Education on accepting credit cards.

[imported_never gone]

So I've been reading some posts on accepting credit cards and there's a TON of misinformation that's being put out there so I figured I'd try to help educate anyone interested in the subject. I've been in the credit card processing industry for 13 years now so my hope is my knowledge can help some people out so here we go.



What some of you might not be aware of is that there are over 100 different rates associated with the different types of Visa's and Master Cards out there. Most businesses however only see maybe 8-15 different types. Processors are NOTORIOUS for coming into businesses and saying "I'll give you this rate or that rate" because they know what merchants want to hear..."LOW RATES." Seldom will a processor ever come in and tell you what your net effective rate it going to be. In other words, when ALL the fees have been taken into account for the month and divided by your net sales, that's your actual EFFECTIVE rate. This is why I try to educate merchants that rates mean NOTHING, which I know is strange for some to hear, but it's true. A processor can pretty much have any rate show up on your statement, that doesn't mean that's what's coming out of your checking account each month though. This is why the first question most merchants ask me is "what's your rate?" That's honestly the worst question to ask because it plays right into what processors are hoping you will ask because again, they know what you want to hear. So when a processors says they'll charge you 1.5% or 1.7% IT'S NOT TRUE! Walmart wouldn't even have overall rates that low so you know regular businesses won't either. V/MC will usually have increases or decreases in April and Oct every year. If there's an increase, it's usually only for a very small handful of card types but most processors will take advantage of the increase and they'll raise ALL your rates, not just the ones that are actually going up. Also, if there's a decrease there's a good chance they won't pass that to you like they should.



As for equipment, DO NOT LEASE EQUIPMENT! This is one of the biggest scams the industry has. A pretty average lease would be around $65-$100 a month for 3 year or even more. So figure that's $2300 - $3600+ you'll have paid for a terminal you could have bought for $300 and then OWNED it. When a lease is done you still don't own the machine! Processors make a lot of money off leases so I ALWAYS tell merchants to stay clear away from them. The big problem is there's really no regulatory body that monitors processors so that's why so many of these companies can say whatever they want. Also be sure you are dealing with a DIRECT processor and not a third party company. Think of it this way, imagine you do detailing for a dealership and I go to the dealership for a detail. Well, you have to get paid and the dealership has to get their cut too so I'd probably be better off coming to you directly and not getting to you through the dealership, make sense? Most banks outsource their processing so be careful. So there's a little info that will hopefully better arm those of you that are looking to accept cards or even already take cards. The more you know about this, the less likely you are to get taken advantage of. If you have ANY questions, feel free to post them up. Take care.



Chad

 

[WAS]

So my merchant account has 1.49% on qualifying Mastercard transactions (swiped, not keyed in). In addition, a batch closing fee of $0.30. In my first month of having the machine (I only had 1 day on that billing cycle), I did a single $300 MC transaction. The fees that came out of my chequing account were exactly the percentages and processing fees that I was expecting. Interac fees are $0.30 a transaction, flat, nothing more and nothing less.



Leasing equipment and renting equipment are 2 different things. Leasing means that one day you OWN the equipment (or at least here in Canada that's what it means). I have a lease on my machine, 48 months at $24.95 a month. That's $1197.60, on an IP POS terminal that I could buy outright for $950.00. So I spend an extra ~$250, but I get to amortize the cost over 4 years. Doesn't seem like too bad of a deal.



Maybe it's a bit different because I'm in Canada, but with a little bit of careful reading and research before signing into a contract (something EVERYONE should do) I don't think a competent business owner is that likely to get screwed with a merchant account and POS terminal. As far as misinformation being put out, are you referring to something an Autopian has said ?

 

[MichaelM]

Leasing equipment and renting equipment are 2 different things.

That isn't the case in America. Lease = rent, same as it does when you lease a vehicle here. I would double check the fine print in your contract about the equipment. I don't know why the word lease would mean something completely opposite up there.



Also about the rates, the OP is correct. There are MANY different rates for different types of cards. As you start to accept more cards I believe you'll start to see the same thing.



I don;t think any of this should stop a company from accepting cards. Customers want the convenience and the cost is minimal.

 

[DTAILS]

Myself, along with some of the other guys I work with, went to iCharge via the iPhone app. Very simple and convenient with just about any smart phone. I haven't gotten the swiper deal for the phone yet, but may at some point.



My .02

 

[JohnKleven]

We are on a cost plus plan which seems to be the cheapest we've found.

