Low Merchant Rates Don't Need To Make You Crazy

 

Have you gotten one of these postcards in the mail lately? The ones that advertise cheap, low merchant rates, down to 1.10%, 1.29%, 1.49% with no monthly minimum, no batch fees, no authorization fees, no cancellation fees? Sound familiar?

The confusion really comes in when you compare merchant rates and fees while talking to an established credit card processing company or even your bank. When compared to 1.71% + .24 cents, these low merchant processing rates seem really tempting. But here's the flat out, no B.S., absolute truth!  They are all really true. Sort of. 

Sure, I could get into a long winded explanation of how the credit card processing industry needs more advertising regulations. But, since talking about it isn't an immediate solution. Let me give you the facts about advertisements with low merchant account rates. 

The fact is, just like your business, the Credit Card Processing Companies get to buy Visa & Mastercard services at wholesale prices. These costs are wholesale and standard to all processors. Everyone has to buy it at the same price. This pricing is called the Interchange Rate. At these processing companies, there are financial analysts hired to formulate pricing plans,  based on Interchange Rates, that will keep these companies profitable. The numbers they have to work with are values in the pennies. Plus, because every business client is different, there will never be a standard pricing plan for everyone. Therefore, they develop Pricing Grids that help to fit business average ticket sales, with different credit card and debit card types, to cover the fees, monthly minimums, authorization fees...etc., charged (wholesale costs) by the Visa & Mastercard bank networks.  

What this means to you is this. Because all Merchant Account Services have set wholesale costs, and since they all need to remain profitable, they will find a way to charge you with fees to cover the standard costs - even if they claim they won't.  These hidden fees need to pay for Monthly Minimums, Authorization & Batch Fees, Discounts, Cancellation Fees. So, even if they lower one fee, they will make it up by increasing other fees to cover their costs and make a profit. Even if a company claims to not charge you these fees, they must include fees in your merchant statement to cover these costs. Otherwise, as I stated before, they would go out of business. So, don't believe everything you read. 

So What Should You Do?

First, let me repeat an important point. Anytime you see low a rate below 1.59%, don't believe that you're getting a deal. Any rate below 1.59% will ONLY be for debit Visa & Mastercard swiped and signed sales. Any other offer that claims otherwise is false. Also, if you key in your card sales, don't believe your getting a great deal if you're offered a rate below 2.39%.  

So, what rate is real? Again, costs must be paid. Therefore, what you should really be paying in fees should be similar to a seesaw effect. When your discount rate goes up, your authorization/batch fee should go down. Conversely, the opposite should happen when you have a lower discount rate, the authorization/batch fee should go up.  See the example below.

 

Working within a sliding scale fee matrix allows you and the merchant account representative to price your credit card and debit transactions correctly, without needing to play with the numbers that will eventually cost you more.  The reasons why one business may get 1.89% and another is offered 1.59% is based on the average ticket, volume and the business type. For example, if a restaurant has an average ticket of $10, they are better off with a high transaction fee and lower authorization/batch fee.  On the other hand an electrical contractor will likely have a high ticket average. They therefore are better off with a lower discount rate and higher authorization fee, because they will have a low volume of credit card and debit transactions. Pricing a business this way saves them money. This is how to correctly and realistically pay for merchant services.

 

How Much Money Will $0.0036 Really Buy You These Days?

 

The problems most businesses run into comes when they get suckered into unrealistic rates, like the 1.39%. In this situation, companies will sneak in other higher fees to cover costs. 9 times out of 10, low priced advertisements cost you more. Therefore, stick to what's real. Don't go with a low price because it looks good in the advertisement. The real differences you are trying to haggle over are values less than a penny. Think about it, would you rather lose your business money, simply because you were sucked into believing you saved .0036 of a penny?  

 

Here is when you should haggle over 1.39%. That rate is something to ask for when your dealing with swiped debit card rates only. Depending on your business type, you can get that rate, but only for debit. Again, it all depends on other factors, such as what you priced your swiped rate at or your keyed rate. Keep in mind, these advertised rates are hooks. They are meant to capture your attention. It's like selling hamburgers for 1955 $0.10 prices. Once they get you in the door, they up-charge you on the price of fries.  Bottom line. Don't believe everything you read. You can't buy anything for $0.0036 these days.