I know an independent gasoline station owner who I speak to from time to time and asked him the following question: “If your credit card processing costs were reduced, would you pass the savings onto your customers?” 

He asserted that the question must be hypothetical because no merchant fees ever decrease.  “Nevertheless,” I insisted, “if you would pay less for your processing costs would customers also see a better price?”  He was quick to say, “Yes,” but then added, “Let me see what my competition does first.”

This gasoline station owner may now have to weigh my question a little more seriously, and weigh his pricing options more carefully .  Effective October 3, 2008, Visa, not often known for its magnanimous nature, is providing an early Christmas present to gasoline station business owners.  Their credit card processing fees may be reduced as much as 0.50 basis points (one-half percent) when consumers use their credit cards at the pump.  Of course, the actual reduction in fees is predicated on the type of card a given customer uses.

The October, 2008 Interchange changes that will be ushered in also include the provision that prepaid gas cards will receive a designation of “partial authorization,” when applicable.  For example, suppose a customer has $25 left on a Visa prepaid gas card but the total bill is $40.  Formerly, the card would have been declined and the customer would be directed to see an attendant.  Now, the card will be accepted and authorized, and the gas spigot can be automated to shut off when the card value is $0.

The advantage is that gas business merchants will no longer incur as many decline processing fees.  Consumers will benefit, too, as their purchasing experience becomes a little easier.  (Who wouldn’t be somewhat concerned – at least initially – if their card has been declined?)

MasterCard has not publicly announced its policy regarding pay at the pump credit card processing.  Knowing the competitive nature of the cardholding associations, it’s likely that MasterCard’s future program will be similar to Visa’s.

Let’s hope that the equally competitive forces in the gas industry foster relief at the pump for us poor consumers.  After all, a “trickle down effect” in savings should benefit all parties.  (Visa, MasterCard, and the other powerhouses are doing just fine.)  Obviously, gasoline business owners must first receive the price reduction by signing on with a merchant account provider that will ensure a lower Interchange fee.

Here's to falling prices and a revived economy!

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To learn more about our merchant account services, please visit us at http://www.intelli-collect.com

Periodically, I receive a question from a prospective client that merits attention on this merchant account blog.  Recently, a business owner sent me an email that read: “I deal with government agencies and although they pay no tax, I pay an increased rate for government purchase cards?  My question is why?”

One term that is met with vehement disapproval among merchants is the phrase, “transaction downgrade.”  The downgrade represents a surcharge.  The harsh reality is that merchants may very well indeed pay higher rates when they accept certain credit cards, including government cards.  (Merchants may be assessed increased fees under other scenarios, such as the failure to batch out within 24 hours, receiving a credit card where the cardholder’s billing address on record does not match the requested billing address, etc.).

As I tend to have an inquisitive nature, I, too, questioned why government procurement cards could downgrade to a non-qualified transaction.  After all, it did not appear that merchant account providers would be assuming a higher risk in processing the cards.

I learned that government agencies give these cards to employees so that they can purchase goods or services.  In order to track HOW these employees use the cards (the government supposedly does not like "waste"), more information needs to be obtained about the transaction (invoice number, customer code, duty amount, sales tax information, etc.).

If our government entities do not receive a full accounting of the particulars of a given transaction, they must perform further research on the transaction – a costly, labor-intensive endeavor.  Consequently, the cardholding associations encourage merchants to obtain as much information as possible to avoid this scenario (i.e., where government must manually match the transaction.)  

Merchants assert that Visa and MasterCard (or the merchant account provider) is just being opportunistic, looking for a rationale to justify a rate increase.  The associations and providers simply assert that merchants need a negative incentive to collect important information about the transaction.

What is not widely known is that merchants have an option to try to prevent government purchase cards from downgrading.  The solution may be expensive but, in the long run, worth it.  Business owners can purchase separate software such as EC-Zone and utilize Level 3 processing.  Perhaps the following blog entry will be useful to you ... if it doesn't put you to sleep first:

http://intelli-collect.com/cblog/index.php?/archives/125-Raising-the-Bar-Level-2-Processing-and-Level-3-Processing.html

Another avenue to reduce expense for government purchase cards: Find a company that can offer you an Interchange Cost model so that the higher government cards will not cost as much.  The non-qualified credit card processing rate under a tiered model for a government card may be much higher than its interchange category rate, even with a percentage tacked on to that interchange rate.

