Setting up merchant services is an important step for any business owner looking to collect one-time or recurring credit card payments at your business. With the right merchant service account set up, you will be able to easily accept credit card payments at your retail store, on-the-go, or through your software.
However, if you’re not careful, with some merchant processors you could be paying as much as 4-5% per transaction. The last thing you want to do is end up in a long-term commitment with a merchant service provider that ends up adding huge mark ups to your transactions and overbilling you for services that you don’t need. This is why it’s important to always review your merchant statement for hidden fees and to make sure you choose a payment processor that is looking out for your best interest. Too often we see payment processors taking advantage of merchants by promising the lowest rates but adding huge markups to their interchange rates or other hidden transaction fees.
Below are some things to look for when you read a merchant statement:
When you request a copy of your merchant statement or pricing, you will want to start with defining your current pricing model or setup. This way you can determine if you are set up with Interchange Plus, Tiered, or a Flat rate pricing structure. This will help you with calculating your current rates and predicting any future processing costs
Interchange Plus Pricing
The Interchange rate is the wholesale cost of doing business with the card issuers such as Visa, Mastercard, Discover, and Amex. There are hundreds of variations that go into determining this fee such as the card issuer, the type of card used (debit/credit/rewards), and how the transaction was received (Point of Sale/Card Not Present). Typically, you will find the lowest interchange rates from the card issuers on debit card transactions with the highest rates coming from business reward cards or keyed-in transactions.
When you are reviewing your merchant statement you will often see the line itemized to include the amount of transactions under that category plus a mark up from your merchant processor. For example, if you run a visa debit card through a point of sale machine, the interchange rate is 0.80%+ $0.15 a transaction. However, depending on the mark up size (basis points added) from your merchant processor you may be paying almost double on that transaction. This is why it’s important to always have someone you can trust review your rates for you.
An example of an interchange pricing model would be: (Interchange + 0.25% + $0.25 a transaction)
Rather than using unique interchange rates for each transaction type, many merchant processors will also tier their pricing into groups for qualified, mid-qualified, and non-qualified transactions. With most tiered pricing models, qualified transactions are generally considered your standard debit or credit card transactions. Transactions that are considered to be non-qualified are typically your business or reward cards with points or other incentives.
An example of a tiered pricing model would be:
2.15%+$0.25 for qualified transactions. 3.25+$0.30 for non-qualified transactions.
Flat Rate Pricing
This is setup that allows the merchant to pay a fixed rate for each transaction. It is by far the simplest pricing model but normally ends up costing the merchant the most money on a per transaction basis. The only benefit of this model is that there are typically no monthly fees associated with these accounts.
Another area that you will want to review are your PCI fees to make sure that you are up-to-date and compliant with all the payment rules. PCI stands for Payment Cards Industry and is a set of technical and operational standards set forth by the card issuers to ensure the security of credit card transactions. Your PCI fees may be billed annually or broken down into monthly payments. You will want to make sure that you are completing any required surveys or test procedures so that you are not charged any additional non-compliance fees. The typical fees range from $60-120 per year
If you are leasing out equipment, using software, or purchased point of sale equipment such as a mobile card reader or credit card machine you may find additional monthly service fees bundled into your pricing. Be sure to review those fees to make sure you are indeed using the equipment that you are being billed for and that you are not getting overcharged for the equipment. Gateway fees can run anywhere from $10-25 a month, with more advanced software and Point of Sale Equipment set ups costing more than $100.
Lastly, be sure to check your other monthly statement fees such as monthly minimum, online reporting fees, monthly fixed fees, and statement fees. These fees can really add up if you leave them unchecked. Most merchant processors will charge anywhere from $10- 25 for those fees but could be much higher.
Net Effective Rate
A simple way to figure out how much you are paying overall for your fees is to determine your net effective rate. To calculate this, just take your total merchant statement fees and divide that by your total processing volume for the month. For example, if you processed $11,000 for the month of December and you were charged $465 total fees for that month your net effective rate would be 4.2% ($465/$11,000)