A Must Read BEFORE Your Credit Card Meeting!
“A Must Read BEFORE Your Credit Card Meeting!” explains how the game is played and what you need to know BEFORE you meet with a Credit Card Rep. In the restaurant industry credit card processing is a necessary evil, but that doesn’t mean you should over pay for it!
Learn how the card companies, the card issuing bank, the card acquiring bank and the merchant processor all work together and who does what (see diagram below).
Learn the differences between direct merchant processors and resellers that purchase the services of the direct merchant processors and how that affects you.
Next we’ll explain the two pricing structures so you can compare quotes. Finally, we’ll talk about those ugly additional fees that get added on such as; transaction fees for authorizations, transaction fees for deposits, statement fees, PCI compliance fees and chargeback fees.
It’s not as simple as “What’s Your Rate”. In today’s market the question is “How Much Will It Cost To Process With Your Company”.
Credit card processing fees are a huge expense that keeps growing due to higher customer usage and higher processing fees. In many restaurants there is not enough cash collected to cover the staff’s charge tips forcing many restaurateurs to inject cash daily into their business for the staff’s tip out at the end of their shift. To compensate for lack of cash some restaurants include the staff’s charge tips in their payroll check instead of paying cash.
In order to control credit card expenses you must understand how the credit card industry works, know how to play the game instead of being played!
The credit card process starts with your customer, also known as the cardholder. The card holder’s credit card is issued by a card issuing bank which represents the major card companies (American Express, Discover, MasterCard and Visa). The card issuing bank sends monthly statements, determines the credit limit and deals directly with your customer the cardholder.
You are known in the industry as the merchant, to accept credit card payments from card holders requires a credit card merchant agreement. The credit card merchant agreement involves you the merchant, a direct credit card processor and a credit card acquiring bank. The credit card acquiring bank deals directly with the credit card issuing bank to complete the transaction loop (see above diagram).
All parties involved in these transactions takes a piece of the discount fee (also known as the merchant’s fee) based on their level of involvement and amount of risk they are liable for. There is potential for fraud with every transaction, this could be the card holder or the merchant. The level of fraud risk is factored into the discount fee that the merchant pays. Internet based transactions and other card not present transactions have higher discount rates than card present transactions due to increased risk of fraud.
The card brands (Discover, MasterCard and Visa) have a fixed rate schedule for each of the one hundred plus card types. These base fees are the same for all merchants, the card issuing bank collects these fees and remits them directly to Discover, MasterCard and Visa.
The direct credit card processor (merchant processor) is where the competitive pricing comes into play. There are twelve direct merchant processors and over two thousand resellers, also know as Independent Sales Organizations (ISO). Some direct merchant processors have their own sales staff but most rely on the Independent Sales Organizations to resell their services to you the credit card merchant. The amount of ongoing service and support the Independent Sales Organization provides you the credit card merchant can vary greatly, make sure you understand exactly who will be providing what support before you commit. There are a lot of Independent Sales Organizations competing for your business, make sure you know who you are dealing with!
There are two pricing levels, the three tier (bucket) pricing plan and the interchange pass thru pricing plan. Originally everyone was on three tier pricing which divides the one hundred plus card rates into three buckets. The highest card rate in the bucket was usually used to calculate the discount rate for the whole bucket. This left a lot of room for manipulation since the bucket selection process was up to the Independent Sales Organization and not the card brands.
To even out the playing field the interchange pass thru pricing plan was created. Under this plan all merchants pay the same fee for each card type as determined by the card issuing banks. But here is the gotcha! The amount of markup applied to these base rates varies greatly for merchants since the Independent Sales Organization determines the markup. They can reduce or increase this markup based on their potential risk and desired profit. Not perfect, but much easier for merchants to compare the markup percentages between various sales organizations.
Since the markups are exposed and there is only so much profit available the Independent Sales Organizations rely on the ugly additional fees that are often undisclosed. To make matters worse, many merchants don’t understand their monthly merchant statements with the additional fees and seldom review the charges making it easy to add new fees. What are some of these fees? These fees can include application fees, payment module fees, transaction fees for authorizations, transactions fees for deposits, statement fees, PCI compliance fees, annual maintenance fees, membership fees, monthly reporting fees and regulatory compliance fees to name a few.
Credit card processing is critical to your restaurant’s success. Check your monthly merchant statement for new fees and unauthorized charges. Reevaluate your merchant processing rates yearly to make sure you are being treated fairly.
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