 

[nushine31223]

ill try to stay away from accepting cards for as long as possible, although i did learn alot from the thread. in the past two years ive had mabye 2 people ask if i took mc/v and they just end up payin check.

 

[IC3DT3]

I honestly feel that Square (www.squareup.com) is the best option for mobile or low-volume fixed-location detailers. The "rate" is a tad bit higher than most, but the lack of contracts, monthly fees and equipment costs (they send the reader for free) more than make up the difference. And the service could not be simpler, IMO. I use it and unconditionally recommend it.

 

[imported_never gone]

As Michael said, that's not how it is here and I don't believe it's like that in Canada either. If you lease a car in Canada do you own it when the lease is done? Nope. Just like with terminals you have the option to buy it out or keep leasing. I agree you should check the fine print. Also, Visa and MC have no categories called qualified or non-qualified. These are names processors made up to lump transactions together when they should NOT be. Your numbers above actually prove my point. You had a $300 transaction and you're rate is 1.49% and $.30 for for a closing batch fee which by the way, there is NO COST to a processor when you batch out what so ever. So if you add the transaction fee and the cost to run the transaction, your 1.49% is actually 1.59% which is 10 basis points higher but they know you're going to be focused on 1.49% and $.30 as two separate things. Canada however does have completely different levels on interchange (V/MC cost). Canada is heavy on debit interchange do to the types of cards issued by monopoly banks. You really can't get the full picture off running just 1 transaction. Out of the 100+ different types of Visa's and MC's out there, check/debit cards are the ONLY cards that are just barley over 1%, EVERY OTHER card type is over 1.6325%. Which with detailing the average ticket is obviously going to be on the higher side so we won't see a lot of debit cards because people want rewards points and statistically, once you get over $100 ticket size, the amount of debit cards that we would get drops significantly. This is why when I talk with merchants and they say they are at a rate of 1.5% or something like that, I know it's not possible because the cost for most of those cards to the processor is going to be higher than that and a processor is going to charge you less than it costs them to process the transactions.



JohnKleven, cost plus is the most transparent way you can be priced and is the ONLY way I ever price merchants so good for you. It's not that cost plus pricing by nature is cheaper than other pricing structures, it's just easier to keep an eye on what your processor is charging you because ALL card types you get in every month and the cost of those card types, meaning the cost to the processor, is actually shown. The only thing to be careful of is there are some processors, one in particular, that will give cost plus pricing but the "cost" that they show is marked up just a little bit but you'd have no way on knowing that. You can however go to Visa/MC's website and search for interchange because several years ago, they made this information available to the public where before only we (processors) had that info. I've personally ALWAYS given it to my merchants because when I'm reviewing their statements with them, I want them to see that when I said they were getting true cost passed down to them with NO mark ups, they could not verify that independently as all of you can do to.

 

[MichaelM]

ill try to stay away from accepting cards for as long as possible, although i did learn alot from the thread. in the past two years ive had mabye 2 people ask if i took mc/v and they just end up payin check.

Out of curiosity, why stay away?



I started using Square as well for when we deliver vehicles in addition to my other processor. Hands down the easiest processor to deal with. I've had good experiences with it so far as well.

 

[imported_never gone]

I would agree it could be a good option for mobile detailers but I don't agree it's better option for fixed location detailers and here's why. With the pricing structure Square has, you'll more than likely be over 3% every month. Someone with a fixed location will also do a lot of basic jobs like basic washes which might only cost $25 or a little more or less depending what you include. When you have smaller transaction sizes in the $25-$50 range, it's VERY likely the customer will pay with a debit card. The cost to swipe a debit card in a retail environment is 1.06% + $.20 a transaction. Understand, that is COST to EVERY processor in the US no matter what. Processors have no control over V/MC cost, they only control the profit they add to it to make their money. So, assuming you have some transactions on the lower side you really should only be paying in the neighborhood of 1.8% - 1.9% for those transactions but instead you'll be paying over 3% with Square because their structure doesn't allow for cards to qualify on their own merit. So when you stretch that out over the long run the question then becomes, how free was the Square device? I tell this to everyone, nobody gives anything away for free in this business, they'll always make their money back somewhere.

 

[imported_never gone]

I honestly feel that Square (www.squareup.com) is the best option for mobile or low-volume fixed-location detailers. The "rate" is a tad bit higher than most, but the lack of contracts, monthly fees and equipment costs (they send the reader for free) more than make up the difference. And the service could not be simpler, IMO. I use it and unconditionally recommend it.

