Are Credit Card Processing Fees Negotiable?

Some credit card processing fees are negotiable, and some aren’t. So, please put the spreadsheet aside for a moment and read this article before you call another processor to ask the fateful question, “What’s your rate?” Before you can negotiate credit card processing fees, you have to know which fees are flexible. Credit card processing is like any other industry in that there are fixed costs and markups. Fixed costs are those that a processor can’t change, and markups are open to discussion. Understanding the components of credit card processing cost is the first step toward negotiating competitive fees. The second step, as we will explain in a moment, is to not negotiate fees before negotiating pricing. It may sound like the same thing, but there is an important difference. Components of Credit Card Processing Cost The three components of credit card processing cost are interchange fees, assessments and markups. Interchange Fees (Not Negotiable) Interchange fees remain the same no matter which credit card processor you choose, and no processor can offer you lower interchange rates than another. Interchange fees are charged by the banks that issue credit cards, and only the stakeholders of Visa, MasterCard and Discover (card-issuing banks) can update interchange. Assessments (Not Negotiable): Visa, MasterCard and Discover charge various assessment fees when businesses accept one of their credit or debit cards. Like interchange, a business will pay the exact same assessment charges regardless of which credit card processor it uses. All processors pay the exact same assessment fees to Visa, MasterCard and Discover. Markups (Negotiable): The only area of credit card processing expense that is negotiable...

Credit Card Transaction Fees

Credit card transactions fees may only be pennies on the dollar, but costs can really add up. More often than not, credit card transaction fees contribute more to cost than credit card processing rates. A common and costly mistake when shopping for credit card processing services is to focus on a processor’s rate while paying little attention to transaction fees. The financial impact of this mistake is especially damaging for businesses with a low average sale amount. What’s the difference between a transaction fee and a processing rate? Each time a business processes a credit card transaction it pays two types of fees. The first is a single percentage that is based on the volume of a transaction, called the rate or discount rate, and the second is a flat fee generally referred to as a transaction fee. The trouble with transaction fees starts with a misunderstanding of the term itself. The term transaction fee generally refers to any flat fee charged when a business’s credit card machine or software gives or gets information to or from a processor. Authorization fees, return fees, AVS fees and gateway fees are just a few examples of the various transaction fees that processors charge. And, unlike a processor’s discount rate, more than one transaction fee may apply to an individual credit card transaction. What people typically think of as a processor’s transaction fee is actually its authorization fee. Authorization Costs Vs. Discount Rate Cost The authorization fee is charged each time a business authorizes a credit card transaction, and it often contributes more to cost than the discount rate. This is especially...

Qualified, Mid Qualified & Non Qualified Credit Card Processing Rates

If your business is paying qualified, mid-qualified and non-qualified charges to process credit cards, it’s paying too much. The key to lowering your business’s credit card processing expense is not avoiding non-qualified fees. The key is completely eliminating a processor’s qualification altogether. Who Determines Rate Qualification Qualified, mid-qualified and non-qualified rates are set and manipulated entirely by credit card processors through something called tiered pricing. Visa and MasterCard have absolutely no influence in determining how various processors qualify transactions under tiered pricing. In reality, there are far more than just three (qualified, mid-qualified and non-qualified) credit card processing rates. In fact, there are hundreds of different rates between Visa and MasterCard called interchange fees. Interchange fees are the basis for all credit card processing charges, and they remain exactly the same regardless of which processor a business uses. A processor uses tiered pricing to route hundreds of interchange fees to its own qualified, mid-qualified and non-qualified rates. A couple important points to keep in mind about tiered pricing and rate qualification are: Individual processors control how interchange fees are qualified under a tiered pricing structure. This leads to something called inconsistent buckets, which makes comparing rates from different processors virtually impossible. For example, one processor may consider a Visa reward interchange fee as qualified, while another considers the same interchange fee non-qualified. Processors can change how interchange fees are qualified at any time without notice. This allows processors to lower a business’s qualified rate while still increasing the business’s gross processing fees. To do so, the processor simply routes more interchange fees to the business’s mid and non-qualified rates....