It’s always best to look for ways to reduce “government spending.”

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To learn more about our merchant account services, please visit us at http://www.intelli-collect.com

I am an aficionado of business information and enjoy reading about business affairs -- as long as its not too technical in scope.  To that end, when time permits, I visit business forums to learn about search engine optimization, marketing, e-commerce, and other areas related to business operations.  Many topics intrigue me and occasionally I notice great questions that pertain to the merchant account industry, such as the following: "What's important to look for when choosing an online payment processor?"  (The member wanted a list of 5 considerations.)

This is an excellent question that leads merchants to a barometer to better examine the myriad choices among online merchant account processors and third party processors.  (Other blog entries and future ones will compare and contrast these two types of providers.)

If I had to select five aspects to look for when selecting an online payment processor, they would include the following:

1) Full disclosure of all fees - There is now much information to review about the relevant costs associated with a merchant account.  If an online payment processor does not disclose fees such as the batch, AVS, gateway, monthly minimum, termination, and mid and non-qualified rates, it is imperative that you look elsewhere. 

2) Affordable, merchant-friendly rates - Once you have an understanding of all rates, it is easier to compare proposals.  Obviously, business owners must look for low startup, monthly, and processing rates.  There are many providers who waive fees and truly make credit card processing affordable.

3) Provides a reliable payment gateway with an abundance of features at a low cost - Authorize.net and E-Processing Network are two examples of payment gateways.  Merchants should opt to receive a gateway that has many fraud-preventative options, provides optimal encryption, is compatible with the vast majority of shopping carts, has little or no downtime, and boasts value-added options, including a virtual terminal and possible shopping cart.

Please note that many merchant account providers only quote a monthly fee and omit the gateway fee.  When you explore your online payment processing options, find out the TOTAL monthly expense.

4) Exemplary reputation in the field - It is better to go with a company that has garnered an excellent reputation in the merchant account field.  In addition, it is preferable to align yourself with a provider that has been in existence for years rather than a brand new entity.

5) Outstanding customer support - If a company seems indifferent or non-responsive before you sign on, it is doubtful that such a company will provide excellent service after you sign a contract.  All questions should be answered in a timely fashion and answers should be thorough and easy to understand. 

Many merchants are so fixated on rates that they forget about support -- an error in judgment that may prove problematic if/when the merchant experiences difficulty with their credit card processing.

While other considerations exist (the period of time it takes an application to get approved, a company's policy regarding chargebacks, etc.), the aforementioned list should help business owners towards the right path in selecting the right online payment processor.

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 To learn more about our merchant account services, please visit us at http://www.intelli-collect.com

Business owners who are intent on obtaining credit card processing capability may scan scores of merchant service providers until they find one that satisfies their unique business’s needs, provides affordable rates, and manifests integrity, reliability, and trustworthiness.  In essence, business owners look for a company that provides true merchant service – in name, function, spirit, and action.

As in an over-saturated market, the merchant account field is home to too many companies who violate the tenets of exemplary customer support.  While they laud their own brand of merchant service in words, their actions reflect self-serving interests.  The following list represents deeds that are antithesis of a company that exemplifies true merchant support:

Withholding Information About Options – Many prospective clients who contact merchant service providers are truly unsure about the “how” of taking credit cards.  While they are aware of the necessity to accept their customers’ payments, they may be unaware of available options.

For example, consider a mobile merchant who needs a wireless credit card processing option.  Is it a foregone conclusion that the business owner must use a wireless credit card terminal and pay for concomitant wireless transaction fees?  The answer is not necessarily as further discussion may reveal that the merchant only accepts credit cards intermittently.  While swiping credit cards are less expensive per transaction than keying or calling them in (favoring the use of a wireless terminal), it may be more cost-effective for such a merchant to key in the payment information, using a virtual terminal, or dialing the payment in, using any touchtone phone, due to the less expensive monthly fees. 

Of course, the merchant must ultimately decide on how to accept payment (weighing factors of price, convenience, transaction security, etc.).  Regardless of choice, merchants should know their options – even if a particular option does not provide as much commission to a merchant service provider.

Encouraging a Merchant to Select a More Expensive Option Than Necessary – This is the type of merchant service that casts a dishonorable shadow over the entire merchant account industry.  Such an action is particularly prevalent when merchants need to obtain a credit card terminal.

