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RATES
Even if you think you’ve got a great “Discount
Rate” for processing your credit card transactions, you should read on...
A common complaint amongst business owners is that the fees associated
with accepting major credit cards force you to question whether or not it’s
worth accepting credit cards at all. However, statistics show that customers
that make purchases using a credit card spend 50% more, shop more often, and
will choose merchants by whether or not they accept credit cards for payment.
So the answer is, in today’s business climate, you must accept credit cards.
The real question is, “How do ensure I’m getting the best discount rate?” The
answer requires a little bit of explanation.
First, let’s just define “Discount Rate”. This is the fee you (the
merchant) pay to the (credit card) issuing bank on each transaction. This is
not to be confused with the Federal Reserve Discount Interest Rate (FRDIR),
which is the interest rate the Issuing Banks pay for borrowing money from the
Fed. However, this is a major factor in determining your Discount Rate.
Actually, about 85% of your Discount Rate fees go to the issuing banks. Since
all banks borrow money at the same rate, you are unlikely to see wide
variations in the rates they charge to merchant accounts (so if you see an
advertised rate that is far below average, don’t believe it!).
The real area to concentrate on is what is known in the industry as
“Page 2” fees (because they are usually found on page 2 of your statement).
These are all the other transaction and account administration fees and
surcharges that get added to the Discount Rate. Some credit card processing
companies have as many as 27 different fees that make up your total fee! For
the sake of brevity, we will look at the 4 most common types of transactions:
Discount rate - face to face swiped card with the least
risk for fraud as you can verify signature with other forms of ID.
Mid-Qualified - MO/TO (mail order/telephone order),
internet or keyed transactions which have a slightly higher risk factor
because you are not capturing the card via a swipe, risk can be reduced by
utilizing antifraud features such as AVS (address verification), CVV(3-digit
code on back of card) & only shipping to billing address.
Non- Qualified - usually corporate or business &
government cards regardless of keyed or swiped which carry the risk of someone
using the card for unauthorized type purchases.
Rewards - the newest addition as of April 2005 this covers
all cards that carry some reward where the cardholder accumulates points for
dollars charged, such as frequent flyer miles, gifts, vacations etc.
Also included on page 2 are the fees charged for batches, ACH of funds,
transactions, statements, monthly minimums, club and maintenance fees. Most
merchants do not factor in these fees when computing their true or net
discount rate. As you will see shortly these fees definitely matter.
To calculate your net discount rate you would need to add up all your
fees and then divide that number by the total transactional sales volume (i.e.
all your Visa & MasterCard sales). This is your net discount rate and I am
sure it is a lot higher than what you thought your discount rate was. The only
way to tell if this number is truly a "great" number is to have your statement
reviewed by a trusted merchant account provider as there are too many
variables to list that factor into the equation.
Here are a few tips you can use to evaluate if your merchant services
are appropriate for the type of transactional business you have:
• Today 30% of transactions are done using a bank debit
card with usage increasing everyday. If your average ticket is above $50 and
you are not equipped with a pin pad you are probably substantially overpaying
for every debit transaction.
• Ideally you want to swipe the highest percentage of
transactions. This affords you the lowest discount rate and virtually reduces
charge backs to zero. If you are a contractor, sell at trade shows, taxi or
limo, or any business where you are face to face with your customer but your
terminal is back at the office or home and you key in most of your
transactions it might be beneficial for you to invest in a wireless terminal
that can be used anywhere you have a cell signal. These terminals offer the
ability to accept debit cards as well and the savings from mid to discount
rate might offset the cost of the terminal & wireless fees.
• If you are a face to face brick & mortar business and
more than 5-10% of your business is being surcharged you may not be set up
properly for your business type.
• If you are paying monthly minimums, annual, ACH or batch
fees they can usually be negotiated away.
Jonathan S Saluk is a Business Development Partner with American Credit
Card Processing Corporation with national headquarters at 133-C New York Ave
Huntington NY 11743. ACCPC provides all merchant account services: check
guarantee, gift loyalty cards, ATM's & credit card processing. ACCPC is active
in the following organizations-Long Island Association, Hauppauge Industrial
Association, Electronic Transaction Association, Business Networking
International, National Association of Payment Processors, Huntington,
Northport, Port Jefferson & Three Village Chambers of Commerce. To contact
Jonathan use either 516-250-9536 or jonathan.saluk@4accpc.com.
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