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Credit Card Surcharge: New Rules

Posted by Alex Neir on Thu, January 24, 2013 @ 02:37 PM
Credit Card Surcharge
Credit card surcharges have been a hot button in the industry for a number of years and recent changes to Visa regulations have opened the doors for merchants to begin charging a surcharge to customers that wish to pay via credit card.

Credit card surcharging is still illegal in the following states: Texas, Oklahoma, New York, Massachusetts, Maine, Kansas, Florida, Connecticut, Colorado and California. So if you conduct business in any of these states it is illegal to add a surcharge to credit card transactions per state law, which always supersedes regulation of a particular company (Visa).

The rest of the nation has limited authority to surcharge customers starting on Jan. 27th, 2013 based on the rules established by Visa Merchant Surcharging regulations. It is strongly recommended that you review these rules before instituting a surcharge for credit card use to ensure you are in compliance.

Here is a condensed description of what is going to happen:

  1. Your business must notify your credit card processing acquirer and Visa at least 30 days prior to establishing a surcharge.
  2. You may only apply a surcharge to credit card purchases. You are not allowed to surcharge debit cards or prepaid cards.
  3. You may only surcharge an amount equal to or less than the discount rate established by your processor.
  4. You must disclose the fact that you are surcharging credit card transactions as a fee. You must clearly disclose the surcharge amount at the point of sale, online and on the credit card receipt.

Remember:

  • You cannot surcharge American Express
  • You cannot surcharge a debit or prepaid card in any circumstance
  • You cannot surcharge more than you are being charged to accept the card

These rules have been made part of the Visa processing guidelines that govern your merchant account. So, breaking these rule constitutes a violation of your card processing agreement and will result in your account being closed and your business being placed on the TMF list.

While this new regulation may seem like a benefit to your business it is strongly recommended that you proceed with caution if you intend on implementing a surcharge.  The preferred method of payment for most customers is a credit card. So charging the customer more for using their preferred method of payment may alienate your business and drive customers to the competition.  A good approach may be to test it for a month and pull it back to gauge the response of your customers. 

Tags: Credit Card Processing Fees, Accepting Credit Cards, Credit Card Surcharge

Seasonal Merchant Account | Explained

Posted by Alex Neir on Tue, February 21, 2012 @ 10:57 AM
Seasonal Merchant Account

A seasonal merchant account is an account that is only open for certain months of the year. The seasonal merchant account is set up to functional only in the months that the business is operational each year. For example a golf course in Colorado may only be open from May to September. Given this scenario it is advantageous to have the merchant account suspend each year from October to April saving the business owner the fees associated with keeping the account open in the months where revenue is not being generated.

Other examples of seasonal businesses:

  • Christmas Stores
  • Sumer Youth Camps
  • Alpine Ski Hills
  • Fireworks Stores
  • Ice Cream Shops
  • Lawn Care and Landscaping
  • Trade Shows

When setting up a seasonal merchant account you will indicate which months you prefer to have the account open and closed. During the months in which the account is closed your business will not incur any fees related to the account unless there are annual fees that are set to be billed in a month that the account is not active. Make sure to ask for full disclosure of all the fees involved with the account.

Some processors will also allow for the business to turn the account on and off numerous times each year. This is especially helpful for businesses that need a merchant account for trade shows that happen multiple times a year. 

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Tags: Seasonal Merchant Account, Merchant Account Education, Credit Card Processing Fees

Merchant account effective rate: what you pay to process credit cards

Posted by Alex Neir on Tue, September 13, 2011 @ 11:13 AM
Effective Rate

Merchant account effective rate: what you pay to process credit cards

Merchant Account Effective Rate

Adding merchant services capabilities to any business can significantly boost its bottom line. Ease-of-doing business not only makes the shopping experience more favorable for consumers, but it can contribute to ongoing repeat business. One of the features to understand when either adding or updating your current merchant services account is the effective rate charged.

So, what exactly is this charge and how should it equate into the overall decision making process about which vendor to leverage for your business?

