Knowledge is power.
The more you understand merchant service provider options, the easier it will be to make an informed decision. And the bottom line is – how much will you have to pay per transaction?
If you are going to be competitive in today’s market place you must have an online presence. Consumers expect retailers to offer this service along with the security of being able to use a credit card. And offering this option usually increases sales overall, so you need to think about adding this service.
You wouldn’t think about expanding your brick and mortar store without understanding per square foot cost would you?
So let’s see if we can break down the Merchant Service Provider options so we can determine what will net you the most profit.
Understanding MSP options
Two elements that determine the overall cost to you are:
- how the transaction is qualified
- and the average ticket sale
The three classifications are qualified, midqualified and nonqualified transactions.
The classifications are determined by Visa/Mastercard regulations. How you process transactions (i.e. online, face to face) AND the kind of credit card used for a transaction determines the classification.
For example, a corporate card is considered high risk earning it a nonqualified status and ultimately costs the merchant a higher percentage in surcharges.
Other factors used to determine classification are whether the address verification system AVS was used and shipping method.
Also, the rate assessed to the average ticket sale may be more favorable to those with higher average sales than those merchants with lower average sales.
Pay attention to rate terminology.
Generally the rate is a percentage applied to the sale, then a fee is charged per transaction.
For qualified transactions, use this formula to determine if the plan an MSP offers is cost effective. Calculate the per transaction rate divided by the average ticket sale plus the discount rate.
Other fees to consider are:
- per transaction fees
- authorization charge (may be the same as #1, may be an additional charge for online transactions)
- batch fee
- monthly service fee
- PCI compliance fee
- annual fee
- early termination fee
The bottom line?
It makes sense to compare three plans and decide which one will turn out to be the best option for you.
I hope you found this information helpful. Please feel free to share your comments below.
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