Top 10 Keys to Lower your Credit Card Processing Costs
1. Switch to Interchange Plus Pricing
2. Know your Business Type
3. Get set up under the correct Visa/MasterCard Program
4. Know your card mix and average transaction
5. Use Latest Processing Technology
6. Review your statements (at least every 6 months)
7. Accept All Card Types and transaction methods
8. Be in Contact with your account executive
9. Get multiple bids for card processing service
10. Buy value – not price
Credit card processing continues to become more complicated with new fees, technology and regulations. We realize that you can be overwhelmed with all the changes.
As a small business owner, you are inundated with offers from credit card processing companies that promise to save you money. Usually most offers start with a low rate. Each merchant services provider tries to trump another with that lower rate to win your business. If you have been in business for some time and switched processors, you might have realized that these low offers do not always pan out.
In fact from 2000 to 2010, the average credit card processing rates for retail have risen from about 2.00% to 2.66% not including extra fees like statement fees, batch fees and PCI fees. This rise is despite a huge drop in debit card rates and increase in debit card usage. Why the increase? Rewards cards are one of the main culprits. Banks are passing on the cost of those become a payment processor fancy rewards, airline miles, etc, to the merchants.
The second main reason is a lack of merchant processing education. Merchants are trained by the banks to respond to low rates. The problem is that there are 440 Visa/MasterCard/Discover rates and the banks are only showing you the lowest transaction rates.
The correct question to ask is not “what is your rate?” but “what is your effective rate?” The effective rate takes into account all the possible Visa/MasterCard/Discover categories for which a transaction may qualify. Knowing your effective rate will give you a more accurate estimate as to the true cost of your processing. You can figure out your effective rate by using a simple formula.
Effective Rate = Monthly Processing Charges/ Monthly Processing Volume.
For example: If you process $10,000 dollars a month in volume and your processor charges you $300, your effective rate is
$300/$10,000 = 3.00%
This guide outlines 10 key strategies to lower your card processing costs. Below is a detailed explanation of each key strategy. By following these steps, you will be an expert in credit card processing and you will do yourself a favor by lowering your processing cost to the maximum extent and saving substantial amounts of money.
1. Interchange Plus Pricing (IC Plus)
This type of pricing used to be reserved for Fortune 500 companies. Not any more. Now, even Mom and Pop shops can take advantage of IC plus pricing savings. Banks are hesitant and sometimes outright refuse to give IC plus Pricing to small businesses because the banks are unable to maximize their profits. They would rather sell you the much more lucrative Enhanced BillBack or 3-Tier pricing, which is much more lucrative.
The recent Durbin Amendment makes it imperative that you switch to Interchange plus pricing to ensure you realize the cost reduction savings. Merchants that are not on interchange plus pricing will see their savings go to the processor, which is not compelled by law to lower the rates. (Please see Durbin Amendment Savings at the end for more details.)
There are many independent credit card processing organizations (ISO) that will offer you IC Plus pricing. You should take them up on their offer. There are many reputable ISO’s in the market.