THIS IS NOT A SOLICITATION FOR YOUR CREDIT CARD PROCESSING BUSINESS

Well, let's answer the above question this way. "Costly", is a relative term. I don't think you'll find any merchant that thinks their fees for accepting credit cards are low or reasonable. However, according to Visa/MC the fees that are being charged by them are "justified" based on the risks and services their member banks provide. Obviously, that's their opinion but there are currently grass roots initiatives that have been launched in congress (Credit Card Fair Fee Act) arguing this issue. The real question is are you paying your provider fair and reasonable fees? And furthermore, are they educating you thoroughly so that you know what exact rates you are paying on all the various types of cards you are accepting as well as the various types of transactions?

Really, the second part of the question in the title of this lens is the "confusing" issue. Many times when I approach a merchant to do a review for them, they hand me their statement in a sealed envelope saying something like, "I don't bother looking at these any more because I can't decipher all the fees". It's a shame! You pretty much have to accept cards in todays environment or you lose business. But, don't you think you're entitled to totally understand what you're paying for and how you are being charged? That's precisely what this site is all about. You will get a thorough understanding of how the industry works and have a much better handle on how pricing works. It's what your current provider should be doing for you but, likely isn't.

My name is Michael Saum. I live in western Michigan and have been in the credit card processing business for many years. It has afforded me a very comfortable living from an ever increasing clientele. I enjoy a very high customer retention rate simply because I take the time to educate my merchants. They know that I care about them as individuals and enjoy a mutually rewarding long-term relationship with them.

In my tenure in the field, I have been continually stunned at the amount of vaguery and outright deception that, unfortunately, seems to prevail in our industry. It shouldn't be that way but I'm sad to say, it is.

Both brick and mortar and click and order merchants are misled by supposedly "the lowest rates available" and never informed about all the other fees and charges that show up on their statements or how individual transactions are categorized. Recently, merchants are being lured by "free terminals"....but, are they really free? How do you know who to trust?

Quite simply, every business is different based on their SIC code and how they typically transact business. It isn't, and shouldn't, always be only about rate. Your individual needs are different than the business next door or across the street. I tend to function more as a consultant when I meet with merchants. To me, it's important to set up the account right in the first place. I always strive to recommend and provide all the value added services that my merchant needs and nothing they don't need. Most importantly, any terms and ALL fees, any surcharges and simply any costs related to the account need to be revealed and discussed thoroughly. NO SURPRISES LATER!

Every provider in our industry has the exact same cost basis (it's called "interchange"). So, the primary difference from one provider to the next is, how much they feel they need to make or can slip by you. It's a shame, but it is happening daily.

If you are in business selling any kind of goods or services, you need to take credit cards for payment. Recent studies show that they are the preferred method of payment. So what's the answer to making certain that you're getting properly taken care of? GET EDUCATED!

I have developed a website, and eBook, that will give you a proper education regarding the world of credit card processing. In fact, when you're done with the eBook, you'll have a more thorough education in the credit card processing industry, than probably 80%-90% of the reps in the field.

You will learn the difference between 3 Tier, 4 Tier and Cost Plus Pricing. Bundled and unbundled rates are discussed and you'll better understand which is best for you. Learn the difference between on-line and off-line debit transactions and their pricing. You'll discover all the crucial questions to ask of any provider. The bottom-line is that you'll simply be able to improve your bottom-line.

You'll also find, educational information, regarding credit card processing and the many differences available, on this website. I'm confident that you will find it enlightening.

Now obviously, you can click on any of the numerous ads found on this site, or elsewhere, and check out their offers. Or, you may contact me directly and allow me the privilege of personally being of assistance to you and your needs. THE CHOICE IS YOURS!

