There are a plethora of sites that compare business services, including those that provide merchant account reviews, placing a microscope on credit card processing companies for business folks who need to accept credit cards.  Educated consumers are voracious in their appetite to read about the firms in a “top 10” list of credit card processing companies (even a “top 100” list) in an effort to streamline their efforts in finding the diamond in the rough.

Merchant account review sites are popular and may provide value to the reader.  The following lists several inherent benefits of this type of site: 

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  Provides convenience and perhaps a one-stop analysis - Merchant account reviews may be thorough and all-encompassing, and include a diverse group of credit card processing companies.  It should prove very time-efficient for merchants to simultaneously compare various offerings.
  
  
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  Highlights attention on the advantages (and perhaps disadvantages) of certain merchant account vendors.
  
  
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  Helps to synthesize and summarize a lot of Internet-based information on the selected merchant account providers.
  
  
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  Contributes to a greater understanding of the merchant account field, and may target important rates that merchants may not have previously known about.  

However, although merchant account reviews offer the aforementioned benefits, it is necessary to put them into proper perspective and note some of the drawbacks:

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  Are these sites truly objective?  Is the webmaster someone who works directly with a merchant account company, ostensibly providing unbiased information?  Does the webmaster receive an affiliate commission from the highlighted group of sites?  It may be impossible to know the answers to these questions but the reader should weight the possibility that the creator of the site may have ulterior, self-serving motives.
  
  
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  The merchant account reviewer may limit the number of credit card processing company comparisons.  There are a multitude of providers and only a handful of vendors may be featured.  (I have written to several review site webmasters, requesting our payment processing service to be evaluated -- typically to no avail.)
  
  
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  The contrasted fee structure may not be up-to-date and current.  Fees fluctuate in the merchant account field, and any worthwhile comparison consistenly needs to be updated and revised.
  
  
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  The fee structure is usually not all-encompassing.  Many rates may not be included so it is very difficult to note which merchant account provider is best.  For example, many merchant account reviews compare the qualified discount rate but omit a non-qualified discount rate compoarison.
  
  
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  It is very hard to gauge the level of standard of customer and technical support available.  Review sites focus on rates (and rightfully so) but cannot provide much feedback regarding the quality of service or lack thereof.  

Credit card processing review sites may be considered another research tool but it is imperative for merchants not to rely solely on the information provided.  Similarly, business owners should not be jaded and dismiss such sites, even if, for instance, webmasters receive an affiliate commission from the highlighted companies.  (Such webmasters may very well believe that the featured credit card processors rank among the best in the merchant account field, even if they receive compensation from their picks.)  Again, it is crucial for any merchant to go through a number of possible vendors, narrow the list, and eventually select one provider using a myriad of resources, including merchant account reviews.

The author of this blog consistently tries to present the most accurate information at the time of writing.  However, the author, and all other parties associated with the author (such as the company of employ, IntelliCollect, or its parent company, PowerPay, shall not be held responsible for any kind of loss or damages caused by the information's use and implementation.  Indeed, all aforementioned parties will not be liable for any errors and/or omissions in the information nor the availability of this information.  

The author reserves the right to post comments or not to post comments at his discretion.  Any comments that contain offensive language will not be posted, for example.

While many business owners are not aware of the full spectrum of credit card processing costs, many are cognizant of the fact that each transaction will be assessed a merchant account discount rate – a percentage fee which will be taken out of the sale, kept by the merchant account provider or bank.

Alas, per transaction profit will be comprised by the costs incurred by credit card processing but overall profit should increase as customers tend to spend more and engage in greater impulse buying when paying by plastic.  Still, it is so vital to know one’s merchant account discount rate, and it’s perhaps the first question I am greeted with when I speak with a prospective client.  (I wish I had a dime for each time someone asked me, “What’s your discount rate?”)