Last week, a merchant called me to compare our costs with her current processor’s list of fees.  In our conversation, she informed me that she leased a Hypercom T7Plus for $39.95 for four years – a machine that she could have purchased outright for less than $200!  While her agent made close to $2,000 on the deal, she lost a boatload of money, following advice that led her to a costly negative stream of revenue.

The merchant told me that she really didn’t know anything about the merchant account field at the time of that purchase and was simply taken advantage of by an unscrupulous and opportunistic individual.  (I couldn’t have said it better myself!)

Hiding Fees – Some merchant service providers are as adept at hiding fees as an operator running the short con shell game.  While some of the rates are disclosed to business owners, others may be conveniently concealed.  If a business owner finds out about other fees, the jig is not up as the merchant account provider may assert that the long, legalese contract outlines the fees.  Other agents may assert that they did reveal the rates but the merchant must have misunderstood or forgotten about them.

Some typical rates that you may be charged without you knowing include the following: Batch fees, AVS fees, mid and non-qualified rates, gateway monthly and transaction fees, and termination fees.  This list is not an exhaustive one.  Familiarize yourself with all possible fees to avoid future surprises.

Charging Higher Rates Than Specified – Talk about merchant disservice!  Unfortunately, the world is replete with companies, spanning the spectrum of all fields, which assert they will charge one rate but then access another.  Of course, the new rate is always higher than the customer anticipates.

Now in the merchant account field, rates do naturally increase because the cardholding associations consistently raise Interchange (tantamount to the “buy rate” that merchant account companies get charged).  If your merchant service provider’s rates go up, then it is commonplace that your rates will be increased due to the “pass through” charge.

However, there are providers who take liberty with fee hikes whether or not their Interchange costs change.  Consequently, it is imperative for you to analyze your statement, ensuring that your rates reflect what you’re supposed to be charged.

Manifesting Indifference, Lack of Responsiveness, Embodying a “Who Cares?” Attitude – The type of merchant service that you receive before you sign up with a merchant account provider is often indicative of the type of service that you will receive after the contract has been signed.  If a merchant account provider is slow to answer your questions or does not promptly return calls while you are weighing merchant account options, it may be a harbinger of worse things to come if you select such a provider.

Of course, many merchant account providers will put their best foot forward when a merchant is in the decision-making phase and then neglect that same merchant later on, especially if the merchant does not process a high volume.  Your needs must be attended to by a dedicated staff who truly cares about you and your business.  All communication should be pleasant, professional, timely, and thorough.

"Merchant service" does not have to be an oxymoron.  There are many companies who sincerely value the partronage of merchants and are eager to serve them in an exemplary fashion.

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To learn more about our merchant account services, please visit us at http://www.intelli-collect.com

In every industry, with fire in their bellies, pitchmen and women embellish claims, hoping to reel in buyers by using smoke and mirrors. Consider the cosmetics industry, for example.  We incessantly hear about the latest miracle anti-aging cream, able to reduce lines and wrinkles by x percent in y time. Elasticity, firmness and skin radiance dramatically increase, and with the continued use of product, one’s face defies gravity even more than airplanes.

Too many times, sadly, the buyer reports that the given product did not live up to claims.  There goes money out the window yet thousands continue to search the holy grail of cosmetics – for the right product, at times regardless of expense.

Even in my own beloved merchant account field, declarations are made to entice and galvanize merchant interest. Accuracy and honesty be damned – all in a concerted effort to close a sale. In the spirit of safeguarding consumer protection, the following lists some common merchant account claims that may truly be misleading and purposely so:

We will give you z amount of dollars if you find a better offer – Imagine calling this merchant account provider. You report, “Smith Merchant Account Associates gave me a list of fees that are lower than yours. Please forward payment.” You will then proceed to hear that Smith has hidden fees or is a fly-by-night.

 

There are too many merchant account providers for any company to proclaim that it has the best rates across the board. It’s better to perform your own due diligence and choose the company that you determine has the lowest fees.

 

I can almost guarantee that you will not get any money by one merchant account provider if you discover a better fee structure somewhere else. (How’s that for a claim?)

