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Is your merchant account a rip off, your effective rate will tell you

Posted by Alex Neir on Thu, March 31, 2011 @ 09:02 AM
Effective Rate

Is your merchant account a rip off, your effective rate will tell you!

A common question I am often asked is “How can I tell if I am getting ripped off on my merchant account?” I will most often advise the business of 3 fundamental tasks that will ensure they are not getting ripped off.

  1. Check the statement every month and compare it to last month
  2. Validate the account for PCI Compliance
  3. Calculate the effective rate

Check the statement every month and compare it to last month

This is a good practice as it will make sure that your merchant service provider (MSP) is not adding junk fees to your account. Some MSP’s will incrementally add small junk fees hoping that the business will not notice them. After a while the small fees add up to a large some and you are paying a great deal more than when you signed up. The simple act of reviewing your statement every month and comparing it to the previous month will identify any new fees. If you see a new fee and don’t understand what it is – call your MSP and ask.

Validate the account for PCI Compliance

Most is not all merchant service providers will charge a PCI compliance fee. (More information on PCI Compliance) The fee is typically associated to the account to cover any liability that may result from a breach of card holder data. If your provider is charging a PCI compliance fee you should always ask if they offer a compliance survey that waives the fee.

Calculate the effective rate

Your effective rate is the easiest way to get a general sense of the cost of your merchant account. The effective rate is calculated by taking the total amount in fees divided by the total amount processed.

Effective Rate Calculation

If your effective rate is greater than 3.0% to 3.3% you are getting ripped off and should start shopping for a new provider.

Other items to consider when evaluating a merchant account.

Tags: Merchant Account Education, Effective Rate, Account Rip Off

Can a merchant account grow my business?

Posted by Alex Neir on Thu, March 24, 2011 @ 02:19 PM
can a merchant account grow my business
Can a merchant account grow my business?

It is often thought that a merchant account is a liability for a business based on the fees that are charged in conjunction with its operation. How true is that sentiment?  Like any business decision, it’s prudent to weigh the costs against the benefits. On average you can expect to pay approximately 3% of your credit card revenue in merchant account fees. So, what is the benefit?

Many studies have shown that accepting credit cards can dramatically increase sales. One article released by Visa USA claims a 20 to 30 percent increase in sales for quick service restaurants. If sales can, in fact, be increased, what are some of the contributing factors that lead to increased sales?

  1. Convenience for Customers
  2. Expanded Sales Channels and Reach
  3. Ability to Leverage Receivables

Convenience for Customers

Let’s face it, you want to make it as easy as possible for your customers to pay you. You don’t want to loose a sale because you aren’t able to accommodate your customers preferred payment method. Whether we like it or not, cash and check payments are becoming a thing of the past as more and more consumers rely on their check and debit cards to complete most transactions.

Expanded Sales Channels and Reach

Another distinct advantage of establishing a merchant account is the ability to take your business on-line. The internet extends your store hours to 24 hours a day and 7 days a week. You are also able to increase your geographic reach as you can be found by customers all over the world.

Ability to Leverage Receivables

A superior advantage that most businesses forget about is the ability to leverage future credit card receivables for a cash infusion known as a Merchant Cash Advance. A Merchant Cash Advance works like this: the business sells the future credit card receivables at a discount in exchange for a lump sum advance. The advance is paid back as a percentage of the future sales and is automatically deducted from the merchants deposits each month. Through the leverage of future receivables the business is able to re-invest and expand without the need for traditional business loans that can be extremely difficult to qualify for, especially in today's economy.

Based on this information would it be worth spending 3% to make an addition 20%?

Would you like more information about setting up a merchant account?

Tags: Merchant Account, Cash Advance, Can a merchant account grow my business

How to get a merchant account with bad credit

Posted by Alex Neir on Tue, March 22, 2011 @ 04:13 PM
Merchant Account With Bad Credit

How to get a merchant account with bad credit

Looking for a merchant account and your credit is less than perfect? The good news is that you have options. Having a low credit score does not automatically exclude you from opening a merchant account. Here is a list of items that can over shadow your credit score.

  • Merchant Account Type
  • History of the Business
  • Business Financials
  • Cash Reserves

Merchant Account Type.

The type of merchant account you are looking to open will place emphasis on your credit score. If you are looking to open a retail (brick and mortar) store your credit score won’t be scrutinized near as much as if you are looking to open an internet merchant account or MOTO merchant account.

History of the Business

The longer you have been in business the better. The idea here is that if you have decent business history you are giving the underwriter something else to examine other than personal credit. If the business is brand new you are forcing the analysis for approval to be centered around your personal credit as there will be nothing else to look at.

Business Financials

Similar to the history of the business, business financials give the underwriting department another peak into how your finances are being managed. If your credit score is low but you have strong financials associated with the business you are looking to set up. The chances are good that you will get your merchant account approved.