It is important to note that the percentage rate that the merchant is assessed depends on how the payment is received.  For example, it always costs business folks less when they open a retail merchant account as opposed to a mail order telephone order (MOTO) account or an Internet account.  Indeed, swiped transactions are considered safer than keyed in ones – less prone to fraud – and such transactions are cheaper for merchant account vendors to process.  The savings are then passed on to merchants.  (Seeing the glass half empty, one can also assert that the additional cost for keyed in transactions will be passed on to merchants.)

A typical retail account merchant may be quoted a 1.79% merchant account discount rate.  If a $100 transaction is initiated, this means that the merchant account vendor will apportion $1.79 out of the $100 sale for processing.  (Of course, there are other applicable fees, such as the transaction cost or a per item fee – the number of cents that the merchant will be assessed per transaction.)

In contrast, a standard keyed in or Internet-based rate can be 2.39%.  Here, it costs the merchant $2.39 per $100 as a result of the discount rate.  As you can see, the retail merchant saves $.60 per $100 than his/her MOTO or Internet merchant account counterpart in the example above.  However, the merchant account discount rate needs to be further scrutinized.

A vast majority of merchant account providers charge a tiered model.  The discount percentage can easily increase, depending on several factors.  For example, if a merchant does not batch out within 24 hours or if the customer’s billing address/zip code does not match the one associated with the customer’s credit card, the discount rate will increase.  Moreover, if a customer uses a special rewards card, the merchant may easily be defraying the cost of the rewards in the form of a higher discount percentage.

Too many credit card processing companies only quote the lowest qualified discount rate and decide not to highlight their mid or non-qualified rates.  Indeed, there is not just one discount percentage rate but several tiers.   When researching companies, a more appropriate question should be posed: “What are your discount rates?” – plural, with an “s” at the end.

With the proliferation of rewards cards, more transactions are downgrading to the mid or non-qualified rates, or special category rate, so it important to know the surcharges for these downgrades.  Remember to add the surcharges to the qualified discount rate or ask the vendor what is your TOTAL mid-qualified rate and TOTAL non-qualified rate.

Other credit card processing companies may charge you based on an Interchange plus cost model.  Here, your merchant account rate will fluctuate, dependent on the type of credit card that you receive from your customer.  For example, rewards cards will be at a higher Interchange rate than debit cards.  However, merchants who receive Interchange pricing usually benefit from the price structure as long as the merchant account provider does not add too great a cost beyond Interchange.  (There are vendors who assess Interchange + .3%, and even lower – particularly for high volume merchants who do a large volume of credit card processing.)

In summary, it is necessary to perform your due diligence when evaluating competing offers.  Become familiar with all the relevant rates, and particularly hone in on ALL applicable merchant account discount rates.  

A few days ago, I received a call from a merchant who was thinking about switching to our merchant account program.  She was unhappy about her seemingly high rate structure, and just as upset about her confusing credit card processing statement.  Her complaint strikes a responsive chord within me because,  I ,  too, have a lot of difficulty figuring out the fees on the statements that I receive.  (I suppose that I should know about regulatory and administrative charges, and how they can increase my phone bill, for example.)  

People always say the only two things you can be guaranteed of in life are “death and taxes,” but you might as well add bills to that short list too.  We rarely get anything for free these days.

The problem with most bills is you need to be a descendant of Albert Einstein to decipher them as they come with numbers and various types of charges and hidden fees all over the place. I’m sure you’ve heard the saying, “It’s all Greek to me.”  Well that’s how bills appear to the average person.

When the credit card processing statement comes in the mail, or you read it online, you want to be able to understand exactly what you’re paying for.  This is especially true with the discount rate, which is the processing fee you must pay the credit card company for transferring funds.

