What you don’t know about credit card processing could be costing you thousands!
It’s been said that in real estate, it’s all about location, location location. Well, when it comes to credit card processing, it can be said that it’s all about risk – that is, risk, risk, risk! Credit card company processing rates are based on the assumed risk the card issuer takes on a given transaction. A transaction can come back to haunt the card issuer in a number of ways. The card can be stolen, there can be insufficient credit to cover the transaction, or the cardholder can just not pay their bill. The merchant can lose the customers information, can sell bad products or services resulting in excessive chargeback’s, or may have a vague customer satisfaction policy. The more you can do at the time of the sale to prove the validity of the transaction and the company behind it, the lower processing rates you will be rewarded with.
So how do you lower the risk? Glad you asked. Here are some top ways to lower risk and thereby save money on processing.
Pin based Debit
“Credit or Debit?” – These three words will save you THOUSANDS of dollars a year!!!!!
A debit card transaction is billed at a much lower discount rate than a credit card transaction. As stated before, it’s all about risk. Since a debit card is accessing funds your customer already has sitting in their checking account, this is therefore the lowest risk transaction. There is no worry that the issuing bank may not be able to collect the funds, as they are already sitting there ready to be accessed.
However, to get the BEST rates, your customer will need to enter their pin number. Otherwise, you can still run the card as a debit but the issuing bank will regard it as a “check card” and you’ll get your non-qualified rates (typically 1.5%-1.9%) as opposed to your PIN based debit rates (.03% to .08%). As you can see, this can make a BIG difference in your bottom line!
Pin based debit is particularly applicable for smaller ticket sales, where your client will already have the funds available to cover it – delis, coffee shops, gas stations, convenience or grocery stores, retail, or anywhere with average tickets under $100.
Does your company currently accept pin based debit? If not, CLICK HERE (FORM 2) for a free no obligation comparison to see what you can save. Qualifying merchants can receive a free pin based terminal or pin pad.
Address Verification System (AVS) and Card Verification Value (CVV) codes
Most credit card processors will give you enticing qualified rates for your transactions, but these always come along with higher rates for “mid qualified” and “non-qualified” transactions. First, it is very important to get all discount levels up front, as many processors like to just quote you their attractive qualified rates, with no mention of mid or non-quals. Mid and non-qual rates typically fall between 1%-2.5% in addition to the qualified rates!!!
But how do you ensure that your swiped transactions remain as qualified transactions and your keyed in mid-quals don’t slip to non-quals? Two key pieces of information are required to keep your credit card rates in check are Address Verification System (AVS) and Card Verification Value (CVV)
- Address Verification System (AVS) – AVS is a system that matches the billing address on file for the card with the billing address entered at the time of check out. This offers an additional level of protection to the card issuer, since it proves that the person using the card knows as well the billing address, thus adding to the security of the transaction. Simply put it’s another “check” put in place. Typically only a zip code is required to produce an AVS match.
- Card Verification Value (CVV2) – Generically referred to as a “CVV code”. CVV stands for “Card Verification Value”. There are two codes – one is stored in the magnetic strip on the card and read automatically when the card is swiped. The other, more common usage is for the 3 digit code printed on the back of Visa or MasterCards, or the 4 digit code printed on the front of American Express (Amex) cards. This code is generally requested for any sale where the card is not present, such as online orders or any time a card is keyed in manually. Without getting into the technical aspects of its usage, as a merchant all you need to understand is this is another check in place that’s going to save you money if you get it. Many processors will still allow you to run a transaction without the CVV code, but BEWARE – this is going to make your transactions slip to non-qualified, costing you 1%-2.5% in additional processing charges!
NOTE – “CVV” is the common name for this value, however, this is actually the term of it on Visa cards. MasterCard calls it a CVC2, and American Express refers to it as a CID code. From the merchant and customer standpoint it’s all the same – if you say “CVV” or “the three digit number on the back of the card” it’s all the same.
PCI DSS Compliance
Beginning in June 30th 2010, all merchants will be required to meet the new PCI-DSS security compliance guidelines. PCI DSS is a multifaceted security standard that includes requirements for security management, policies, procedures, network architecture, software design and other critical protective measures.
But that only matters for “the big guys” right? WRONG – although big corporations have more data to breach, they also have much more secure systems in place and entire departments dedicated to protecting that data. It takes a world class hacker to break these systems. By comparison, lifting data from a smaller merchant is like stealing candy from a baby. No wonder small businesses account for 40% of all data breaches. And with an AVERAGE cost to the merchant of a data breach at $202 per card holder affected, this is not just a matter of saving money, it’s a matter of saving your business!