Effective Rate Basics

In simplest terms, the effective rate refers to the NET percentage of a business’s sales that will be charged for the ability to accept credit cards; credit card processing fees.

For example, if a business receives $15,000 in credit card sales in any given month, and their total processing expense is $450; its effective rate for that month was 3.1%. While this calculation is very basic and straight forward, there is another consideration to be aware of; the qualified discount rate.

If you are offered a qualified discount rate, which is very common and an excellent option to consider, this is the base fee rate to be assessed. Once surcharges and other merchant account fees are added back into the equation, you arrive at the net effective rate. When determining your fees, be sure to break them out individually so you can assess each one independently.

Calculating your Estimated Effective Rate

For established businesses, this calculation will be fairly simple; take your average monthly credit card sales x the effective rate from the merchant services provider, to arrive at your average monthly processing fee. Newly established businesses or businesses with inconsistent sales will have a slightly more difficult time arriving at this calculation. In these instances, factoring a higher monthly average than anticipated will make it easier for the business to budget costs.

While an effective rate is indeed a cost assessed, it is often a small price to pay for the end value offered to your customers and ultimately to your business for this added payment option.

Tags: Credit Card Processing Fees, Effective Rate, Good Rate On a Merchant Account

Merchant Account Discount Rate and What it Means to You

Posted by Alex Neir on Thu, August 18, 2011 @ 07:37 AM
Discount Rate

Merchant account discount rate and what it means to you

When setting up a merchant account, sifting through economic euphemisms and bank jargon can be a daunting and perplexing task. All you really want to know is what do these terms mean to for me?

The Merchant Discount Rate, for instance, is a confusing term that, simply stated, means the amount you will pay to have funds from a credit card transaction deposited into your bank account.  There are several factors that determine your fee scale, including your industry, the type of credit cards you accept, debit as opposed to credit transactions, and the volume of your sales.  Here are some factors you should keep in mind when shopping for an optimal discount rate:

  • The Interchange Fee is the fee that the bank that issues the credit card pays to your bank for accepting the risk of the transaction.   The credit card companies will pass this fee on to both the cardholder and the merchant.  There are several rate “tiers” that merchant service providers can offer you.  This rate is always in flux and you should shop around to secure the lowest rate available for your industry and business size.
  • The Authorization Fee is a flat fee levied when a request for authorization of the transaction is sent to the issuing bank.  This may be itemized on your invoice or bundled into the invoice total. 
  • Communication Costs depend on how the transactions are made.  Different fees apply for transactions made in the store, over the phone, and on the Internet.  Generally, on-line transactions incur the highest fees.  You should work with your merchant service provider to determine which will be the most cost effective for you.
  • Downgrades occur when there a problem with your transaction—missing or incorrect data, a settlement time longer than two days, or authorization failure. Downgrades can really drive up your fees and should be avoided as much as possible. 

You and your merchant service provider will agree to terms of the discount rate prior to settling on your service but these are a few things you should keep in mind when entering into an agreement.

Tags: Discount Rate, Credit Card Processing Fees

Top 10 questions to ask when applying for a merchant account

Posted by Alex Neir on Thu, June 09, 2011 @ 07:24 AM
Applying for a merchant account
Top 10 questions to ask when applying for a merchant account

Applying for a merchant account can be a little overwhelming. You may feel that you don’t have enough experience or knowledge about the process to ask the right questions to avoid being over charged. We have created this useful guide to help you focus on the most important aspects of a merchant account as you compare providers.

What are interchange fees and how are they determined?

The bulk of the costs associated with a merchant account come from interchange fees. Interchange fees are charged from the credit card issuing bank and major associations (Visa, Master Card, Discover, etc) and represent the fixed cost that all processors are working off of. Understanding how interchange works will give you a fundamental understanding of how different price structures are setup.

What price structure will be set up for my business?

