Business Owner – Merchant Service Provider Communication

For most business owners the subject of merchant services is a sore one.  Somewhere in their experience processing they feel they have been taken advantage of.  This could be the result of a terminal lease scam, high rates, or contract cancellation fees.  All of these issues can be alleviated with one simple solution, communication.

Communicating upfront is the first step when shopping for a provider.  Make a list of the features that are important to you in your processing.  This may include customer service, whether or not there will be a contract, or pricing model.  Remember, the better your provider knows your business and exactly how you handle transactions the better and more custom fit your payment solution will be.  As always, communication is a two way street.  If your processor seems uninterested or is not taking the time to truly understand your business, move on.  Always shop at least three providers to give yourself the opportunity to see the pros and cons between them.

Once you have selected your processor take the time to build a relationship with them.  Processing is not a one -time interaction with no communication from there on.  It’s extremely important that your processor continuously monitors your transactions.  Adjustments made concerning the way you accept cards can make sure throughout the year that your processing is as cost effective as possible.  By staying in consistent contact with your processor you not only guarantee their knowledge of your business, you also learn the ins and outs of processing.  This is the most important take away from this article.  Involving yourself deeply in your processing greatly minimizes the chances you will be taken advantage of.

As your relationship continues to evolve there is one major thing you can do to make your deal even sweeter.  Refer your processor new clients to work with.  Doing this on the premise that it will get you lower rates is a great way to approach it.  There’s not a processor in this country who wouldn’t give you a better deal in exchange for a few new clients.  Use this bargaining chip to your advantage and remember…..if your processor is not protecting your bottom line…..it’s time for a change.

Nelson Wickersham

BlackLine Capital Partners

www. BlackLinecp.com

Easy cost cutting tip for Small Business Owners

One of the easiest and effective cost cutting tips for small business owners is to review their merchant service account.  Now is the time for businesses to go over their expenses with a fine-tooth comb and eliminate as many expenses as possible.  For many small businesses, the difference between closing the doors and being profitable boils down to a couple dollars per month.

So why is the merchant service account often overlooked?  The main reason is because the business owner has switched credit card processors several times chasing the empty promise of cost savings.  This left a very bad taste in their mouth to say the least.  And to top it all off, they are constantly assaulted with cold calls promising the “lowest rates in the industry.”

What can a business owner do avoid this headache? Pay close attention to the Do’s and Don’ts

The Do list

• Do look for a credit card processor that offers interchange-plus pricing (ask for it by name)
• Do shop at least three providers
• Do buy your own equipment (most terminals are $100-200)
• Do take time to audit your monthly statements

The Don’t list

• Don’t sign a contract that has an early termination fee
• Don’t use a provider just because you already have an established relationship, ie your bank, Costco
• Don’t lease equipment or software under any circumstance
• Don’t pay an annual fee, application fee, or monthly minimum fee

This is a great time for business owners to switch their credit card processing because many processors are feeling the economic crunch.  Processors are more likely to lower their rates, and their profits, to get the account rather than not get the account.  As a result there are some real cost savings to be had.  For example, we are saving our clients an average of over 50% per month on the new merchant accounts that we sign up.

The bottom line is your bottom line.  Keep it Black!

Reid Wilson, ChFC

BlackLine Capital Partners

www.BlackLinecp.com

Terminal Leasing Scams 101

There’s a very simple rule of thumb when it comes to leasing credit card terminals.  Don’t do it.  This is the biggest rip off in the industry and one of the main reasons for the negative stigma attached with processing.

Most merchants have sat down with a sales rep and been shown a slick lap top presentation that shows how much better the new low qualified rate you’re being offered is than your current rate.  They guarantee debit savings and an increase in business by….wait for it….placing Visa and Mastercard stickers on your windows and doors.  The end of the presentation comes with an impressive number that this new set up will save you (let’s say the provider says they can “save” you $200.00 month).  But wait, there’s more.  Out of these savings the provider is going to take back a set fee every month to pay for the new terminal they’re giving you(let’s say this fee is $60.00).  So your total savings is $140.00 a month AND this new terminal will be replaced if anything happens to it and updated when new technology comes out!  Here’s the catch.  To get all this you have to sign a five year lease.

Now let’s do some quick math.  You’re paying $60.00 a month for 60 months.  That’s $3600.00 for a terminal that costs $200.00 if you buy it outright.  This is where the sales rep begins to convince you how great their customer service is and how responsive they will be if you have any problems.   They may go as far as to give you a guaranteed number of new terminals you will receive because of advancing technology.

How do you avoid a lease scam?  There are some very simple principles.