1.-Check your rate

Most monthly credit card processing statements you receive will outline the daily total of credit card sales as well as the various fees charged to process them.  This will show you the amount it cost to process the sales.  For example, you may have been charged $5.50 for the processing of Visa card sales of $450 on August 3^rd.  This means you were charged a discount rate of 1.22 per cent.  This rate should match the one you were offered when you signed up with the processing company. If you find the rate you’re being charged is higher than promised, make sure to ask questions about it. The credit card processor uses this money to pay the fees they are in turn charged by the cardholding associations and banks.   Of course if there’s anything left over, it’s profit for the credit card processor.  Beware that not all credit card transactions cost the same though, as various types of rewards cards and online transactions come with higher interchange fees assessed by the likes of Visa and MasterCard, which translate into higher processing fees.

2. Beware billbacks

When some credit card processors are charged higher Interchange rates they use billbacks to cope with them.  In this case, the processor will charge a low discount rate on all of your transactions in a given month and then bill back surcharges on specific transactions the next month. These Billbacks will be coded on your credit card processing statement with a BB. This line of the statement will show a total number of transactions for the month that were charged higher Interchange fees.  Since it cost the processor more, it’s going to cost you more. The problem is you can’t see the actual rate you’re paying as you can only see the number of transactions and not their dollar amount.

 3. Calculate the markup

However, it’s not too difficult to figure out the actual rate you’re being charged.  You just have to take the average sales value and multiply it by the amount of transactions for a given billback. Next, divide the surcharge by that amount and you will know the rate you have been charged for these sales. For instance, if your average sales value is $50, multiply that by the amount of transactions, say 1,000, and you get $50,000. Then divide the billback surcharge, say $1,200 by that amount, and you end up with 0.024 or 2.4 per cent.  The difference between what the credit card processor is paying to the powers that be and what you’re being charged is again pocketed by the processor.

Make sure to ask your credit card processor for information on your billbacks as some of the transactions might not qualify for the discount rate you were quoted. If you find out you’re being charged steep billbacks, it might be a good idea to find a processor with better rates on billbacks to save yourself some money.   Better yet, find a merchant account provider that does not use a bilback pricing system which some experts claim will cost you a lot more to accept credit cards.

4. Qualified versus mid-qualified versus nonqualified

The credit card companies’ Interchange fees can be very confusing as transactions are often categorized as qualified, mid-qualified, and nonqualified and each category will have its own rate.

For example, if a customer pays with a generic Visa card, Visa will charge a set Interchange fee. The credit card processor will categorize that as a qualified transaction and will also charge a set discount rate, which is generally a little higher than the interchange fee.  But if a customer pays with a Visa rewards card, the Interchange fee will be higher. The processor may categorize this as a mid-qualified transaction and will also charge a higher fee. Each processing company sets its own levels of pricing, which means one type of transaction may be categorized as mid-qualified by one processor and qualified by another. Make sure you inquire how your processor categorizes the transactions.

5. No deal on debit

Most credit card companies such as Visa and MasterCard will charge the processor lower Interchange fees for debit card transactions as opposed to credit cards. However, the processors might not charge you a lower rate.  It’s a good idea to ask about the difference between debit and credit card rates and ask for the lower debit card fee.

6. Watch out for skimming

Some credit card processors will take a percentage of their fees when they settle your account at the conclusion of each business day.  This will show up on your credit card processing statement as "total card fees."  However, the figure isn’t a true total. To figure out your actual costs, you need to find a line on the statement called "less discount paid." This figure will show how much your processor has skimmed from your sales during the month. If you add this amount to your "total card fees" you will be able to see how high your fees really are.

7. Hidden fee No. 1

As with most bills these days, you will find there are some hidden fees. One of them on a credit card processing statement is AVS, which means address verification service.  Most merchant account providers will charge you 5 to 15 cents per transaction for AVS where your customer’s billing address and the address listed on the customer’s credit card is compared.  These extra cents can soon turn into dollars!   

Also, when you make a credit card sale online or on the phone the transaction is charged a lower Interchange if you key in the buyer’s address (at least the zip code and it matches). This rate is generally lower because most credit card companies consider AVS / matching address a proficient method to fight against fraud. Check with your processor to see if you can get a better rate on AVS fees.

