Credit and debit
cards have benefits for your customers: It gives them an optional way
to pay beyond cash or check. It is a potential barrier to your
business if your don't accept the payments. However, accepting credit
cards helps and hurts your bottom line at the same time. Office
Administration Associates sees both the good and the not-so-good:
First we see the increased revenue while bookkeeping, second, while
reconciling client's accounts we see the charges Merchant Services
(processing) companies charge for the convenience… and third we
know know we're going to hear the inevitable question from clients,
'I'm paying HOW much?'
OAA doesn't do
Merchant Services. We do help clients understand them. There are no
less than six parties involved in a credit or debit: You, the
customer, two banks, an underwriter, and Merchant Services. To keep
it simple, OAA takes 'AIM' on three key players.
Acquiring
Bank – YOUR bank. They deduct a fee (called a discount fee) from
the amount of the total transaction after another level of fees has
already been deducted by the...
Issuing Bank
– Issuer of the customer's credit or debit card. This bank deducts
a fee (called an interchange fee) from the amount of the transaction
before it's paid out to your banks. This fee is set by the network
(Visa, Discover, MasterCard)*.
Merchant
Services – intermediary that turns the electronic swipe into a
debit on the customer and a deposit to you.
*(This article is
leaving the more costly American Express out of the fray: They are
both Issuing Bank and Acquiring Bank.)
The fees involved
are seldom crystal clear. They're usually expressed as a percentage
of the transaction but there are tiers of fees for credit or debit
cards, depending on the Issuing Bank's rewards programs, the
customer, and the type of transaction (phone, internet, card swipe).
It's very complex. That complexity makes it very difficult to shop
for Merchant Services. Some fees are collected immediately during the
transaction (discount fee and interchange fee), and other fees are
billed a month in arrears (again, you pay, not the customer, based on
the number of transactions).
For example, a
customer pays you $1,000 for a job. The interchange fee could be 2.1
percent, the discount fee could be 1.1 percent, and the per
transaction fee could be $.39. Your customer pays $1,000. You get
$967.05
The Acquiring Bank –
with whom you already have a relationship – will no doubt make a
play for your Merchant Services business if they offer it through an
affiliated company. Seems like a no-brainer to streamline the
process. In actuality, you are paying the same entity at least twice:
Their processing fee for accepting the charge, and their account
fee. There may be a terminal fee. You're paying them to put your
money in their bank. Sounds goofy when put that way, however, you
will always pay somebody the processing fees.
Nearly every small
business is approached by Merchant Services sales people. They'll
take a couple of statements from your current processor, and come
back with an analysis that shows their rate is better than what
you're paying. They're sales people hard-wired to highlight the
benefits and downplay the downside to their provide. Just keep in
mind this is not a second opinion. It's a first opinion. If you're
looking at Merchant Services comparisons, send the same two
statements to another competitor.
With all this
expense and mystery, why take the payments at all? Because it helps
close business. Nothing says closed like forking over money… even
if it is plastic. When you look at 'AIM' closely, you can make sure
more of it is forked over to you and not to fees.
Photo: Aaron Amat, used with permission
