It is next to impossible to become an expert on the payment processing ecosystem. What is important is for a business owner to understand the rates, fees, assessment and monthly charges associated with a merchant account. Fortunately, this is actually very simple when you work with Merchant Processing Solutions Inc!
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| The Brands |
The Card Network: BRANDS (Visa/MasterCard/Discover/American Express) determine "Interchange" it is the universal cost all businesses must pay in order to accept credit card payments. Interchange is set by the card networks (BRANDS) and interchange rates are always made public and can be found online. The reason Interchange is so hard to understand is that each had BRAND issues hundreds of different rates between the various cards networks and issuing banks (DEBIT/CREDIT/REWARDS/POINTS/BUSINESS). The good news is virtually every business pays the same interchange and there is no negotiating interchange!
In order for a customer to get a credit card, they must work with an entity that has a relationship with one of the BRANDS (Visa/Mastercard/Discover/American Express):
- Sam's Club works with Discover Card
- COSTCO works with VISA Card
- Macy's works with American Express
- My Bank's Debit Card works with MasterCard
- Amazon works with Visa
- Disney works with Visa
Each of the above examples of credit cards leads to confusion due to their negociated BRANDS Interchange Rates & assessment fees, merchant processing fees and merchant platform transaction fees. So, if every merchant pays the same fees for interchange and association dues, why are merchant processing fees so different? Its because each of the above mentioned cards were negociated at different Interchange Rates
- Simple Signature debit cards is .05% - 1.00%
- From simple to a high end rewards credit card is:
- Visa Rates: 1.15% + $0.05 - 2.40% and $0.10 per Transaction
- Mastercard Rates: 1.15% + $0.05 - 2.50% and $0.10 per Transaction
- Discover Rates: 1.35% + $0.05 - 2.40% and $0.10 per Transaction
- American Express Rates: 1.43% + $0.10 - 3.30% and $0.10 Per Transaction
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| Pricing Structures for Merchant Services! |
The REAL variability which a merchant can control, is what he is paying in merchant processing fees! This is where this get "sketchy", "confusing", "misleading", and sometimes, "out-right dishonest"! How can they do that? Its how they calculate your rate:
- Interchange Plus Pricing - Using the EXACT RATES, FEES & ASSESSMENTS given by the BRANDS and adding a flat percentage on top for their pay of accepting, capturing, approving and depositing money into the business bank account. They may also charge monthly costs. This is considered the most transparent of all the rates because the ONLY variable is the merchant processing rates/fees/costs.
- Tiered Pricing/Bucket Pricing/Standard Pricing/Qualified Pricing/Packaged Rate Pricing - Uses a rate structure usually with three groups; “Qualified,” “Mid-Qualified,” and “Non-Qualified” rates. These tiers, or “buckets,” represent three different possible rate tiers imposed by a merchant processor on credit card transactions ran by your business. Qualified transactions receiving the lowest markups while Non-Qualified transactions receive the highest. Instead of getting the REAL Interchange Rates for each transaction, your are being charged at the very high-side of those Interchange Rates due to their bundling hundreds of rates together into a TIER! This means you pay more and their is no transparency in what you are paying! They could just charge you Mid-Qualified or Non-Qualified for all your rates and you would not even know! Companies that offer Tiered Pricing adverstise and get merchant to sign 3year + contracts based on the Qualified Rates and then hit then with the other Tiered Rates! This pricing method is the MOST DECEPTIVE!
- Flat Pricing: This pricing was designed to take the confusion and provide a simple and easy to understand fees structure. Because of the widespread confusion in the industry, coupled with merchants tired of being hit with hidden fees, this pricing style has been wildly successful. Companies like Square and Paypal have built their entire business models around flat-rate pricing, and Square especially owes much if its success in offering flat-rate pricing. So, what’s the catch? With flat-rate pricing, it's simple, but simple is not cheap. In fact, it's pretty expensive. For small businesses or startups not processing very much in card volume, flat-rate pricing is a great solution. However, for most businesses, you're leaving a lot of money on the table by going with a processor that offers flat-rate pricing.
Merchant processing is a necessary evil that ALL BUSINESSES need to deal with. Knowing which of these pricing methods makes most sense for your business like:
- Is it easy to reconcile at the end of the month? (Square and PayPal take out their fees on each transaction making is nearly impossible to reconcile Sales with Deposits!
- With Interchange Pricing all you need to control is your merchant processing company - so consult and negociate!
- Look for a company that has NO CONTRACT - this way if it does not work out, you are not held HOSTAGE!
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