The processing fee jungle
Credit card processing is a maze of rates, fees and costs, all of which add to the cost of accepting bank cards.
Depending on the total revenue generated by your business from credit cards, your company or program group might not be able to get processing directly through a bank and will have to use a third-party provider that processes credit card receipts for a fee. That processor also collects a fee for the credit card issuer, such as Visa and MasterCard, as well as the bank that actually collects the money from the card issuer and pays it to you.
Every provider may have a different set of rules. But regardless of what type of company processes your transaction, your bank holds deposits and issues charge-backs.
The lowest fee a merchant pays is the sales discount rate, or the "swipe rate." This fee usually is based on credit cards that are swiped through a card reader and is applicable only if the credit card does not offer some benefit to the customer, such as cash back.
Every other type of transaction is called a "downgrade."
These rates show up as the mid-qualifying rate and non-qualifying rate. The mid-qualifying rate is the surcharge added to the lower qualifying rate. The non-qualifying rate is an additional surcharge that can be accessed for accepting some business, corporate and consumer cards or failing to process a transaction within a predetermined amount of time.
In addition to these charges, there are transaction fees such as per-item fees, per-inquiry fees, interchange fees, address verification fees, voice authorization fees, batch header fees, monthly access fees, monthly minimum fees, annual fees and statement fees. Cash cards and debit cards carry their own fees, but with a similar rate structure.
When shopping for a better rate, take into account these charges. Take a look at your end-of-month statement and see how the fees are calculated. Each line item carries a different rate and charge.
The equipment
You will need some type of credit card terminal to process transactions. These can be purchased or leased, and require access to a telephone line or the Internet. Terminals can run from $150 for a simple card reader to $1,000 for a wireless terminal.
Leasing can be a great way to get started, but buying the equipment is more cost-effective. Check with your program group to see what options are available. The processor doesn't require you buy or lease equipment from them, but most small business owners do so out of convenience. All transactions will need some sort of printer, and some units also can process checks.
If you are planning on taking debit cards, get a personal identification number (PIN) entry pad unit. Merchants realize the lowest cost when customers enter their debit card PINs. These units can be purchased on the Internet, often for less than what a processor charges.
The unit will need to be encrypted, but even this fee can be waived. The processor also may want to charge an application or setup fee. These fees are negotiable, especially if you have an established track record of transactions and you are considering changing processors.
Negotiating the fees
The easiest way to negotiate rates and fees is to have another company offer you a better rate in writing. If you are offered a better rate, go to your current provider and negotiate. In most cases, they will lower your rate. Share these tips with your technician customers, as well, to help boost your relationships.
If you do decide to go with another company, negotiate the changeover and any connection fees. Be sure to check the fine print for a termination fee from your current service provider.
All service providers will have a set rate for accepting American Express and Discover credit cards that cannot be negotiated. These credit card companies set the rate independently, and you either accept it or you don't take those cards. But taking those cards increases your chances of a sale for both you and your tech customers.
Regardless of the fee structure, you want to process as many transactions at the lowest rate. That means not accepting credit cards that can't be swiped and avoiding the hand-keying of card numbers over the phone.
If you are lucky enough to negotiate a lower fee, carefully read every statement to be sure the new rate is in effect and the processor doesn't raise it three to six months later. If that happens, ask them to lower the rate again.
Avoiding charge-backs
Charge-backs are by far the biggest hassle when taking credit cards. Train your counter staff to use these basic rules when accepting credit cards.
- Make sure the person using the credit card is the same person named on the card. If the back of the card is not signed, verify it with another form of identification.
- Always get a signature on the sales receipt.
- Understand that the cardholder has ALL the rights; the merchant has none.
- Document everything, from the initial customer authorization to the approval for additional repairs.
- Avoid taking credit card numbers over the telephone.
Miss any of these steps and you most likely will lose. Most charge-backs happen because someone misunderstood the details of the contract. If the customer has a problem and never gives you a chance to correct it, the credit card company may side with you, provided you followed the above steps.
But if you ignore the customer and they can prove it, you will lose. Don't be surprised if you are hit with a charge-back fee or retrieval fee. If the company rules in the customer's favor, you have the right to dispute the ruling within 60 days. The customer can do the same.
Accepting credit cards for payment of services can have benefits; just be aware of the costs. Prepare employees to recognize stolen identification, reprinted checks and stolen credit cards. Merchants have to stay vigilant to protect themselves. Take the necessary precautions, and watch your sales grow.