Even if you are not actually breached, just being suspected of a breach could result in an audit of network vulnerability, penetration testing, manual computer inspection, wireless network security testing, phone line testing, etc. This will take a minimum of several days, in which time your operations will basically be completely halted. Then, after all that, YOU get stuck with an $8,000-$20,000 bill for the inspection! Again, this is just if you are SUSSPECTED of a security breach…I won’t even bother getting in to what it costs if they actually find a breach. And these figures are based on a “Level 4” merchant, which means less than $20K a year in online sales or less than $1M a year in sales for a brick and mortar location. For more information on PCI-DSS compliance, please visit https://www.pcisecuritystandards.org/security_standards/pci_dss.shtml
Note: PCI DSS compliance not only involves your credit card processing service and machine, but also data storage, fax procedures, even paper shredders. For more information on the full scope we suggest visiting the above listed website.
Is your terminal PCI-DSS complaint? FIND OUT! Even if all your business practices are completely sound, if your equipment is not, you are held accountable.
For a listing of PCI-DSS compliant machines, CLICK HERE (hyperlink to below) to search your make and model number https://www.pcisecuritystandards.org/security_standards/ped/pedapprovallist.html
Want a PCI-DSS compliant machine? CLICK HERE (FORM 3) to see if you qualify for our free terminal placement program!
Wireless Terminals
Wireless terminals are the new way to save money for your business. If you have a delivery business (such as pizza or Chinese food) or business that requires you to go to the customer instead of them coming to you (IE plumber, electrician or tow truck), wireless terminals may be the answer for you! Although there are charges associated with the terminals, such as monthly access and typically a small additional per transaction charge, you could stand to save thousands by getting qualified rates on cards swiped in person vs. keyed in over the phone!
Here’s a quick example. Tony owns a pizza shop and you has a qualified transaction rate of 1.69% (with the card swiped and signed for) and a non-qualified of 2.99% (for orders he keys in over the phone). His average ticket of $25 and his shop does an average of 20 deliveries a night. So with a total of $500 per night on credit cards, we’re looking at:
- Keyed in card number:
$500 x 2.99% = $14.95
- Wireless terminal:
$500 x 1.69% = $8.45 + ($.10 additional x 20 transactions) = $10.45
Multiply this out over 30 days and Tony saved $135 in processing charges…that’s a lot of dough (sorry, couldn’t help it)! Wireless access typically costs $25-$30 per month additional, but as you can see he is still saving at least $100 per month. And if your volumes are higher than Tony’s, of course you only stand to save more. And not to mention you can take PIN BASED DEBIT on a wireless terminal, turning that 1.69% to .05% if you are properly set up for it! The savings can be significant.
Additionally, with a signature for the transaction, Tony is avoiding those pesky chargebacks. In the case of a dispute, with a signature on file he has no problem winning on the disputed transactions. With an average of one chargeback a month he was getting before and a $25 average ticket, that’s $25 bucks more in his pocket. And without getting hit with chargeback fees, that’s another $20. Add it all up, and the savings are around $150 per month.
Can you save money by adding wireless processing services? CLICK HERE (FORM2) to find out – we’ll be happy to run a comparison for you to see if wireless makes sense for your business.
Get on the right plan for your business – Retail vs. Moto, Tiered vs. IC+ Pricing
What’s the right plan for YOUR business? There is a very clear and simple answer to that question that applies to all merchant types; it depends. Any credit card processor can spit out low rates and waived fees in an attempt to earn your business, but unless they are asking you about your business, how you plan to accept payments, and what kind of payments you plan to accept, they can easily extract much more money out of you than you realize. A good processor takes a consultative approach and will guide you to savings rather than just undercut the next guy. After all HOW you accept cards is more important in determining your rates than the rates themselves.
- Retail Account – “retail”, in credit card processing terms, means that more than 50% of your business is processed by the customer actually swiping the card in person. Retail will always result in the best rates. Retail accounts as well can include pin based debit transactions.
- MOTO – MOTO is an acronym used in the industry to describe “mail order / telephone order” accounts. MOTO accounts are when more than 50% of your orders are keyed in to a terminal, be it a physical or virtual terminal.
Why is it important to understand the difference? First, if you are set up as a retail account, you will get a lower cost on qualified transactions, and especially on pin based debit. However, your mid and non qualified transactions (those you key in) are going to be at a slightly higher rate than if you were set up as a MOTO account. Therefore, even though you are saving on your qualified rates, you may be losing on the keyed in entries vs a MOTO.
Conversely, you could be set up as a MOTO account, keying in all transactions. However, if you have the client in front of you, you certainly could be swiping that card and saving nicely by doing so.
How can you tell which better fits your business? It’s tough to say. Credit card statements are often made intentionally cryptic, as its easier for processors to make money if they hide what they are actually charging as opposed to just coming out and telling you.
For a free, no obligation comparison, CLICK HERE (FORM 2).
Pricing Plans: Getting on the right pricing plan for your company is c. For decades tiered pricing has been the norm, while interchange plus (IC+) pricing has mainly found in larger corporations and high volume chain stores. Knowing the difference is the first step in determining which is right for you.
- Tiered pricing – Tiered pricing is by far the most common form of pricing. Tired pricing typically consists of 2-5 “buckets” into which different card types are grouped. Most typical is a 3 tiered system, with different rates for qualified, mid qualified, and non-qualified transactions. It is also simplest for the merchant, and will result in more consistent charges for processing each month on a given sales volume.