 

We accept 99% of applicants – This is highly unlikely in light of the fact that an underwriting team assesses each merchant’s application. One criterion that is used in determining whether an application is accepted is the merchant’s personal credit score. Too many business owners do not have the requisite scores to obtain an account. Other business owners may run enterprises that are on a prohibitive list, precluding them access to credit card processing capability.

 

Sign up with us and get the first month free – Upon closer examination, realize that your processing costs will not be free. Your monthly fee may likely be waived which may be construed as generous. Still, when you compare merchant account providers, look at the total projected costs for a year’s time to make a suitable determination.

 

We offer free credit card processing terminals – Any honest merchant account company should disclose the caveats associated with the “free terminal” program. When a prospective customer investigates purchasing our “free terminal,” I am quick to delineate the terms and conditions. It may be better to just purchase a terminal outright.

 

Our credit card rates are as low as  - In the merchant account field, a merchant's rates are dependent on the type of credit card that a customer offers.  If a customer uses a check card, for example, the merchant account provider's rates are lower than if a customer uses a standard Visa/MasterCard card.  Such savings may be passed on to the merchant.   

 

Therefore, a merchant account provider may disclose the lowest rate that the company charges.  (We've even had to do this on our website as prospective clients need to know that we provide discounts for certain types of cards, too.)  But it behooves the merchant account provider, in an ethical sense,  to explain that the lowest rate is not across the board and the rates go higher for different types of cards and transactions.       

 

Limited Time Offer – These three words have been used in every form of advertising, in every sector of business, since the Stone Age. Yes, merchant account providers may run intermittent special offers, but more times than not, such wording is just used to lure the “impulse buyer.”

 

Our company was voted best by … – What entity voted for you? What criteria did they use?  I am not aware of any prominent organization that ranks merchant account providers. And if there was such an organization, do they really evaluate the hundreds, if not thousands, of existing providers?  (I have seen several sites list the “best merchant account providers,” but my emails are not returned when I asked them to evaluate our company’s pricing.)

 

Use us because we’re a bank – Please note that all reputable merchant account providers work in concert with acquiring banks. Going directly with a bank may or may not prove advantageous.

 

If you open an account with us, we’ll give you … -- Merchant account providers may provide you with any meaningless gift. I’ve seen several, for instance, that promise to register you with thousands of search engines.  This is not necessary and will not help your site’s visibility. It’s just another marketing tool to make the prospective buyer think that he/she is gaining something for nothing

 

We get better rates from Visa/Mastercard – Merchant account providers who assert that their rates are better from the cardholding associations do so in an attempt to make merchants believe that they pass savings onto them. All providers deal with the same Interchange rate structure although some may have less “bin” or basis points that they have to apportion to their banks. The merchant account provider/acquiring bank relationship often has no bearing on the rates charged to the merchant.

 

Our bank is the largest one this side of the Mississippi – This can either be construed as a positive or a negative. Will the merchant receive exemplary customer support or will he/she be lost in the shuffle? How about the rates? Smaller providers may be hungrier for business, and may offer superior fees. Bigger doesn’t always mean better. (Where have I heard that before?)

 

                                                            

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Of course, there are a number of other tempting phrases that you'll see emanating from merchant account companies' websites. Remain vigilant, be an educated consumer, a smart shopper, and a wise sole.  As my Grandma always says, "You can't believe everything you read.  (Of course, this truism does not apply to anything that I write.) She also says, "There's no truth in advertising." (My grandmother is very cynical, or "realistic," as she puts it.) Buyer beware!

 

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To learn more about our merchant account services, please visit us at http://www.intelli-collect.com

As the credit card industry becomes increasingly competitive, credit card issuers are offering a wide variety of loyalty-based reward programs to retain current cardholders and attract new ones. The benefits to customers are extremely attractive. With most reward cards, the cardholders can choose to receive some percentage of their total transactions as a cash-back bonus, or they can opt to collect points. These points can be accumulated and later exchanged for frequent flyer miles, music downloads, electronics, gift certificates, magazine subscriptions, hotel discounts, or anything else that creative marketers can think of. Today’s credit card issuers have entire departments dedicated solely to reward programs.

While cardholders and credit card issuers are reaping the benefits of loyalty-based reward programs, merchants are more likely to take a dubious view of the programs. Although reward programs tend to increase consumer purchasing, they also increase the processing fees that merchants have to pay.

