.
4) The statement only has a few rates on it. The simpler the statement looks the more likely the merchant is being overcharged.
5) The lack of “full disclosure”. A statement should be showing you “detail by card type” and be fully disclosing the fees for each card type. (# of transactions for each card type, the dollar amount of each card type, discount rate for each card type and total fees for each card type).
How the TARP bailout affected your rates
The major banks had billions in TARP to pay back and most have paid them all back in full. How? Padding the surcharged card types was one way to do it. After the 2008 meltdown, one major bank increased their “pad” on Rewards cards from .10% to .75%. This one bank is doing nearly 2.5 billion a month in Visa/MC volume, of which approximately 30% are Rewards Cards. Say 720m a month. 720m times .65% = $4,680,000.00 a month or over 56 million a year in additional revenue, and that’s just the Rewards Cards. And with the TARP now paid back they have not lowered them back down, because nobody really noticed. “Pass Through” eliminates these types of hidden fees.
An improperly programmed terminal is costly
Transactions can downgrade due to risk factors, but the more information we pass along with the transaction the better the Associations feel about risk resulting in a lower interchange rate. This is known as “qualification savings”. For example, a Visa Card Not Present transaction requires AVS (Address Verification), or the transaction will downgrade. It is not unusual for a provider to program the terminal incorrectly to actually force a merchant’s transactions to downgrade, frustrating the merchant who is doing everything correctly. The provider benefits because these transactions will come in at the much higher “downgraded rate” (Non Qual 3.25%-4.50%).
“The local Rep” vs. good service
This topic is important because it relates to service, and good service = lower rates. The merchant wants someone they can look in the eye when things are going well, and someone they can strangle when things are not. But “local” doesn’t necessarily mean “knowledgeable”. Most merchants don’t know true service because most have never had “proactive help with their qualification issues”. If more than 5% of your transactions are coming through at EIRF, Data Rate I, Standard, Commercial Standard, or “Non” Qualified, you need a service upgrade because these are “downgraded transactions” that should not be there. The “National Rep” is usually more knowledgeable and can help you eliminate the downgrades, many of which cost .50% or more. If you have never heard of “qualification issues” it is time for an objective third party analysis.
Non-Profits are routinely being overcharged
Non-Profits (501c3’s) are entitled to “Emerging Market” rates, which benefits them in 2 ways:
A) Visa E-Commerce and Card Not Present transactions should be coming in at the Base Swiped rate.
B) Visa Rewards Card transactions should come through at the Base Swiped rate.
If you are a Non-Profit and your provider is charging you a simple “one rate” then you are not set up to benefit from Emerging Market rates for Non-Profits and are being overcharged by 20%-30%. Regulated Debit Card transactions make up more than 50% of all online donations, and should be coming in at a rate of well under 1.00%.
B2B Wholesalers benefit from “Level III” processing
Businesses who accept Visa and MC from other businesses are subject to the highest surcharged card rates in the industry, even at True Interchange. But there is a way to lower the Interchange itself in these processing environments, it is called “Level III” processing. Level III processing software allows the merchant to pass along line item detail with the transactions, which benefits them in two ways: A) It lowers the Visa Purchasing Card and Corporate Card (and all MC Commercial Card) Interchange by .70%, and B) It entitles the merchant to the special Large Ticket rate for bulk orders of 1.45% + 35. Merchant who routinely do 100k transactions save $1200.00 per 100k transaction with Level III.
Been with the same processor forever?
The longer a business has been with their current provider, the more likely it is that they have hidden fees. This is remedied with an objective 3rd party review. After all, if your current provider was “taking liberties” they would not likely tell you about it themselves. In addition, there is never any need to get locked into any kind of contract with an “early termination” fee.