- IC+ Pricing – Interchange Plus pricing is more typical of larger companies with more than $100K per month in sales, and is as well the standard in grocery stores. Interchange is the base rate, set by the card issue (Visa or MC), for any transactions they process. IC+ pricing is exactly that – you pay base rate plus a certain number of base points (20-40 is typical) + an additional $.10-$.25 per transaction. Although this pricing scheme generally produces the lowest overall rates, minimum sales volumes typically apply, based on industry type. As well, IC+ pricing can create very inconsistent processing charges. One card may have in IC rate of .62% + $.13, another can 2.95% + $.30 (keep in mind this is IC – don’t forget about the “+” part – add another 20-40 base points). They then vary as well based on if it is a personal, business or corporate card. Between Visa and MC, there are well in excess of 500 different interchange rates that could apply.
How do you know what kind of card you are accepting and where that card will be “placed” when processed? Sorry to say, but with either system, it’s basically impossible. On a tiered pricing system, generally keyed in transactions, rewards cards and corporate cards will fall into mid-qualified. And non-qual will be if there is an issue matching address, CVV, or even still some corporate card types where these do match up. For IC+, it’s virtually impossible to determine what your actual rate will be.
Figure out your “actual” rates and compare!
When discussing credit card rates, merchants and credit card processors alike both like to talk in terms of qualified rates. “I get 1.69% + $.25”…”we can do 1.6% + $.20”…and so on. Many processors like to entice you with a low rate for qualified transactions. However, how many of your transactions are qualified? At best its 75-80%…at worst its 0%. Most will fall somewhere in between. Looking at a credit card processing charge based solely on qualified rates is like judging an iceberg by the part that sticks out above water.
It’s easy to toss around figures on what you can offer on qualified rates. However, this does not take into account:
- Mid qual rates
- Non qual rates
- Monthly statement and access fees
- Annual Fees
- Surcharges
- Minimum processing charges
- Set up fees, application fees, gateway fees, etc.
What a processor can charge you for is limited only by their imagination and how small a font they can make the fine print. Many will give a very low qualified rate, and make their money by exorbitant charges for mid and non-qual rates. Others offer zero fixed costs, but have higher per transaction charges. At the end of the day, everybody that is selling credit card processing services is making money one way or another, and are packaging that deal in one way or another to make it appealing to the merchant. If you don’t charge one fee, you make up for it somewhere else. A discount here means an added fee here.
How to get your “actual” effective rate:
When comparing your rates, it’s important to find out what you are REALLY paying.
First, you’ll want to “strip off” your fixed charges. That would be statement fees, monthly fees, regulatory fees, etc.
Next, you’ll want to discount any batch fees off the top, as well as you per transaction charges.
Now you’re left with just your total dollars processed and total amount you were charged for processing. Divide what you were charged vs. the total dollar value of what you processed and voila, your effective average rate. Now compare that to your qualified rate. Hopefully, you’re sitting down for this part.
Interested in a full rate comparison? CLICK HERE (FORM 2) and we’ll be happy to assist.
Summary
If nothing else, I hope that I’ve been able to demonstrate that when it comes to credit card processing services, it’s important to dig just a little deeper than the rates you see posted. It’s a shady industry, and everyone out there is trying to make a buck (well, more than that) one way or another. I see too many merchants paying WAY too much for their processing services, and thinking they have a deal because of their “low qualified rates”.
A good credit card processor will:
Fully disclose all charges to you up front, clearly spelled out, and will work with you to ensure you understand all the “ins and outs” of the contract, not just throw some numbers and fine print on a page and try to get you to sign.
Beyond that, a good merchant account provider will guide you in ways to make more of your non and mid qual’s into qualified transactions, will help steer you toward in pin based debit, will see if wireless makes sense, will understand if you are best serviced by a retail vs. MOTO account.
Additionally, a good merchant account provider will be able to help you beyond just credit card processing, but should be able to provide you with a number of tools to help improve your business operations, such as:
Provide a full rate analysis and pricing disclosure prior to attempting to gain your business.
Cash flow tools such as express funding options, cash advance services, remote check deposit, etc, to make sure that your business always has the cash available to suit its specific needs
Money management tools, such as payments splits to fund various accounts (IE retirement, vacation funds, rent accounts), escrow accounts,
AMAZING customer support (after all, if your service is down, all the rates in the world don’t help if you cant actually process the card)
Online account access, clear and easy to read merchant statements, and payment options
Custom gift cards and customer loyalty cards to increase revenues from your current customer base.
It used to be said that “in business all you need to make a profit is a good product, a good lawyer and a good accountant.” We would like to update that to add a good merchant account provider. A GOOD merchant account provider can often time help you retain up to 1% additional earnings in your company. Over the years, that can add up to many thousands, if not millions, of additional revenues for your company and for you as a business owner.
For questions, inquiries, or more information on any of the above topics, feel free to contact us
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