Let’s take a moment to consider some of the factors related to the growing popularity of reward cards. It will help to look at the phenomenon briefly from the perspective of all three stakeholders: credit card issuers, cardholders, and merchants who accept credit card transactions.

First, from the credit card issuers’ perspective, reward cards are a fantastic way to encourage cardholders to use their cards more often, thereby generating greater profits. So far, this strategy has been extremely successful. According to some sources, more than 30 million U.S. customers use reward cards, and their ranks are swelling annually. By constantly introducing new reward programs, credit card issuers can rest assured of having a large customer base for years to come.

Second, from the cardholders’ perspective, rewards seem to present free bonuses for using their credit cards. At most, cardholders may pay an annual fee for the reward card, but this usually pales in comparison to the value of the rewards received. Consequently, approximately 30% of all credit cards in circulation are now reward cards and this percentage is expected to increase over time.

Finally, from the merchants’ perspective, reward cards are a double-edged sword. Because customers are eager to use their reward cards and thereby accumulate more benefits, they are often more likely to spend more – and more frequently – which increases merchants’ total sales volumes. However, each time one of these reward cards is swiped, merchants incur hefty processing fees that the credit card companies collect to pay for the costly perks being given to their cardholders. The merchants are, in effect, footing the bill for the reward cards.

Let’s take a closer look at how reward cards affect merchants’ financial situation. As you probably already know, merchants’ credit card transactions are assigned to one of three interchange categories: qualified, mid-qualified, and non-qualified. Each of these categories carries a different discount rate, which comprises a transaction fee and a percentage rate assessed on the total transaction amount. Qualified transactions have the lowest fees, and non-qualified transactions have the highest fees.

Normally merchants can at least partially control their fees by controlling how they process their transactions. The lowest-risk transactions are face-to-face sales in which cards are swiped magnetically and all transactions are batched and processed at the end of the day. Therefore, credit card companies classify these types of transactions in the qualified interchange categories, assessing their lowest rates. If merchants instead key in their credit card transactions, they are charged the slightly higher mid-qualified transaction rates. Higher-risk transactions are classified in the non-qualified interchange category and are subject to the highest processing fees.

Consequently, merchants who carefully control their credit-card processing procedures can maximize the number of transactions that receive the low qualified rates. Or at least they could, until reward cards began appearing on the scene. Unfortunately, even if reward cards are swiped electronically, a mid-qualified rate is the least expensive rate they can receive. More often, reward cards are automatically subject to non-qualified rates, which can make a serious dent in merchants’ profit margins. Indeed, the fees for accepting reward  cards can be as high as 5% of the total transaction amount!

To make matters worse, in November of 2007, Capital One began offering reward programs for debit cards, and it can be expected that other banks will soon follow suit. Until now, accepting debit cards was an inexpensive alternative for merchants, because they had lower fees than credit cards. Since many merchants find that more than half of all their transactions are made with debit cards, there were significant cost savings every time customers paid with debit cards. However, as reward card programs for debit cards begin to grow in popularity, merchants will undoubtedly see the associated fees rise to cover the costs of the card issuers’ giveaways.

Many merchants bemoan the rise of reward cards, arguing that the system isn’t fair. Consider, for example, a customer who has a reward card that is affiliated with a frequent flyer program. The customer uses the reward card to pay for a restaurant meal. The customer enjoys the meal and receives bonus frequent flyer miles. The airline enjoys a boost in its brand image and customer loyalty. But what does the restaurant owner receive? Merely higher processing costs, meaning that it will eventually need to increase its prices.

Unfortunately, most customers are oblivious to this chain of cause and effect. Lured by the promise of exceptional rewards, they continue to use reward cards for most of their transactions, unaware that they are responsible for merchants’ rising processing costs, and therefore the rising prices of the products and services they wish to purchase.

However, every cloud has a silver lining, and reward cards are no exception. Customers often spend more with reward cards than with traditional credit cards. In fact, Visa reports that customers who use reward cards spend 30% more than customers with non-reward cards, because they are eager to reap the benefits. This means that merchants stand to increase their sales significantly simply by accepting reward cards. The greater sales volume should (at least according to what merchants are hearing from credit card issuers) more than cover the higher processing costs of reward cards. Only the merchants can say whether this is actually true in practice.              

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To learn more about our merchant account services, please visit us at http://www.intelli-collect.com