By Suneera Madhani, CEO of Fattmerchant
Looking for ways to cut administrative costs and an effective method for leading a more successful and profitable business? A little piece of plastic might get in the way if you aren't careful. Accepting credit cards can translate to substantial processing costs due to fees associated with each swipe.
Credit card acceptance is appealing to consumers and businesses alike due to its quick and seamless transaction process. However, it shouldn’t be part of a business owner’s monthly routine to await hefty charges and constantly-changing rates. Although payment processing statements may seem confusing, they are usually composed of three main parts.
The first is interchange. Interchange is the direct cost of credit card transactions, so every time you process a card there are always rates associated with it. These rates are set by the credit card companies themselves and are therefore identical for every provider. Interchange rates are based off of several critical factors including business size, industry, customer card type, and how the transaction is being processed. Exact rates are available online, but averages for swipe transactions are as follows: debit is around 0.05 percent, VMC 1.5 percent - 1.65 percent.
The second is the markup. It may be basis points, or a discount rate, but whatever they call it, there is a percentage placed on top of all transactions so traditional providers profit from your volume.
The third component is ancillary fees. All those line item fees and hidden charges, like batch fees, statement fees, PCI compliance fees, monthly minimums, IRS fees, customer service fees, fall under this category.
The first component of the merchant statement listed above, interchange, is one of the main issues business owners face. Most people may feel cheated that their success is profiting someone else, especially in regards to any profits made above the marked interchange rate. These rates are often negotiable, but must be stated within a contract. If interchange rates are non-negotiable, find a different provider.
Another key aspect for saving money is the type of cards you accept. Make sure your company accepts PIN debit. For instance, the average PIN debit transaction is 0.05 percent compared to a 1.5 percent credit card transaction. Limiting your transactions to just credit cards can automatically rack up expenses and harm your company in the long run.
Don’t be scared of American Express. Their 3.5 percent average rate may seem daunting, but they have introduced a new program called Opt Blue that has revolutionized their pricing model by deconstructing different rates based on industry type and ticket size. For retail tickets under $75, the rate is as low as 1.6 percent. Further, stats show that AmEx card holders spend an average of 70 percent more per ticket at small businesses. Opt Blue is a game-changer. Ask your provider about the program, see if you’re eligible, and enroll if you are.
Although credit cards are a vital form of payment for your business, extra fees, markups and hidden charges are not. Credit card processing should not be a hassle for your business but instead a welcome addition. Once you feel financially safe and secure with your provider it will pave the way to a more successful business.