Article
How to avoid potential handcuffs lurking in the credit card transaction
Plastic holders can make purchases easier, faster, and usually in greater quantities than they would if they were paying with paper. This makes transacting credit cards for sales a necessary evil.
July 15, 2015
By Suneera Madhani
CEO/Founder
Fattmerchant
“Accepting credit cards is an exciting addition to payments at my store that hardly costs me anything at all, and reading my statement feels like Christmas” – said no one ever. Plastic holders can make purchases easier, faster, and usually in greater quantities than they would if they were paying with paper. This makes transacting credit cards for sales a necessary evil. But you shouldn’t have to pay excess fees and overages, nor should you have to worry about your rates changing as often as you change your shirt.
Although your statement may look confusing and never-ending it is largely composed of three main parts.
1) The first component is interchange. Interchange is the direct cost of credit card transactions, so every time you process a card there are always rates associated with it. These rates are set by the credit card companies themselves and are therefore the same across the board for every provider. Interchange rates are based off of several critical factors including business size, industry, customer card type, and how the transaction is being processed. Exact rates are available online if you’re interested, but averages for swipe transactions are as follows: debit is around 0.05 percent, VMC 1.5 percent-1.65 percent.
2) The second component is the markup. It may be basis points, or a discount rate, but whatever they call it, there is a percentage placed on top of all transactions so traditional providers profit from your volume.
3) The third component is ancillary fees. All those line item fees and hidden charges, like batch fees, statement fees, PCI compliance fees, monthly minimums, IRS fees, customer service fees, the list continues.
If you read through the three basic components of a merchant statement and found yourself saying #1 is the only legitimate charge, you are correct. Why should someone else be making variable profitability on the success of your business? Anything above interchange is going straight into their pockets. Negotiate it. If it goes well, get a commitment that your rates won’t change. If it doesn’t, switch providers.
You can save money based on the type of cards you are accepting as well. Make sure you’re accepting PIN debit. As mentioned above, the average debit transaction is only 0.05 percent at cost as compared to an average 1.5 percent credit card. So if you don’t accept PIN debit transactions, get yourself a PIN pad and make it happen.
Don’t be scared of American Express. Their 3.5 percent average rate was daunting, don’t get me wrong, but they have introduced a new program called Opt Blue that has revolutionized their pricing model by deconstructing different rates based on industry type and ticket size. For retail tickets under $75, the rate is as low as 1.6 percent. Further, stats show that AmEx card holders spend an average of 70 percent more per ticket at small businesses. Opt Blue is a game changer. Ask your provider about details on the program, see if you’re eligible, and enroll if you are.
The moral of the story here is that although credit cards are an important and indispensable form of payment for your business, all of the extra fees with it are not. Say goodbye to the old era of credit card processing where you’re handcuffed to your provider for years paying them percentage markups and a slew of hidden charges, and say hello to the new era where you can empower yourself as a negotiator with providers to make sure you’re safeguarding your business from them wringing you dry.
Suneera Madhani,CEO and founder of Fattmerchant, realized business owners are frustrated with their providers due to a lack of transparency and never-ending gimmicks. She decided to launch her company, Fattmerchant, with the promise to establish a transparent subscription-based merchant services model that offers financial and strategic value to the everyday business owner.