1. If a  company is requiring or strongly suggesting a new terminal either take them out of consideration or Google the terminal they are trying to sell you to see the actual cost.
2. Don’t do business with any company not offering interchange plus pricing.
3. Always make a sales rep show you on paper how they got the amazing savings they are offering you.
4. Check the company’s website you’re doing business with….if they don’t have one refer to the rule of thumb in the first paragraph.

There are numerous companies pushing leases every day.  The only reason to buy a new terminal is if your existing terminal is broken or out of compliance (go to www.pcicomplianceguide.org if you have questions).  Remember, the main thing to know about leasing a terminal is DON’T DO IT.  Call an industry expert with any questions you may have.  Until next time, consider whose bottom line your provider is protecting…..if it’s not yours….it’s time for a change.

http://www.blacklinecp.com

Rate vs. Pricing Model

One of the biggest mistakes made by merchants is shopping rate as opposed to pricing model.  90% of merchants shop providers based on rate alone without any consideration to the actual pricing model they’re being set up on.  This leads to merchants being furious when more than 70% of their processed transactions downgrade to higher rates.  Understanding the way your specific pricing model works can save you hundreds of dollars each month.

The most common model in the industry is the Tiered pricing model.  This model sets Qualified, Mid Qualified, and Non Qualified rates for the cards you accept.  These rates are qualified for by a combination of swipe type, card type, and owner presence in the transaction.  The Qualified rate is always the lowest (usually in the 1.64% range) followed by the Mid(usually in the 2.50% range) and Non Qualified rates(usually in the 3.50% range).  The first trick with this model is that only 30% of merchant’s transactions receive the Qualified rate.  The other 70% downgrade to the Mid and Non Qualified rates which are usually marked up anywhere from 1-2.5% from the Qualified rate.  The second trick with this model is how it prices debit cards.  Debit cards process at a lower rate than credit cards (for example debit interchange is 1.03% compared to credit interchange at 1.54%).  In the Tiered model this 51 basis point spread is made every time a debit card is processed at the Qualified rate.  Due to the expanding popularity of debit cards (usage ranges from 50-85% depending on sic code) and the profit made, this is a fact rarely mentioned when covering rates with merchants.

Another pricing model to beware of is the Billback model.  The Billback model uses a fixed interchange price (usually a lower rate in the 1.80% range) that is applied to all transactions regardless of qualification level.  The merchant is then billed back for the difference between the fixed interchange rate and the actual interchange qualification rate for the transaction.  This allows processors to bill the initial transaction rate plus the difference from the actual interchange qualification rate.  In plain terms the merchant is billed twice for one transaction.

The importance of understanding your pricing model cannot be stressed enough.  It can literally be the difference of hundreds of dollars monthly to your bottom line.  If you find yourself on one of these models call an industry expert immediately to examine your options.  There are models that make great sense for merchants to use.  The challenge is finding a provider with your best interests in mind.  Until next time, consider whose bottom line your provider is protecting…..if it’s not yours….it’s time for a change.

Nelson Wickersham

BlackLine Capital Partners

www.BlackLinecp.com

Interchange Plus a Must

If your business is not processing using the interchange plus pricing model make the switch immediately.  Every major corporation in the country uses this model to their benefit.  Interchange plus pricing takes the guesswork out of your processing.  You will no longer have to worry about downgrades.  In simple terms, Interchange is the base rate being charged before any mark up from your bank or merchant processor.  All banks and merchant processors use the same interchange fees.  I REPEAT: ALL BANKS AND MERCHANT PROCESSORS USE THE SAME INTERCHANGE FEES.  The difference between processors is the mark up and pricing structure.  Interchange plus pricing allows merchants to know exactly what their mark up will be on every transaction.  This is the secret to providing merchants with the most cost effective solution for their specific business.

Nelson Wickersham

BlackLine Capital Partners

www.BlackLinecp.com

Do Credit Card Processing Calculators really work?

It seems like credit card processing calculators are becoming more and more popular everyday.  At first glance, the idea of these calculators seems great.  They are often presented as a tool that will allow business owners to see how much they should/could be paying for their monthly credit card processing fees.  But how accurate are these calculators?

Being in the industry as long as I have, I have had the opportunity to review and use several different calculators.  Every time a new one comes out I approach it with excitement and hopes that this will make my job easier.  Unfortunately, this is never the case.  It has been my experience that the online rate calculators are more of a marketing item designed to collect prospect data than anything else.

What I can’t decide is if the creators of these calculators ever intended them to be useful tools or not.  After all, there are so many variables that go into a single transaction that creating a credit card fee calculator that produced an accurate output would be nearly impossible.  I find it very odd that there are hundreds of interchange categories that a transaction could be considered, yet most online calculators assume the lowest qualified rate.