8. Hidden fee No. 2

Some processors charge a set rate for each credit card sale, refund, and authorization which may be higher than the norm. For merchants that have only a few, high-priced transactions in a month, this fee won’t affect them too much. However, it can sure add up if you have a large amount of smaller transactions.

The easiest method to find out what your actual rates are is to divide the total fees by your total monthly credit card sales. You may be shocked to find out you’re paying quite a bit higher than the low discount rate you were quoted by the credit card processor. If this is the case, be sure to shop around for a less expensive processor.

If you’re able to understand credit card processing statements properly, you‘ll then be able to evaluate the true fees and make an educated decision regarding your processing company. You may be satisfied with them or it could be time for a change, like the merchant who first called me decided after she gave up translating her old credit card processing statement.  

To learn more about our merchant services, please see http://www.intelli-collect.com

In the process of opening a merchant account, you will need to consider whether to obtain a manual imprinter.  The following hypothetical question and answer session between a merchant and a credit card processor may prove instructive in determining whether to obtain one.

Merchant: What is a manual imprinter?

Credit Card Processor: A manual imprinter, A.K.A., “knuckle buster,” is a device that enables you to make a physical imprint of your customer’s credit card.  The imprint will reveal the customer’s name, card number, and other information on a sales slip.

Merchant: Will my business’s name appear on the sales slip?

Credit Card Processor: We offer an encryption plate that allows up to 4 lines of information.  Your business’s name, address, and phone number can be listed, and even your Visa/MasterCard merchant identification number may be indicated.

Merchant: How much does the unit cost?

Credit Card Processor: The device may be typically purchased anywhere from $20 to $50 – a one time expense.

Merchant: I’m a retail merchant and plan to use a physical credit card terminal.  Why would I need a knuckle buster? 

Credit Card Processor: Consider the scenario where the customer’s card cannot be swiped because the magnetic strip in the back is worn or demagnetized.  You’re going to need proof that the customer authorized the transaction should he/she attempt to dispute the charge at a later time.  Think of this device as a backup insurance policy against chargebacks.

Merchant: Do I have to use the knuckle buster if a customer’s card successfully swipes into the terminal?

Credit Card Processor: No, it’s not necessary.  A signed receipt by the customer should help to win any possible dispute pertaining to a given transaction’s authenticity.  Some merchants, however, still take an imprint of the customer’s card if the transaction amount is very large to have 2 pieces of documentation to defend against chargebacks.

Merchant: Should the customer also sign the sales slip?

Credit Card Processor: Yes, absolutely.  Taking an imprint of a customer’s card is only one step of a multi step process.  You should fill out the sales slip fields (e..g, the amount of the transaction and date) and get the customer to provide his/her John Hancock.

Merchant: My wife has an e-commerce business?  Does she need to obtain a manual imprinter?

Credit Card Processor: As she will not have face to face interaction with her customers, there is no reason for her to purchase the device.  In contrast, any business owner who sees customers at the point of sale should obtain a unit.  For example, we have merchants who participate in trade shows, and later input the customers’ credit card information into a virtual or physical terminal.  It is imperative for them to get this device as they must have some documentation that the customers authorized the sales.

Merchant: Can the knuckle buster replace a physical credit card terminal to process transactions?  It seems much cheaper than buying a terminal.

Credit Card Processor: No, unlike a physical credit card terminal, the manual imprinter cannot facilitate the transfer of funds into your account.  It just aids the merchant in keeping a paper trail about the transactions that have taken place, and serves to provide proper documentation to help merchants win chargebacks.

Merchant: Obviously, I need to keep sales slips in case of future chargebacks?  How long should I save the slips?

Credit Card Processor: The merchant typically has six months to dispute a charge a charge after a transaction has transpired.  It then seems imperative that you hold these slips for at least six months, and preferably up to a year.

Merchant: Thanks for providing this feedback on knuckle busters.  I’m going to order one as soon as possible.

Credit Card Processor: I’m happy to help.  I’m glad that I made an impression on you regarding the importance of the manual imprinter.