Understanding how the method of payment affects your bottom line is critical to your business.
There are a slew of rates and fees that affect how much it will ultimately cost you to accept credit card payments.
That’s because interchange fees — the schedule of rates set by Visa, Discover and MasterCard — vary by card type and how you process each transaction.
The cost of credit card processing
Did you know, for example, that a transaction made by swiping a card trough a dedicated credit card terminal is considered a different category from a transaction keyed in manually where address verification is not performed?
And that debit card transactions vary from a credit card transactions?
Credit card companies, to offset costs of fraud prevention and processing transactions, imposed interchange fees. These “swipe’ fees were passed along to businesses… and many smaller retailers suffered.
Larger companies, however, could leverage their volume in sales to reduce transaction fees.
Processing Rate Surcharges
What’s more, these additional processing rate “surcharges” are rarely, if ever, disclosed to business owners before they sign up for a new merchant account.
Typically merchant accounts are sold on “rate.”
Unfortunately for you, the “rate” that gets shown to business owners prior to signing an application (implying that there’s ONLY one rate) typically applies to about 50% (or less) of your total credit cards transactions.
Which means those additional surcharges end up taking a big bite out of your profit margin.
Retail Businesses and Debit Cards
Debit card transactions are the most popular method of payment for the consumer, and they may net the retailer more money.
Prior to 2009 debit card transactions in the U.S. exceeded 38 billion.
The average debit card transaction fee was about 44 cents until legislation called The Durbin Act was passed in 2011. The Durbin Act, part of the Frank-Dodd Wall Street Reform and Consumer Protection Act limits the fees that can be imposed on merchants who accept debit card payments; making the debit card the preferred method of payment for many retailers.
These rules apply only to Visa and MasterCard debit cards, not credit cards.
Debit card payments utilizing a PIN will net merchants more money because those transactions will incur a lower “swipe” fee. Interchange fees calculated from paying with credit cards will incur a percentage of sale cost, which is generally about 2%.
These fees can add up quickly.
In contrast, debit card transactions are typically capped at 21 cents per swipe. It may make sense to instruct employees to ask, “Would you like to use your debit card for those purchases?”
How to Get a Low Cost Merchant Account
If you already accept credit cards, make sure that any merchant account comparison you get lists ALL of the rates and fees you’re currently paying before switching to another provider.
Compare your existing rates side by side with the proposed rates to make sure you’re getting a better deal.
And if you own a new business and are thinking about accepting credit card payments you’ll want to make sure that any company you’re dealing with discloses all of the rates and fees that will apply to your account.
Also, make sure that:
- there are no application or set up fees
- there are no “early termination fees”
- you avoid any credit card terminal leases
- you ask about free equipment programs
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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