With all the advances in technology it is feasible that we might someday have the luxury of an accurate credit card processing fee calculator.  But until that day comes, it’s best to put your trust and your credit card processing in the hands of a reputable merchant service provider.

The bottom line is your bottom line.  Keep it black.

Reid Wilson, ChFC

BlackLine Capital Partners

www.BlackLinecp.com

Does your Merchant Service Provider practice Recession Pricing?

3 common credit card processing practices to avoid

Not a day goes by that I don’t hear of another unfortunate tale of a business owner falling victim to a credit card terminal leasing scam. As the economy slows and times become tough the old saying, “desperate times calls for desperate measures”, seems to take on a new meaning in the merchant service world.  This is one of many pitfalls gaining popularity in an industry riddled with half-truths and empty promises.

The credit card processing industry, as a whole is experiencing intense competition as sales reps compete to get there hands on and keep as many merchant accounts as possible. Business owners are successfully pitting several sales reps against each other to secure the lowest possible markup on their card transactions.  Instead of relying on a high markup on processing, reps are now looking for more creative ways to squeak out a profit.

Here are a couple things to be aware of and to avoid at all cost;

1. Credit card terminal leases

These are a great way for sales reps to make up for the decreases in processing fee commissions that they are experiencing.  Typically lasting 4-5 years with an average cost of $40 per month, a business owner can spend over $2,000 on a $150-200 piece of equipment.

The Solution: Purchase a terminal outright.  With all the businesses failing these days it is possible to buy a used terminal on eBay or craigslist for $50-100.  If money is tight, your processing company might rent you a terminal for a couple months until you have the funds to buy it.

1. Cancellation Fees

Sales reps might be willing to settle for a lower processing markup if they can slap on a contract with an early termination fee.  Most contracts are for 1 or 2 years with an early termination fee of $200-600.  If your rep tries to convince you to sign a contract, find another company.

1. Hidden Fees

These can be a very expensive hidden secret awaiting you on your first bill.  Make sure you know exactly what you are being charged per transaction, batch, address verification, monthly statements, compliance fee, etc.  Most importantly, understand the total cost you are paying for your service.  Credit card processing companies are getting very creative with their statements.  Hint: The amount listed on the top of your statement is probably not the total cost that has been deducted from your account.  Look for a line item that says “less discount paid” or something to that effect and add it to the amount listed on page 1 to see how much you really paid.

In a time when belts across the country are being tightened, choose your merchant service provider with extreme care.  And remember the bottom line is your bottom line.  Keep it Black!

Reid Wilson, ChFC

Blackline Capital Partners

www.BlackLinecp.com

Interchange-plus Pricing; changing the face of merchant credit card processing?

There is a lot of buzz around the merchant service industry around the interchange-plus pricing model.  As the level of understanding increases at the merchant level, so does the popularity of interchange plus pricing.  Once upon a time, merchants were forced to use a tiered or standard pricing model.  Years and thousands of accounts later, merchants are catching on to the scams that have plagued the industry.

A common practice is to quote a lower rate for a merchant’s qualified transactions, usually in the neighborhood of 1.65%.  The merchant is so excited by the low rate that he/she signs up for the new account without paying any attention to the mid and nonqualified rates which can be as high as 5%.  The result is higher total processing fees due to a majority of the merchant’s transactions downgrading to the mid and nonqualified buckets. (Most merchants process 75% of their transactions as mid and nonqualified)

This tactic along with many others has made the topic of credit card processing a sore subject among merchants.  In the attempts to gain clientele, some processing companies have decided to offer interchange-plus pricing to their merchants.

Interchange-plus pricing is a model that was once reserved for only the largest of merchants.  In the simplest of terms, interchange plus pricing takes the fees charged by Visa and MasterCard and adds a fixed percentage to compensate the merchant service provider.  For example: a merchant setup on interchange plus 30 basis points would pay 1.58% to the credit card provider (Visa or MasterCard) and .30% to the processor on a qualified transaction for a total of 1.88%.

The nice thing about this model is that the merchant always knows the markup regardless of the card type being swiped.

For example:

• a qualified card cost is interchange for qualified card plus 30 basis points
• a rewards card cost is interchange for a rewards card plus 30 basis points
• a commercial card cost is interchange for a commercial card plus 30 basis points etc…

Interchange plus pricing is a step in the right direction for an industry that has been a victim of unscrupulous and deceitful practices for very long time.  Now if we can just get rid of all the equipment leasing scams………..

Reid Wilson, ChFC

Blackline Capital Partners

www.blacklinecp.com