Often a merchant assumes that simply by processing Debit Cards and ATM Check Cards, through a bank they are saving money. However, this is really not the best method for merchant processing.
This is due to the fact that a bank will outsource to a secondary processor, who will then buy their rates from a primary processor. So the bottom line is that if a business is currently using a secondary processor then they are going to have higher rates and as a result increased overhead expenses.
Another ill advised practice that is plaguing businesses is the fact that they often process ATM Check and Debit Cards like Credit Cards instead of as a pin pad transaction. When they do this they are paying additional transaction fees and surcharges. So how do they process in a more efficient way? The best way to show you is to give you a sample comparison sheet. We will call the Merchant in this example Dr. Teeth DDS. What this spreadsheet illustrates is the difference between the way that Dr. Teeth is currently processing, through his secondary processor versus if he were to utilize a primary/wholesale processor.
Now let’s break this down into very simple terms.
During this stated month Dr. Teeth processed $12,509.15. With his current processor Citibank he is paying a secondary rate of 1.92%. If he had processed through a primary processor then he would have received a wholesale rate of 1.69% which is like processing directly through Visa/MC with no middle men.
The category that is labeled processing fee’s other fee’s is where Dr. Teeth is paying fees for rewards cards, corporate cards and any keyed in transactions. If Dr. Teeth switches to the wholesale/primary processing company then he will see a cost decrease in this category as well.
The actual dollar cost would go from $55.05 to $41.29 for a monthly savings of approximately $13.76. With regards to checks it is estimated that typically a business will incur approximately $300.00 in bounced check fees within a given year. That breaks down to $25.00 per month in cost. I actually know of a check verification company that is offering businesses their check guarantee service at essentially half of the cost, or basically $12.50 per month. Where you see service fee/equipment fees that represents the fact that currently Dr. Teeth processes using an Omni 3200 system. So the $29.99 fee is the lease amount that will cover new equipment for Dr. Teeth with the wholesale primary processing company. Obviously that is not a very significant cost for equipment but if you assume that Dr. Teeth signed a 48 month lease then total cost over that period would be $1439.52. What that lease means to Dr. Teeth is an affordable equipment cost that will serve him well in his business.
When you get down to the monthly and annual savings Dr. Teeth will realize by processing through a primary processor they are significant. There is $399.12 in savings which is significant because the Dr. Teeth can apply those savings towards his processing fees and essentially get a month free! I don’t know about you but as a business owner/entrepreneur in this economy any substantial savings is worth the effort.
The bottom line folks is that if you are in business then you can start by first of all reading your statements. Did you know that in April and October there are two rate increases? You didn’t. It says so right on your statement at the bottom. Legally that is all a processing company has to do in terms of notifying you. It is also up to you to understand that there are three types of transactions. If a processing company comes in and says that they can give you a 1.72% then you need to understand what they mean. That is a rate for a qualified transaction, basically one where the card is present and the lowest risk. As the risk increases then the rate will increase as well. For instance if you are talking about a flower show that has a MOTO account (Mail Order/Telephone Order) then approximately at least 50% of the time the actual card is not present. Because the card is not present then there is a higher probability of the signer on the account disputing the charges.
So as a safeguard and to reduce the impact of the increased risk, there are higher fees and percentages. Mid Qualification and Non Qualification transactions will typically fall into the category of higher risk.
Some merchants have already been processing utilizing the best method and other’s have not. Sometimes it can simply be a matter of not knowing. So armed with the knowledge of the best way to process take a look at yours and determine if you need to switch. You may just be phone call or visit away from the best way to process in the industry!
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