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In this module, I want to introduce you to Three Tier Pricing. Up until maybe just five years or so ago, pretty much all merchants were priced this way. At that time, there were a lot fewer card and transactions types so it fit the majority of businesses. As an example for rates below, I'm going to be using a pricing grid from a large processor. We'll be using their published rates for "new" merchants with no previous processing volume. So here's how it works:

1st Tier/QUALIFIED: This category would be for any generic (in other words, no Rewards or corporate type cards) Visa/MC debit or credit cards that are swiped thru your credit card terminal or POS system. The cards, therefore, are electronically read and viewed by Visa/MC to be the most reliable transactions and "qualified" for the best rate. Using the above referenced rates this level would be at 1.79% + $.25. So, a $100 transaction would cost $2.04 in fees commonly known as the Discount Rate.

2nd Tier/Mid-Qualilfied: Here's where it can be a bit tricky and how many merchants are taken advantage of regarding rates and card types. Each processor can independently decide what types of transactions, or card types, fall into this category (or "bucket" as some refer to it). The rates for these types of transactions will carry a "surcharge" to the Qualified Rate. Using the above referenced processors grid, the surcharge for Low Risk merchants would be .75%. So, you would be paying a total of 2.54% + $.25 for these transactions. This could be some Rewards cards, hand-keyed (or card-not-present) transactions, some business type cards and possibly others. Again, all providers can put whatever they want into this category and tack on any amount of surcharge they think they can get away with. It would be important to ask your provider what your surcharge is for Mid-Qualified and what types of transactions will fall into that category. Typically, your statement won't have it spelled out clearly for you as far as what types of cards are in this category.

Let's take this Mid-Qualified area a bit further. While a Low Risk type merchant, in this example, has a .75% surcharge, a Medium Risk merchant could see 1.00% or higher surcharges. And, if you're in a High Risk category, the surcharge could be 1.40% to over 2.00%. Risk level is determined by merchant type and how transactions are processed, the majority of the time.

3rdTier/Non-Qualified: Here again is where it can be a bit tricky keeping in mind that each processor can independently decide what types of transactions fall into this category. Surcharges in this category can range from 1.00% for Low Risk merchants to over 2.00% for High Risk. Most of what you would find in this category would be corporate type cards. But, there also some Rewards, T & E cards and World cards that could get thrown in here as well. Be sure to ask your provider.

Unfortunately, many processors statements are nearly indecipherable to the untrained eye and many are made this way by design. If you feel that you fully understand your statement, CONGRATULATIONS! If, however, you would like some help, you can email me or fax a copy of your current statement for a FREE ANALYSIS, of course, with no obligation. Here's the contact info for your convenience:

My Email

FAX: 888-783-8690

Previously, we discussed 3 Tier Pricing. In this module we'll talk about 4 Tier and how it differs from the above.

Up until just a few years ago, there was no such thing as 4 Tier pricing. I guess you can thank the retail giant, WalMart for this pricing model. They filed a class action suit against Visa/MC saying that since debit cards were taking money directly out of an individuals checking account, that they would be less risky. Since they were less risky, and therefore, would see fewer chargebacks, they should carry a lower interchange rate. They won on behalf of all merchants. So, many processors began offering this new "hybrid" type pricing called 4 Tier. Here's how it works:

Tier 1: This level would be for any Visa/MC debit cards swiped thru your terminal or POS. Using the same pricing grid referred above, for a new retail merchant, this level would be 1.49% + $.25. As you can see, it's a full .30% lower than the 1st Tier in 3 Tier pricing. Now, this could add up to HUGE SAVINGS for you, over lots of transactions. If you have average ticket sizes of less than $50, Four Tier is the way to go. Studies done a few years ago indicated that nationally, retailers with an average ticket of $25-$50 would see 51% of their sales as debit cards. Average tickets in the $10-$25 range see nearly 75% debit cards. And, with the increased popularity of debit card usage, these numbers are likely higher today.

