10 Keys to Credit Card Processing

 Top 10 Keys to Lower your Credit Card Processing Costs 1. Switch to Interchange Plus Pricing 2. Know your Business Type 3. Get set up under the correct Visa/MasterCard Program 4. Know your card mix and average transaction 5. Use Latest Processing Technology 6. Review your statements (at least every 6 months) 7. Accept All Card Types and transaction methods 8. Be in Contact with your account executive 9. Get multiple bids for card processing service 10. Buy value - not price Introduction Credit card processing continues to become more complicated with new fees, technology and regulations. We realize that you can be overwhelmed with all the changes. As a small business owner, you are inundated with offers from credit card processing companies that promise to save you money. Usually most offers start with a low rate. Each merchant services provider tries to trump another with that lower rate to win your business. If you have been in business for some time and switched processors, you might have realized that these low offers do not always pan out. In fact from 2000 to 2010, the average credit card processing rates for retail have risen from about 2.00% to 2.66% not including extra fees like statement fees, batch fees and PCI fees. This rise is despite a huge drop in debit card rates and increase in debit card usage. Why the increase? Rewards cards are one of the main culprits. Banks are passing on the cost of those fancy rewards, airline miles, etc, to the merchants. The second main reason is a lack of merchant processing education. Merchants are trained by the banks to respond to low rates. The problem is that there are 440 Visa/MasterCard/Discover rates and the banks are only showing you the lowest transaction rates. The correct question to ask is not "what is your rate?" but "what is your effective rate?" The effective rate takes into account all the possible Visa/MasterCard/Discover categories for which a transaction may qualify. Knowing your effective rate will give you a more accurate estimate as to the true cost of your processing. You can figure out your effective rate by using a simple formula. Effective Rate = Monthly Processing Charges/ Monthly Processing Volume. For example: If you process $10,000 dollars a month in volume and your processor charges you $300, your effective rate is $300/$10,000 = 3.00% This guide outlines 10 key strategies to lower your card processing costs. Below is a detailed explanation of each key strategy. By following these steps, you will be an expert in credit card processing and you will do yourself a favor by lowering your processing cost to the maximum extent and saving substantial amounts of money. 10 Keys 1. Interchange Plus Pricing (IC Plus) This type of pricing used to be reserved for Fortune 500 companies. Not any more. Now, even Mom and Pop shops can take advantage of IC plus pricing savings. Banks are hesitant and sometimes outright refuse to give IC plus Pricing to small businesses because the banks are unable to maximize their profits. They would rather sell you the much more lucrative Enhanced BillBack or 3-Tier pricing, which is much more lucrative. The recent Durbin Amendment makes it imperative that you switch to Interchange plus pricing to ensure you realize the cost reduction savings. Merchants that are not on interchange plus pricing will see their savings go to the processor, which is not compelled by law to lower the rates. (Please see Durbin Amendment Savings at the end for more details.) There are many independent credit card processing organizations (ISO) that will offer you IC Plus pricing. You should take them up on their offer. There are many reputable ISO's in the market. Why Interchange Plus Pricing? As mentioned before, there are 440 different Visa/MasterCard/Discover Categories and you want each one of your sales transactions to qualify for the lowest possible rate category. IC Plus Pricing places each transaction in the appropriate category and charges the corresponding rate. No other pricing method does this. For example, the most common pricing method, 3-Tier, places each transaction according to the processors' preferences. The processors prefer placing most transactions in the mid- and non-qualified tiers as opposed to a qualified tier. Yet, these same processors will sell you on the qualified rate tier. This is an example of bait and switch. IC Plus pricing is pretty simple. There are three components that make up your rate. Interchange + Visa/MasterCard/Discover Assessment Fee + Processor Rate Interchange consists of 440 rate categories. For most businesses, only about 60 categories will apply. That is still a lot. The range of rates varies widely from 0.95% + $0.10 for debit cards to 3.25% + $0.10 for certain corporate cards. Assessment fee is the rate Visa/MasterCard/Discover charge for each transaction. Currently this fee is 0.11% + $0.02 and does not vary by card or transaction types. The processor fee is the rate and/or transaction fees your processor charges. This is the only negotiable part of the interchange fee available to the merchant. Please keep this in mind when negotiating with potential processors. This fee does not vary by card or transaction types. 

 

 

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