As many small business owners know, one of the most
complicated and expensive costs can be accepting credit cards. Since
consumer-spending behavior has shifted towards a plastic-first environment in
the last decade, businesses are forced to accept credit cards in order to stay
competitive.
Unfortunately for many owners, a lot of
organizations in the merchant services industry prey on small businesses and
try very hard to keep them in the dark about their contracts. The result is
often high costs and long-term commitments.
One important thing to know when looking for a merchant
services company is that many organizations are very forthcoming with
information and will provide you with a good deal. The problem is there are a
lot of bad apples that have tarnished the payment-processing field. As a small
business owner it is important to thoroughly research each company before
signing a long-term contract.
Merchant Services Pricing
The majority of payment-processing agreements setup a
three-tiered (or bucket) pricing structure, which categorizes each type of
credit card or debit card transaction into one of the buckets. The bucket names
are usually referred to as Qualified, Mid-Qualified and Non-Qualified. Each of
the tiers carries a predetermined transaction rate, often times written like
this:
1.45% +$0.20
The percentage represents a variable fee based on the amount
of the transaction. The $0.20 in this example represents a flat fee charged for
each transaction created, regardless of the total transaction amount.
In a merchant services contract, the Qualified rate will be
the lowest while the Non-Qualified will be the highest. The issue with many
processors is that they only advertise and make readily available the Qualified
rate. So many merchants sign up thinking they are paying the lowest rate when
on average only about 20% of all transactions run are categorized as Qualified.
This means the majority of transactions they will run will usually fall into
the more expensive buckets.
For small business owners looking over a merchant services
contract, it is extremely important to verify the Mid and Non-Qualified tier
prices. In some extreme cases, merchants sign up thinking they will be paying
around 2% and end up near 5% of their total processing amounts.
Fees
Another favorite place for merchant services companies to
make money is in the fee section of the contract. There could be monthly
statement fees, PCI compliance fees, verifications fees, and even early
termination fees.
Even the most reputable processors will end up charging
something in the fee section, but they should be happy to explain what each fee
represents and what you are getting in exchange. If they are hesitant to explain
or the reasoning sounds off, move on to someone else.
Independent sales reps are often given a lot of leeway when
it comes to adding fees to contracts. These additional fees typically go to
them as added commission and it is important to get to the bottom of each one.
Any small business owner in the process of negotiating a merchant services
contract should demand an explanation of each fee and attempt to get it
lowered. There will some fees that are set in stone, like a monthly statement
fee, but pushing back on each one will allow for you to get a clear picture of
whether that fee is mandatory or being tacked on as extra profit.