Tier 2: These transactions are going to be for those that fell into your Qualified category above in the 3 Tier Pricing. Surcharges here, utilizing the above referenced pricing grid, are .35% for Low to High Risk Merchants. So, as you can see, now, for a swiped credit card, you will be paying 1.84% + $.25 (1.49% Tier 1 plus .35%). The reason this is higher is that under the 3 Tier pricing, the processor knows they can give you a lower rate on Qualified transactions because they know from national numbers, that many of your sales will actually be debit cards. Their cost on debit cards are less than for credit cards so while they may be making less on credit cards sales, they're really making out on debit cards.

Tier 3: Transactions in this category would relate to the Mid-Qualified transactions referenced above in the module on 3 Tier pricing (please refer to that sections for a description). Surcharges, over and above your Tier 1 rates, could be 1.00% upwards to 2.00%. Again, ask your provider what transaction and card types fall into this category.

Tier 4: Now, these transactions, as you might have guessed by now, will equate to the Non-Qualified transactions in the 3 Tier Pricing module. Surcharges, tacked onto your Tier 1 rates, could range from 1.25% to over 2.00%.

The general rule of thumb here would be that if you have average tickets of less than say $50, 4 Tier pricing is likely your best bet. Again, if you would like some help deciphereing your situation, you can email your questions to me or fax a copy of your current statement for a FREE ANALYSIS, of course, with no obligation. Here's the contact info for your convenience:

My Email

Fax: 888-783-8690

Now we've arrived at what is called Cost-Plus or Interchange-Plus pricing. You may see it referred to with other names but, here's what this is all about.

Up until a couple years ago, this type of pricing was primarily only available to the WalMart's and Sears type merchants. You know, the large national chains. In fact, they demanded this type of pricing. With the ever increasing competitiveness in the field, some processors, have opted to make this same pricing available to a broader base of merchants. However, many will try and steer you away from it because it no longer avails them the opportunity to "hide" fees. Here's how it works:

In the credit card industry, rates (interchange rates) are set by Visa and MasterCard on behalf of their members. Every merchant services provider (processor) pays the exact same rates. From that basis, they tack on their miscellaneous markups and profits and pass it on to you in the form of your Discount Rate. In the 3 Tier and 4 Tier examples above, the processor then decides which "category", "tier" or "bucket" they're going to put each of your transactions. In cost-plus pricing you will be getting the interchange rates "passed thru" to you "plus" some basis points and possibly some cents as well. Let's look at some examples.

When looking at Interchange Rates, there are three components. There is rate, per item and assessments. The rate and per item gets paid directly to the card issuing bank when a sale is made. The assessment goes directly to either Visa or MasterCard. Currently (as of the October 2007 schedules) Visa CPS Retail (this would be for a generic, no frills Visa card swiped thru a terminal) shows a rate of 1.54%, per item of $.10 and assessments of .0925%. So, in order to determine true "cost" add the 1.54% and the .0925% and you'll come up with 1.6325% plus the per item fee of $.10. Under Cost-Plus pricing, your statements will be more lengthy because of the numerous differend card and transaction types that exist. There will be a line item for each specific type of card that was taken by your business during the month. There are nearly 200 different types of transactions but the benefit of this type of pricing is obvious. You will see exactly what types of cards your are getting, and in what dollar volume. You'll be able to see exactly the cost and how much the processor is making. Keep in mind that your processor is in business to make a profit and rightfully so, as are you. They provide a valuable service and take on a substantial risk for this service. They are entitled to a fair profit but it must be reasonable and justifiable. If you'd like more information and understanding on Cost Plus pricing, you can email me or even send me a fax of your current statement and I'll see if you could qualify.

My Email

Fax: 888-783-8690

And, if you'd like to get even a more thorough understanding of how this whole industry works, obtain current Interchange Fee Schedules and increase your knowledge overall, go to my website. It will introduce you to my eBook that provides a wealth of information for you regarding this ever-increasing cost center in your business.

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When priced by a merchant service provider, you can be priced either with bundled or unbundled rates. So, what is the difference and does it matter?