There are many different price structures that can be set up for any given business. Each one will interact with the interchange fees in a unique way. The three most popular pricing structures are:

With a tiered model the interchange fees are set at specific levels based on how the credit card being processed is qualified. The credit card processor’s mark up is built into the tier. ERR pricing sets the interchange fee at a specific level and charges a surcharge for any transaction that does not qualify. Interchange plus is the most transparent and passes the exact level of interchange directly through to the merchant’s bill. The credit card processor will add a markup on the merchant statement for the cost of the service they provide.

What can I do to make sure my credit card sales qualify for the best rate?

Remember that the bulk of your processing fee for each transaction is determined by the interchange rate the transaction qualifies for. Therefore it is very important to understand how to process your customer’s credit cards to ensure the lowest interchange fee is applied. Additionally, there is terminal software called BIN seeker that will automatically help route your transactions to the lowest level of interchange.

How will my fees be deducted from my account?

There are two settlement options that are offered by all processors. They are daily settlement and monthly settlement. With daily settlement you’re processing fee and per transaction fee will be deducted from each sale before it is deposited into your account. With monthly settlement each sale will be deposited into your account in full. Then at the end of the month the total fees for the month will be deducted from your account.

If I need equipment will it be leased or do I have the option to purchase it?

Never lease equipment. Terminal equipment can be purchased starting at $150. With a lease you will be locked into a very long term contract in which you will pay upwards of 1,500% or more of the actual cost of the equipment. Be very carful with processors that are pushing leased equipment as this is good signal that they don’t you have your interests in mind.

Is your equipment proprietary?

Proprietary equipment will only work with that specific processors network. Proprietary equipment makes it impossible for the terminal equipment to be re-programmed by another processor if your business decided to switch processors in the future. There are numerous manufactures that provide non-proprietary equipment that work will virtually all credit card processing networks. 

What is the early termination fee?

Most, if not all, credit card processors with have an early termination fee written into the terms of service. It is important to understand what that fee is as you compare providers. It is also important that know that the fee is negotiable.

Is there a monthly minimum fee associated with the account?

The monthly minimum fee is the minimum amount of fees that will be charged to the account over the course of the month. As the fees for the account begin to accumulate they are deducted from the minimum. So if you have a monthly minimum fee of $25 on the account and your total fees for the month are $16.57 the remaining amount of $8.43 would be applied to ensure you met the minimum. Monthly minimum fees are completely negotiable.

What is the annual fee for the account?

Most credit card processor’s will have an annual fee associated with the merchant account. This is another fee that can typically be negotiated so be sure to ask.

What is the PCI Compliance charge?

PCI DSS (Payment Card Industry Data Security Standards) compliance has to do with how your business handles credit card information from your customers. Identity theft has become an epidemic and the credit card associations are taking security of credit card information very seriously. Most all credit card processors will have a PCI Compliance check for businesses they provide service for. Most will also have an associated fee for ensuring compliance. This is another fee that can be negotiated.

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Tags: Interchange Fees, BIN Seeker, Applying For a Merchant Account, Credit Card Processing Fees, Monthly Minimum Fee

5 Reasons Why Businesses Overpay for Credit Card Processing

Posted by Alex Neir on Thu, June 02, 2011 @ 07:24 AM
Overpay Credit Card Processing

5 Reasons Why Businesses Overpay for Credit Card Processing

There are numerous reasons businesses overpay on their credit card processing. Here are the 5 most common reasons.

#1.) Misunderstanding of how the fees are applied

With many different ways to structure credit card processing fees it is sometimes difficult to determine how the fees are applied. The three most common pricing structures are tiered pricing, ERR pricing and interchange plus pricing. Depending on the pricing structure that is in place for your business, there are specific rules that dictate how the fees are applied. It is very important to speak to your sales representative to review the pricing that has been set up. Additionally, it’s important to discuss how your specific pricing works and how the fees will be applied to your account.