How Tips Paid by Credit Card Could Affect Your Restaurant

Now that credit and debit cards have become a popular way to pay for meals, customers often add tips for servers when they sign their credit card receipt. However, this common practice could have implications for your bottom line. Tips over a certain percentage of the bill can trigger flags for fraud, resulting in card issuer-initiated chargebacks, or can cause your transaction to be downgraded to a more expensive interchange category. Tip tolerance When credit and debit cards are swiped in a restaurant, the amount authorized includes a 20% “tip tolerance.” This means that when you swipe a customer’s card, it will be approved if the customer has funds available for the total cost of their bill plus 20%. For example, if a customer’s bill is $100, the actual authorization amount will be $120. This is done to ensure that there are enough funds available for the possibility of a customer leaving a 20% tip. In some cases, customers tip more than 20%. If they do, the transaction may set off a warning (“flag”) to the issuer to check for fraud. The issuer could decide to initiate a chargeback, requiring information from your business about the transaction to determine the validity. Issuers initiating chargebacks for small checks or for tips close to 20% isn’t very common, but can happen. Tips that are much larger than 20% are more likely to be subject to a card issuer chargeback. Visa provides a best practices guide for restaurant staff to help ensure smooth card acceptance. Update 12/7/2015: MasterCard has announced that starting in mid-2016, it will be eliminating tip tolerance for several...

The Truth Behind “We’ll Give You $500 if We Can’t Beat Your Rates” Offers

If you accept credit cards at your business and have spent any time researching processors, you’ve probably come across sales gimmicks offering cash if the processor can’t beat your current rates. You know the one: “If we can’t lower your rates, we’ll give you $500 and a free unicorn!” Okay, the offer doesn’t usually include a unicorn, but it might as well for all the good it does you if you’re trying to secure competitive pricing. Credit card processors that offer cash if they can’t “beat” or match your current processing rates will use a variety of tactics to get your business, and manipulate pricing so that they rarely have to pay out the cash. Even worse, if you’re not careful, you could end up with more expensive rates than the ones you already had. The offer What happens is that a processor promises that if they can’t match or lower your rates, they’ll give you money, usually $500. They’ll lure you in with the reassurance that you don’t have to accept their quote, and remind you that in the worst case scenario, you’ll end up $500 richer. What they don’t tell you is that they use methods to make the deal worthwhile for them, not for you, and can even “lower your rates” without saving you any money on processing.  The true worst case scenario is that you don’t lower your actual costs at all, or secure lower rates temporarily only to see your costs skyrocket when your new processor changes your pricing. It’s a tactic to catch your attention with the goal of converting you to a...

Early Termination Fees: Canceling Your Merchant Processing Agreement

At some point in business ownership, you’ll probably find yourself needing to cancel your merchant account for credit card processing. When you do, will you be stuck with cancellation fees? Can you be personally held responsible for ongoing costs, like chargebacks that occur after cancellation? The biggest concern most small businesses have with Merchant Processing Contracts (MPCs) is how to avoid the industry-standard cancellation fee, also known as an early termination fee.  Remember, the lawyers drafting these agreements on behalf of credit card processing companies are smart, and typically you are not the party with leverage when first entering this payment space.  However, your MPC itself may help guide you to successfully terminating without the burden and expense of an early termination fee. First Things First: Personal Guaranty If you are considering terminating your merchant processing contract there is one important thing you should know immediately: nearly every MPC I have reviewed includes a “personal guaranty.” Thus, the effects (whether it be penalties, fees, or damages for a breach of the agreement) can be brought against you individually and not just your company. With a personal guaranty, even if you are closing your shop, going out of business, or selling your assets as part of an assets purchase agreement, the terms of the MPC may still follow you, the individual business owner. Where to Look for a Personal Guaranty Typically, there will be a separate section indicating that you are signing personally and on behalf of the Company. It may be titled “Individual Guarantor(s)” or “Individual Guaranty”. You should also look above or below the actual signature block of...