Cash Reserves

Another item that can offset a low credit score is a large cash reserve. It is best to have a least double the amount you are looking to be approved for as cash on hand. For example, if you are looking to get a merchant account approved with a monthly volume amount of $20,000, it is a good idea to have at least $40,000 as a revolving balance in your personal or business account.

If you would like help with other ideas on how to get a merchant account approved with low credit please don’t hesitate to call our expert payment processing staff at (800)917-8026.

Tags: Merchant Account, Credit Card Processing Account, Merchant Account With Bad Credit

Beware of anyone using a Square credit card reader

Posted by Alex Neir on Wed, March 16, 2011 @ 12:35 PM
Square Credit Card Reader

Beware of anyone using a Square credit card reader

The Square credit card reader is a piece of hardware that attaches to smart phones and tablets that allows merchants to accept credit card payments.

It was announced that the Square credit card reader can easily be used to skim credit card information from unsuspecting customers. The issue is centered around the fact that the Square credit card reader does not encrypt the credit card information before it is sent to the device it is attached to. The fact that the credit card information is not encrypted allows anyone that is swiping the card to store the information for their own use.

The scenario can play out like this. The criminal orders a Square credit card reader from Square’s website. In a matter of less than an hour the criminal can develop an application for their smart phone or tablet. The application has the ability to store the card information that is normally encrypted and sent to the bank for authorization. You hand your card over to purchase an item from the criminal. They now have the card number, expiration, CVV code and all your personal information stored on their device. That information can be sold or used for their own purchases at a later time.   

Most if not all credit card swipe devices for smart phones and tablets have encryption built into the device’s hardware. This is a critical as it maintains the trust of consumer that their credit card information is safe when the credit card is handed over for purchases. Square has effectively undermined that trust and should be held accountable.

Do not purchase from merchants using the Square credit card reader. If you are a merchant using the Square credit card reader you should switch immediately. The device is not PCI compliant (to put it lightly) and you could be held responsible for breach of card holder data.

Tags: Credit Card Fraud, Credit Card Skimming, Square Credit Card Reader

How do I get the money from my credit card sales?

Posted by Alex Neir on Thu, March 10, 2011 @ 01:24 PM
Credit Card Sales

How do I get the money from my credit card sales?

When you set up your merchant account you specify on the application your DDA (Direct Deposit Account). That is the account that your processor will use to deposit your credit card sales.

Your credit card sales will typically be deposited in your direct deposit account within 24 to 48 hours from the time the settlement process is run. The settlement process is the operation that converts the authorized amounts into settled funds for deposit. The settlement process can be run manually or can be set up to run automatically. It is recommended that the settlement process be run within 72 hours of the authorization or you run the risk of the authorization expiring.

It is important to understand that a credit card transaction is a two part process. The first part is the authorization, which amounts to a hold on the funds at the customer’s bank. The second process is the settlement process in which the authorization is collected. The settlement process is typically run once a day and will convert all the outstanding authorizations (credit card sales) for the day into one deposit into your direct deposit account.

Next week we will discuss how to decrease the time it takes to receive your deposits. So, please be sure to check back.

As always our friendly staff is always available to help answer any questions you may have with regard to merchant services so please don’t hesitate to call. (800)917-8026

Tags: Direct Deposit Account, Settlement Process, Credit Card Sales

Merchant account closed, what can I do?

Posted by Alex Neir on Tue, March 08, 2011 @ 12:36 PM
Merchant Account Closed

Merchant account closed, what can I do?

Your merchant account has been closed and you are wondering what to do next? The good news – you always have options.

First it’s important to know the reason your account has been closed. If you don’t know, call your merchant service provider and get as much information as you can with regard to the closure. Depending on the reason for the closure, I have some suggestions below.

Merchant Account Closed Due to Inactivity

This is a simple fix. Just explain to your current processor the reason for the inactivity and ask that they reinstate the account. If the account has been closed for less than a month you can usually turn the account back on without any additional paperwork. If the account has been closed for a longer period, you may have to submit a new application. It will depend on the provider.

Merchant Account Closed due to Rejected Fees

This is a tricky one as it’s a slippery slope. If the month end fees are rejected you typically have one month to pay the back fees. If the account is not current for the second month, the account is typically suspended and then closed as some point in the future. Depending on the length of time the account is delinquent and the efforts that are made to catch up, determine the difficulty of resuming the account. The worst thing to do is to ignore the past due balance. Depending on the merchant service provider, they could place your account on the TMF (Terminated Merchant File), which makes it very difficult to get another account.

Merchant Account Closed due to Excessive Chargbacks

This is the most sever account closure. All of the liability associated with a merchant account stems from chargeback risk. The chargeback ratio determines the acceptable amount of chargebacks for any given merchant and is usually 1% or less. The chargeback ratio is determined by dividing the total amount charged back by the total volume processed for the month. If your account has been closed due to excessive chargebacks your options are very limited.

