Analyze Your Credit Card Merchant Statement
Are you getting the best pricing for your credit card merchant processing? This is really hard to figure out and the credit card processors would like to keep it that way. There is almost no uniformity in the way credit card processors present their monthly statements. This of course makes it difficult to compare pricing and the processors work this to their advantage. There is no regulation of this industry so merchants must always review their monthly merchant processing statement for new fees and rate increases. Unfortunately, most merchants don’t understand the confusing monthly merchant statements and for that reason they don’t review them.
First there are different pricing plans and you are either in the Tiered Pricing Plan (a/k/a 3-Bucket Plan) or the Interchange Pass-Through Plan. OK, so what does that mean?
Tiered Pricing Plan
There are about 400 different rates that a merchant can be charged on an individual transaction. This is based on the card brand, card type, card present status and amount of security information obtained at the time of use. The card processors have an Interchange rate or cost for each different rate and add their profit to determine your cost.
The card processors simplified all these rate schedules for the merchant by creating three groups of rates referred to as tiers or buckets. These buckets are know as; Qualified, Mid-Qualified and Non-Qualified. When a merchant is quoted a rate, for a Tiered plan, it is of course always the least expensive bucket. Unfortunately for the merchant most cards accepted don’t qualify for the lowest bucket. With only about two out of every ten cards processing in the Qualified bucket the processor can quote a low teaser rate for the Qualified bucket and make all their profit from the other two buckets. On top of that, each processor decides which Interchange rates go into which bucket. To determine your rate for each bucket the processor adds his profit to the highest Interchange rate in the bucket and uses that for all cards processed in that bucket. The processor can’t lose and can in fact make extra profit on all the cards that are processed within that bucket with a lower Interchange rate. Processor not making enough profit, just reallocate the Interchange rates to different buckets. How are the buckets defined? The Qualified bucket includes the standard personal debit and credit card with no rewards or mileage programs. Seems like there should be a lot of these cards. Nope, the Mid-Qualified bucket is usually much larger and is used mostly for rewards cards that accumulate points and/or miles. The Non-Qualified bucket includes corporate and business cards, foreign cards and a catch all for any cards that do not qualify for the lower buckets according to the merchant account agreement. What are cards that don’t qualify? If you had to hand key the card number because it wouldn’t swipe, if you took the number over the phone as a card not present transaction, if you took the card via an Internet e-commerce site, if you didn’t get the security information like zip code or security code, if you do something wrong per the merchant account agreement you pay the highest rate for that transaction.
Interchange Pass-Through Plan
Do you think WalMart, Target and McDonalds are under the Tiered Price plan? No, the big guys have been getting the Interchange Pass-Through rate for years. For this plan the card processor takes their 400 or so rates and adds the same profit percentage to each rate they charge you the merchant. Recently the Interchange Pass-Through program has become available to all merchants. Of course this program greatly reduces the credit card processor’s profits so you might not have heard about it. This plan also makes it much easier to compare credit card processor’s rates since every processor pays the same base rate and the only variable is their profit percentage on each rate.
But there is more, lots more! Under both pricing plans the card processors add transaction fees. The fees are for authorizing each charge and for depositing each charge. Have to run multiple authorizations for one transaction, you pay for each one. The credit card processors pay a transaction fee and add their profit to determine your transaction fee amounts. How much are your transaction fees?
Are there other fees you could be paying? Yes, here is a list of common monthly and/or annual fees:
- Setup Fee
- Batch Fee
- Statement Fee
- Gateway Fee
- AVS Fee (address verification service)
- Voice Authorization Fee
- Chargeback Fee
- American Express Authorization Fee
- Monthly Minimum Fee
- PCI Compliance Fee
- Annual Service Fee
- Checking Account Change Fee
- Name or Address Change Fee
- Early Termination Fee (3 or 5 year term?)
Now do you see why you need to review your monthly merchant statements? These fees can be added and changed without notice.
For additional information regarding credit card processing, here is a link to our free white paper “What You Need to Know Before You Meet With a Credit Card Rep!“. Additional credit card information is available on our blog and our weekly newsletter, For information from the National Restaurant Association regarding “8 Essential Elements of Card Processing Costs” click here.
Need EMV Card Processing information and details regarding the October 1, 2015 Credit Card Fraud Liability Shift? Just click here for the latest details that every merchant needs to be aware of!
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