#2.) Ignoring your credit card processing statement

The main reason most businesses ignore their credit card processing statement is the fact that the fees for the service are automatically deducted from the business checking account. Therefore, if a check doesn’t have to be written the statement tends to be overlooked. The credit card processing statement details all the fees charged for service over the course of the month and will also include messages from the processor as to rate increases and special updates. It is very important to review the statement each month so that you are comfortable with the fees that are applied. If there are any surprises or charges you do not recognize. Call your representative immediately and question the fee.

#3.) Confusing credit card processing statement

Traditionally the credit card processing statement is one of the most confusing statements you will receive for your business. To make matters worse some companies intentionally over complicate their statements to hide exorbitant fees. It is very important to understand your processing statement sections and fee layout. If you are confused by your statement, call your sales representation and ask them to go over the statement with you until you are comfortable. 

#4.) Failure to review your credit card processing rates

Price increases for your account can be imposed by Visa and Master Card or by your processor. It is important to review your rates at least once a year and compare the pricing to what you were paying when the account was set up. Typically Visa and Master Card raise rates on a yearly bases and the increases are usually very small. If you are paying considerably more today than you were when the account was created, odds are that your processor is increasing your rates and you should ask why.

#5.) Unintentional downgrades

A downgrade is the process of a transaction being charged at a higher level due to criteria for the credit card sale not being met. For example on a debit transaction if the PIN number is not captured, the transaction will be charged at a higher (or more expensive) pricing level. Additionally, for a swiped credit card transaction the terminal may ask for a zip code. If the zip code is not entered the transaction will be more expensive for the business to process. Speak to your sales representative to understand the criterion that needs to be captured to ensure you are qualifying for the best possible pricing.

Tags: Credit Card Processing Fees, Accepting Credit Cards, Overpaying for Credit Card Processing

Getting started with a merchant account – 5 Steps

Posted by Alex Neir on Mon, April 18, 2011 @ 07:34 AM
Start
Getting started with a merchant account – 5 Steps

This guide is intended to help your business understand merchant services and arm you with the information you need to make an informed decision on setting up a merchant account.

  1. Step 1 – What is a merchant account?
  2. Step 2 – What kinds of merchant accounts are available?
  3. Step 3 – How long does it take to set up a merchant account?
  4. Step 4 – What do I need to know when setting up an account?
  5. Step 5 – Who should I use to set up the account?

What is a merchant account? Starting with the basics, a merchant account enables your business with the ability to accept credit cards payment for provided goods and services sold. It is important to understand three fundamental principles:

  1. A merchant account is underwritten by a financial institution so expect to provide financial documentation pertaining to your business.
  2. A merchant account allows your business to accept payments via credit card.
  3. A merchant account is treated like a line of credit. Money received from your customers is deposited immediately into your account, however that money be charged back for up to 18 month from the original sale. This creates a line-of-credit in the eyes of the funding bank.

What kinds of merchant accounts are available? There are many different merchant accounts that are offered depending on how your business intends on accepting credit cards. The 4 major account categories are:

  1. A retail merchant account
  2. A Mail Order, Telephone order (MOTO) merchant account
  3. a internet merchant account
  4. A Point of Sale (POS) merchant account

How long does it take to set up a merchant account? A merchant account can be set up in as little as 24 hours or as long as 2 weeks. It depends on a few factors.

  1. Type of business
  2. Industry of the business
  3. Requested account volume
  4. Business Financials

What do I need to know when setting up an account? It is beneficial to understand all the rates and fees associated with the account, how they are charged and what they mean. It is also beneficial to understand that a lot of the charges associated with the account are negotiable.

Who should I use to set up the account? There are many options when selecting a provider.  Be sure to weigh the benefits and cost associated with each to make  the most informed decision for your business.

Tags: What is a Merchant Account, Credit Card Processing Account, MOTO Account, Credit Card Processing Fees, Point of sale credit card processing

Where do my credit card fees come from?

Posted by Alex Neir on Mon, April 04, 2011 @ 06:50 AM
Credit Card Fees

Where do my credit card fees come from?

The credit card fees associated to your merchant account come from various sources and together represent the effective rate you pay to process credit card through your business. The sources of your credit card fees can be grouped into the following categories.

