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 Merchant
Accounts -
Question to Ask a Credit Processing Company By Matthew Hunt Are you shopping for a payment processing company so that you can accept credit card payments? Most Canadian small business owners don’t know what questions to ask before choosing a provider and are shocked by the true costs when bills begin to arrive. Let’s start by defining what a Merchant Account is. A Merchant Account allows a business to accept credit cards, debit cards, gift cards and other forms of payment cards. This is also known as payment or credit card processing. Merchants, or business owners who receive credit card payment for their goods or services must apply for a Merchant Account typically through a Merchant Bank or a Merchant Account Agent. The Merchant Account will typically be established based on several factors. Merchants who own businesses with poor or no credit may find it difficult to establish a Merchant Account through traditional routes, however they can still be approved on the debit processing, just not the credit processing. The only other option for owners with “poor credit” would be Third Party Payment Processing, which can be costly. Merchant Accounts are not free - a variety of charges are involved. Some fees are charged on a monthly basis but most are charged on a per-item or percentage basis. All of the monthly fees are at the discretion of the Merchant Account/Payment Processing Provider, but the majority of the per-item and percentage fees are passed through the Merchant Account Provider to the issuing Bank according to a schedule of rates called Interchange Fees, which are set by Visa and MasterCard. These fees and costs associated with Merchant Accounts are somewhat negotiable. The best way to avoid being surprised is to ask the right questions. Following are 17 questions that will arm you with the information you will need to make an educated decision about which payment processing vendor is best for your business. Before you sign on the dotted line, consider this: 1) What are Credit Card Discount Rates? Every Credit Card Processor will have this fee. Discount rates can vary on from as low as 1.59% right up to as high as 5.0%. The discount rate is really not a discount; they are a percentage of your sales that the Payment Processing Company charges you to be able to offer your customers the ability to pay with credit cards. For example: if you sold $10,000 in Visa sales in one month and your discount rate was 2.5% then you would pay $250 in fees to your Credit Card Processor that month. Rates vary and are dependent on your business model, your business volume (annual sales), average sale per customer, type of product and service your business offers, the way you process orders “card present” transactions or “card not present” transactions and how soon your customer receives a product/service after payment. All these factors above can have a affect on what Discount Rates you and your business will qualify for. Usually high-risk business will have higher discount rates (2.5%-5%). High risk businesses are ones that have higher ticket prices ($1000 plus per sale), those who process 40% or more of their sales through Internet/E-commerce or MO/TO, or those that take payment before delivering the product or providing the service. WARNING: Most merchant account agreements are for 3 years. Do not forget to ask what the termination costs are if you were to terminate your agreement early. Most companies charge a $300 early termination fee that is retro-active from the time the agreement started. Also, most agreements state that if you do not write them within a certain date of time at the end of your agreement, the agreement will automatically renew itself for another 3 years. 2) Are “Keyed In” Credit Card Discount Rates at a different rate then “Swiped” Credit Card Discount Rates? Two questions you want to ask: a) What will the “Qualified Rate” be?” This means that the card is present for the transaction (Swiped), and b) What will the “Non- Qualified Rate” be? This means the card is not present for the transaction (Keyed In). Corporate Cards usually charge a higher rate then the “Qualified Rate”, usually 0.25% higher, but can be as high as a full 1%. 3) What are the Transaction Rates? Transactions fees are sometimes called IDP transactions. Every payment processing company has at least a transaction fee for debit and usually also for credit card transactions. It is become more common that any transaction that is made on your point-of-sale terminal will be considered a transaction and a fee will apply, whether is it is a void, debit, credit card, refund, batch close, etc. Transaction fees can range from 0.05 cents up to 0.50 cents and can be different for each type of transaction, although typical Point-of-Sale Terminal transactions fees are between 0.08 cents to 0.15 cents. I have seen Payment Processing Companies charge as high as 0.17 cents to 0.25 cents, in which case, you may want to ask for a rate review or search for a new Payment Processing Provider. Non Point-of-Sale Payment Processing Solutions like IVR, PC, & E-commerce processing transaction fees are usually higher, ranging from 0.35 cents to 0.50 cents. 4) What is the monthly cost for the Point-of-Sale Terminal? Point-of-Sale Terminals are known as: Interac Terminals or Debit Card Machines or Credit Card Machines, but in the industry they are known as a Point-of-Sale Terminals and will be referred to from this point forward as “POS Terminals”. Traditional Retail POS Terminals can hook up via a regular phone line (Dial-up POS Terminal) or a DSL High-speed Internet connection (IP POS Terminal), and more recently to the Wireless Data Network making some POS Terminals wireless and mobile (Cellular POS Terminal). Most Traditional Retail type business’s only need a regular Dial-up POS Terminal or an IP POS Terminal. Dial-up will work for the Merchant who does under 25 transactions a day. A Merchant who does a high volume of transactions and needs to move customers through a check-out line quickly should consider using an IP POS Terminal. Most Bank related payment processing companies offer a “rental ONLY program” for POS Terminals. Rental costs can range from $20 right up to as high as $100 a month depending on the type of Point-of-Sale Terminal your business requires. Private label payment processing