The general rule of thumb says that if you have numerous smaller size transactions, you will probably fare better with a bundled rate. It will be quoted as simply, 2.51% for example. If your average transaction is much higher and you process fewer of them, you will want an unbundled rate. This would be quoted as something like 1.79% + $.25.

When looking at either of these pricing scenarios, simply do the math, based on the majority of your transactions. You'll be better able to decide for yourself which one makes the most financial sense to you.

Many times when in the field, I had many merchants tell me they weren't taking debit cards. There still seems to be some confusion about these types of transactions, so I will clear it up here for you.

Way back in the old days (yah, it really wasn't that long ago) when debit cards came out, they could typically only be used at your banks ATM machine. Then, to make a long story very short, along came Visa and MasterCard offering to "brand" the banks debit cards with the Visa or MC logo. The banks were all for it as this opened up another potential revenue stream for them. Now, they can be used anywhere Visa or MasterCard is accepted.

Now, even though this "new" breed of cards may look like a credit card, they are in fact debit cards. There will never be any "credit" extended to the card holder. It is linked directly to their bank account and simply, if there's no money available, the card won't work.

Every debit card will have one of or a combination of the following words on the face of the card: "debit", "check card", "cash card" "money card", etc. Sometimes, for reasons that I will make clear further down in this article, the word or words are somewhat concealed in the hologram to make it more difficult to see.

Okay, so why does it matter to you the merchant? It's all about transaction COST!!! It's important for you to know what the different cost structures are and possibly change or alter your checkout procedures to reduce your fees.

Let's take a look at how a good majority of merchants do their business. A customer comes to the counter to check out. They whip out a card and you, or your employee, simply swipes it thru your terminal or POS. The transaction is approved, receipt is printed and signed and the happy customer is on their way.

Now, let's look at some costs here. For sake of this example, we're going to say that your current rates are 1.59% + $.25. So, on this transaction for say, $50, your processing fees will come to $1.05.

But, what if that card was actually a debit card going thru the NYCE network (you'll notice on the back of debit cards the network it is associated with like NYCE, Star, Pulse, Maestro, etc.)? Currently, the NYCE debit network rate is $0.1375 + 0.65% (with a cap of $0.6875). So, if you would have had the customer enter their pin number into your terminal or pinpad, that $50 sale would have cost you about $.48 for the network fees plus, maybe $.10-$.15 for the processor or about $.61 total. As you can see, there can be quite a difference.

So, for the issuing bank, they would much rather that their customers use their cards as a credit card, without the pin (and in fact, many banks encourage this). In this scenario, the bank would earn the Interchange Rate. If you, the merchant, are able to capture the pin number, you save money and the bank earns ZERO, ZIP, NADA, ZILCH......AWWWW, isn't that a shame? When you capture the pin number, it goes right past the bank and directly thru the debit network.

Of course, in order to take advantage of this, you must have the proper technology (PinPad) for debit capture. So, you really need to do the math to determine if the cost of the equipment (if you don't already have one or a terminal with a built in pin pad feature)is going to be worth the savings you will potentially be able to achieve.

What I have also discussed with my merchants is the method in which they ask for the pin. Rather than asking "debit or credit" (which is the way most merchants do), you want to approach it differently. When a customer hands you a card, look at it and look for the word debit or the other identifiers. If they are there, then say to the customer, "I'm going to need you to enter your pin number in just a second", and then hesitate briefly. Sometimes they'll say, "I don't know my pin number" (which is rare) or "just run it like a credit" (they don't know, or possibly even care, that it cost you more that way....they simply look at it as a convenience for them). As long as they don't object in any way, select the debit prompt on your terminal and then the pin pad will prompt for the number. Once it's entered, THE SAVINGS ARE YOURS.

Another reason to capture pins is this. If you run the debit card as a credit, the system simply looks in their account to see if there is money available for the transaction, right then and there. If you capture the pin number, not only does it look, but it also immediately captures the funds making them no longer available to the account. Not necessarily a big deal, but, it could be.