  1. Determine the reason for the excessive chargebacks and write a detailed plan on how you will reduce them.
  2. Show visible proof that you are implementing the items listed in your detailed plan to reduce chargebacks. i.e. updating your website with clear terms and conditions, adding your customer service number as the descriptor on the customer bill etc.
  3. Ask your current provider what steps you can take to reinstate the account.
  4. Identify other providers that are willing to accept the account.
  5. Begin to research an off shore account.

Merchant account closure can result in substantial losses for the business if you are not able to offer the convenience of credit card payment to your customers. It is always a good idea to give your merchant account the same attention you would any other business asset.

Tags: Merchant Account Closed, Chargebacks

What is a monthly minimum fee?

Posted by Alex Neir on Thu, March 03, 2011 @ 04:09 PM
Monthly Minimum Fee

What is the monthly minimum fee on a merchant account?

The monthly minimum fee is the minimum amount you will pay in interchange fees on your merchant account regardless of how much, or rather how little is processed for the month.

It is important to understand that your monthly minimum fee is based on your total interchange fees and nothing else. For a list of all the fees associated to a merchant account please see: 7 items to consider with affordable credit card processing

Let look at an example. Let’s say you have a small business and credit card payments vary each month. Some months you have a lot and some months none at all. Below are the rates/fees set up on the account

  • Qualified Transactions: 2.39%
  • Non-Qualified Transactions: 3.39%
  • Statement Fee: $10.00
  • Monthly Minimum Fee: $15.00

All transactions are for $100 for simplicity.

Month one you have 3 qualified transactions and 1 non-qualified transaction.
The total interchange fees for the month: ($2.39 x 3) + ($3.39 x 1) = $10.56. This amount is less than the agreed upon monthly minimum fee of $15.00 so the $15.00 minimum gets applied to the bill.

Your month end bill would be: $25.00. Interchange plus the statement fee.

 

Month two you have no transaction.
The total interchange fees for the month = $0.00. This amount is less than the agreed upon monthly minimum fee of $15.00 so the $15.00 minimum gets applied to the bill.

Your month end bill would be: $25.00. Interchange plus the statement fee.

 

Month three you have 4 qualified transactions and 5 non-qualified transaction.
The total interchange fees for the month: ($2.39 x 4) + ($3.39 x 5) = $26.51. This amount is greater than the agreed upon monthly minimum fee of $15.00 so the $26.51 gets applied to the bill.

Your month end bill would be: $36.51. Interchange plus the statement fee.

From this example you can see the difference it makes to negotiate your monthly minimum. For additional help please contact our friendly staff at (800)917-8026 as we welcome the opportunity to help with any payment processing questions.

Tags: Interchange Fees, Credit Card Processing Fees, Monthly Minimum Fee

Merchant Account Discount Rate – Explained

Posted by Alex Neir on Tue, March 01, 2011 @ 01:34 PM
Discount Rate

Merchant Account Discount Rate – Explained

What is the discount rate on a merchant account? This is a very common question. The discount rate is the fee charged for running a credit card transaction. There are typically multiple discount rates associated with a merchant account. The number of rates depends on the pricing that has been set up on the account. The 3 most common pricing structures are ERR Pricing, Tiered Pricing and Interchange Pricing.

In order to determine the discount rate that will apply for a specific transaction you must first examine the details on how the credit card information is captured and what type of credit card is being used. Is the credit card being swiped through a terminal or keyed into the terminal? NOTE: Keyed into the terminal also includes customers typing their credit card information on a website. Next, what type of credit card is being used? A check card, debit card, rewards card, corporate card, international card, etc. These details ultimately drive the discount rate that will apply.

Let’s look at an example based on a tiered pricing structure.

For our example we’ll use a 3 tier model. Each tier is identified as follows:

  • Qualified Discount Rate – Card swiped through a terminal
  • Mid-Qualified Discount Rate – Card keyed into a terminal or a rewards card
  • Non-Qualified Discount Rate – International card or corporate card

Each specific tier will have a discount rate associated with it:

  • Qualified – 1.79%
  • Mid-Qualified – 2.39%
  • Non-Qualified – 3.09%

 


Credit Card Transaction Amount = $100

Transaction Deatils

Interchange Fee

Discount Rate

Cost

Swiped, Check Card

1.70%

1.79%

$1.79

Swiped, Rewards Card

2.40%

2.39%

$2.39

Check Card, Keyed In

2.35%

2.39%

$2.39

Keyed In, Rewards Card

2.46%

2.39%

$2.39

Swiped, International Card

3.23%

3.09%

$3.09

 

Would you like to understand credit card pricing and which pricing structure is right for your business? Please give our friendly staff a call and we would be happy to consult with you. (800)917-8026

Tags: Interchange Fees, Discount Rate, Tiered Pricing