companies usually only offer a “Lease-to-own or Buy option” program on their POS Terminals. Lease-to-own usually run on 48 month leases with a 10% buy-out option at the end. Lease-to-own POS Terminal prices range from $30 - $80 per month dependent on type of POS terminal. Buy-out POS Terminal prices typically run from $999 - $1800 (without taxes) dependent on type. Two very important questions to ask before buying a POS Terminal is a) what are the warranty conditions?, and b) is the POS Terminal smart-card ready? When renting, if you require a new POS Terminal it will usually be fixed or replaced at no cost to you. However, you pay rent forever. If you have been renting a POS Terminal for $40 a month for 5 years, then you just paid $2400. If you have been renting for 10 years at $40/month, then you just spent $4800 with no asset in your business. You can own a basic POS terminal for as little as $1000, you now have another asset in your business. Most private label companies will offer some type of warranty on the POS Terminal, sometimes at no extra cost, sometimes for an additional fee. There are even a few payment processing companies that offer a life-time warranty all inclusive in the original retail purchase price. Sometimes it is better to pay more for an all inclusive warranty on hardware with free software upgrades then to pay less with a limited warranty. 5) What are the set-up costs? Set-up fees can range from $50 - $300. Usually the set-up fees are one-time only set-up fees for Visa, MasterCard, Amex and Interac cards usually around $25 per card. Some companies also charge an initial set-up fee for programming the POS Terminal or a fee for initial training. Set-up fees can greatly vary from company to company. 6) Are there any Application Fees? Not all payment processing companies have an application fee, however some companies do. This is usually a non-refundable fee, whether your business is approved or not. Applications fees can vary from non-existent to $300. 7) Is there a Statement Fee? Not all payment processing companies have a statement fee, however some do. The average statement fee is usually around $5 or free if you are willing to receive your statement coming to you via e-mail. I am not sure if this is a nickel and dime fee or if it is companies trying to go green? I’ll let you decide! 8) What is the Settlement Fee? They can range from 0.05 cents to $5. The settlement is what sends your funds to your bank account. 9) Is there any Minimum Processing Fees? All payment processing companies have minimum processing fees, ranging from $5 - $25. Often there are minimum processing fees for each type of card you intend to have processed. Basically, what this means is if you do not do enough business sales to have high enough fees, you will still pay a minimum every month. For example, let’s say your discount rate 1.85% on Visa and your do a $1000 worth of sales on Visa that month and your minimum processing fee is $10. Well, 1.85% X 1000 = $18.50 in fees that month on Visa. Therefore, you have cleared your minimum of $10 and you have nothing to worry about. Now if you take the same rate and minimum, but you only made sales $250 that month on Visa. Well, 1.85% X 250 = $4.62 in fees that month on Visa. Therefore, you did not make you minimum and would be required to make the difference up of $5.38. 10) Is there a Gateway Fee? Most payment processing companies usually have a gateway fee, but usually only for IP POS terminals, PC and E-commerce payment solutions. Gateway fees can range from $5 to $75 a month. 11) Is there a Monthly Maintenance Fee? If they have it, it is usually a fee that is associated with IVR, PC and E-commerce payment processing solutions, however, some companies have it on POS Terminal solutions too. 12) Is there an Added Value Fee? Some do and some do not. This fee usually ranges from $5 - $10 a month. 13) Is there a Low Achievers Fee? Most payment processing companies have a monthly low achiever fee. Low achiever fees can range from $5 - $20. This is why it is important to get your monthly/annual estimate of total business volume correct on your Visa, MasterCard and American Express applications. Most merchant account providers have 25%-35% error lenience. If you are not sure it is always better to under estimate your monthly/annual sale amounts when applying for credit card merchant accounts. 14) Is there a Chargeback Fee? Chargeback fees can range from $10 - $50. A chargeback is when a card holder holds a dispute on a Visa or MasterCard or Amex transaction that came from your business. If the card holder wins the dispute, they will be refunded their money and you will be charged a chargeback fee - a similar fee to bouncing a cheque. It is always the merchant burden of proof to prove that the card holder had used or bought the product or services from your business. This is why it is important to check that signatures match the back of the card holders credit card. If it doesn’t, ask for photo ID. 15) What are the Technical Support Service Hours? Most payment processing companies have a help desk/technical support. However, not all are 24/7 and some are better then others. The best thing to do is to get the help desk number and give it a call a few times through out a day to see what kind of service you get. 16) If my POS Terminal is not working, how soon can you have a new one in my business or can it be fixed via the phone? This varies. Some can have one to you within 24 hours others can take 2-4 weeks. The question you have to ask yourself is how long can your business run without one in your business? Sometimes it is better to pay more for better services. 17) How long does it take to initially get set-up with full services? Most payment processing companies take at least 2 weeks (sometimes as long as 4-6 weeks) to have your application processed, merchant accounts set-up, point-of-sale terminal programmed and shipped to your business ready to use. However, there are a few that can have one ready in your business in as little as five business days. These are usually private label payment processing companies. Matthew Hunt has been involved in the Canadian Payment Processing Industry for over 4 years. To learn more about Credit Card Processing/Merchant Accounts, visit www.squidoo.com/canadianpaymentprocessing-merchantaccounts Visit www.cutmyposfees.com to talk to Matthew directly. |