Hopefully, this has given you a better understanding between On-Line debits (with the use of a pin pad) and Off-Line (run as a credit card). If you have any further questions, or concerns, you know how to contact me.

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Have you ever tried to figure out exactly what you're paying for the "privilege" of accepting credit cards in your business? You're not still stuck on the rate you think you're paying, are you? Most merchants, when asked what their current rate is quote their lowest rate they see on their statements. However, in reality, the real, Net Effective Rate is always much higher.

Obviously, when you get set up for merchant services, the reps typically only quote you the lowest rate you will receive. This will be for a plain ole generic Visa/MC debit or credit card swiped thru your terminal. If they were to quote you up front what your REAL rate was going to be, you'd probably opt out of accepting them all together. It's hard enough making a living these days without having to give up a chunk of your profits for "convenience" sake.

Keep in mind there are a multitude of categories your customers transactions could fall into. They will be categorized into varying "buckets" and subsequently, a variety of rates and fees will apply. So, how do you know what you're really paying? Let me explain a simple way to decipher it all.

For Existing Merchants: Here's what you want to do. Take a look at your most recent statement. Find your total fees paid for the month. This will be towards the end of your statement. You want to be careful here to make sure you're getting the real "total". For some merchants, they are on what is referred to as "daily discounting". This is where you are paying some of your fees out of each daily batch (great for the processor....an accounting nightmare for the merchant). You'll know this is happening if the total deposit you receive is less than the total sales each day. If that's the case, you'll have to account for these daily fees and add them to the month end fees. You'll want to add any and all miscellaneous fees like batch fees, supplies, statements, equipment rental, monthly or annual fees (these may be only charged once or twice a year but still, you need to account for them to get an accurate figure). Now, take that total and divide it by the total Visa and MasterCard volume. This will give you the true Net Effective Rate that you are paying.

I recently took a look at a merchants statement and went thru this exercise with them. They had never considered this nor had they been shown this process in the past. When I asked them what their rate was, I was told it was 1.49% + $.25. Now, this is a restaurant and this is an excellent rate for them. After examining their numbers, we found that they had total fees of $2,164.24 for the month on $78,132.50 in V/MC volume. Doing the math, we come up with an actual real total rate, considering all their downgrades and transactions types of, 2.77% (the Net Effective Rate). I was then able to do a line by line analysis for them on their actual types of transactions, and show them how to effectively lower their overall rate, quite nicely. Not just their "quoted" rate but their "real" rate. As you might imagine, they were quite pleased with the education and the resulting savings. They have a much better handle on how the whole industry works now, as well. Try doing this with your own statement or even send me a copy for help, if you like.

For New Merchants: For new merchants just getting set up, you won't be able to really determine a Net Effective Rate. What you will need to do, however, is to make sure you ask as many pertinent questions as possible. First, you'll want to know the rate you are being quoted or "teased" with. Ask the rep the following questions:

What types of transactions will this rate apply to (i.e. debit,credit swiped or whatever)

What if any transaction or per item fees there will be

What will hand-keyed or card-not-present rates be

How much will you pay for Rewards Cards

What arethe rates on corporate or World cards

Are there any batch fees and if so, how much

Monthly statement or monthly minimum fees

Any application or programming fees

How about annual fees (this is one they don't often tell you about)

Supplies or any other miscellaneous fees....find out upfront before signing any paperwork)

Out of all the fees described above, I'd have to say that the Rewards Cards are probably the biggest thing to find out about. Each processor can place these types of transactions into any category they choose (primarily when you are on a 3 Tier or 4 Tier Pricing Model). No matter what your type of business, these cards are beginning to show up with greater frequency. For the merchant that I described above, last year they were seeing about 19% of their volume was falling into this category. Currently, they are seeing about 30% and it's beginning to hurt.

Okay, there's your education for today. As always, I welcome your comments and look forward to being of any service to you that I might be.