  • Interchange Fees
  • Dues and Assessments
  • Processor Markup
  • Processor Service Fees
  • Junk Fees

Interchange Fees

Interchange fees represent the true fixed cost of processing a credit card transaction. The definition of Interchange is: the network of interconnected financial institutions set up by the major associations (Visa, Master Card, etc) to facilitate the use of a plastic card to make payment. (More information on Interchange) These fees are fixed by the associations and can’t be negotiated.

Dues and Assessments

These fees are also fixed by the major associations, non-negotiable and applied to your merchant account every month. Currently Visa and Discover have dues and assessment of 0.0925% and Master Card has dues and assessments of 0.095%.

Processor Markup

The processor markup represents the beginning of negotiable credit card fees. The processor’s markup is discretionary and represents the cost the processor is charging for the services they are providing. The markup can be bundled with Interchange or separated out depending on the pricing structure that is offered. (More information on credit card pricing structures)

Processor Service Fees

The service fees charged by your processor are also negotiable and represent the additional costs you will be charged by the processor. These fees include but are not limited to; monthly statement fee, monthly minimum fee, per transaction fee, batch fee, PIN debit fee, address verification fee, annual fee, account access fee,  PCI verification fee, termination fee, chargeback fee, set up fee, application fee, reprogram fee, etc

Junk Fees

Junk fees represent the credit card fees that are bogus. It is a common practice among some credit card processing companies to advertise very low rates and fees to attract businesses to sign up. Once the business signs up the processor slaps on enough junk fees to make up for the below market advertised rate. What makes this practice even more deplorable is that the fees are described very carefully as to make them sound legitimate. For example: Interchange BIN location, Interchange recalculation, Association access, etc.

With any merchant account it’s important to understand that you have a lot of negotiation opportunity and by simply knowing what to ask you can save your business a great deal of money when it comes to credit card fees.

For a review of your current fees or to set up a new account please contact our friendly staff at (800)917-8026.

Tags: Interchange Fees, Credit Card Processing Fees, Effective Rate

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

The 3 best price structures for credit card processing | Interchange

Posted by Alex Neir on Thu, August 26, 2010 @ 04:18 PM

The 3 best price structures for credit card processing | Interchange Plus

price structures for credit card processing
There are many ways to set up the pricing structure for a credit card processing account. We will discuss the 3 best price structures for credit card processingand give a detailed explanation of each.
  1. ERR Pricing: One rate
  2. Tiered: Two to four rates
  3. Interchange Plus: Every rate

The third price structure for credit card processing is called Interchange Plus Pricing. Interchange Plus pricing gets its name based on the fact that the rate charged for the transaction comes straight from the Interchange table “plus” a surcharge amount.

As a merchant business with a interchange plus pricing structure, you will be charged the Interchange Table rate that the transaction qualified at plus a surcharge amount. The surcharge amount is negotiated with your merchant service provider. We will use 50 basis points or 0.50% for illustrative purposes.

(The Interchange Table is the rate table set up by Visa, MasterCard, Discover and American Express to facilitate the acceptance of plastic as a form of payment. There are currently over 180 different interchange rates that can apply. The rate is determined by how the card is transacted – swiped vs. keyed and the type of card that is transacted – debit card, check card, rewards card, corporate card, international card) More information on interchange fees

Transaction Amount = $100

Interchange Qualification

Interchange Rate

Surcharge

Cost

Check Card, Swiped

1.65%

0.50%

$2.15

Rewards Card, Swiped

1.90%

0.50%

$2.40

Check Card, Keyed In

2.35%

0.50%

$2.85

Rewards Card, Keyed In

2.45%

0.50%

$2.95

International Card, Swiped

3.07%

0.50%

$3.57

The interchange plus pricing structure for credit card processing is most advantageous for merchants that are transacting large volumes.

What pricing structure is right for my business?

Tags: Interchange Fees, Pricing Structure for Credit Card Processing, Interchange Plus Pricing, Credit Card Processing Fees