I would agree it could be a good option for mobile detailers but I don't agree it's better option for fixed location detailers and here's why. With the pricing structure Square has, you'll more than likely be over 3% every month. Someone with a fixed location will also do a lot of basic jobs like basic washes which might only cost $25 or a little more or less depending what you include. When you have smaller transaction sizes in the $25-$50 range, it's VERY likely the customer will pay with a debit card. The cost to swipe a debit card in a retail environment is 1.06% + $.20 a transaction. Understand, that is COST to EVERY processor in the US no matter what. Processors have no control over V/MC cost, they only control the profit they add to it to make their money. So, assuming you have some transactions on the lower side you really should only be paying in the neighborhood of 1.8% - 1.9% for those transactions but instead you'll be paying over 3% with Square because their structure doesn't allow for cards to qualify on their own merit. So when you stretch that out over the long run the question then becomes, how free was the Square device? I tell this to everyone, nobody gives anything away for free in this business, they'll always make their money back somewhere.

 

[nushine31223]

Out of curiosity, why stay away?



I started using Square as well for when we deliver vehicles in addition to my other processor. Hands down the easiest processor to deal with. I've had good experiences with it so far as well.

i understand that square might be the easiest or what have you, however i have never been a fan of paying somebody so i could get paid. like i said in the last post, paying to lease or own the equiptment plus a monthly fee plus a %, its just not worth it

 

[Scottwax]

ill try to stay away from accepting cards for as long as possible, although i did learn alot from the thread. in the past two years ive had mabye 2 people ask if i took mc/v and they just end up payin check.

Same here, very rarely get asked about credit cards. If it gets to where people start asking more often, I'll probably do it through paypal.

 

[IC3DT3]

I would agree it could be a good option for mobile detailers but I don't agree it's better option for fixed location detailers and here's why. With the pricing structure Square has, you'll more than likely be over 3% every month. Someone with a fixed location will also do a lot of basic jobs like basic washes which might only cost $25 or a little more or less depending what you include. When you have smaller transaction sizes in the $25-$50 range, it's VERY likely the customer will pay with a debit card. The cost to swipe a debit card in a retail environment is 1.06% + $.20 a transaction. Understand, that is COST to EVERY processor in the US no matter what. Processors have no control over V/MC cost, they only control the profit they add to it to make their money. So, assuming you have some transactions on the lower side you really should only be paying in the neighborhood of 1.8% - 1.9% for those transactions but instead you'll be paying over 3% with Square because their structure doesn't allow for cards to qualify on their own merit. So when you stretch that out over the long run the question then becomes, how free was the Square device? I tell this to everyone, nobody gives anything away for free in this business, they'll always make their money back somewhere.

Never Gone,

I agree, that's why I specified "low-volume" fixed location (i.e. the kind of detailer that focuses on high-dollar, multi-step details at a rate of .5 - 2 a day) These kinds of detailers, I think, would appreciate the simplicity and ease of use of the Square system. More "mainstream", if you will, detailers would definitely need a more traditional solution like you've shown.

I'm not an expert on CC processing (far from it), so my intent is not to try and discredit the greater amount of knowledge you have, but rather to express my experiences with CC processing and others like me. I can honestly say that in my personal experience, using Square is one of the better business decisions I have made. My customers absolutely love it (they are downright tickled when I show them how to "sign" the receipt on screen). And I love how if I have a month with few or no CC transactions, I am not paying $30-75+ worth of fees for a service I didn't use. I price my services at a level that I make a comfortable profit, even with a 3% CC fee.



Obviously, as my business grows, I am sure my CC needs will change as well.

 

[imported_never gone]

Never Gone,

I agree, that's why I specified "low-volume" fixed location (i.e. the kind of detailer that focuses on high-dollar, multi-step details at a rate of .5 - 2 a day) These kinds of detailers, I think, would appreciate the simplicity and ease of use of the Square system. More "mainstream", if you will, detailers would definitely need a more traditional solution like you've shown.

I'm not an expert on CC processing (far from it), so my intent is not to try and discredit the greater amount of knowledge you have, but rather to express my experiences with CC processing and others like me. I can honestly say that in my personal experience, using Square is one of the better business decisions I have made. My customers absolutely love it (they are downright tickled when I show them how to "sign" the receipt on screen). And I love how if I have a month with few or no CC transactions, I am not paying $30-75+ worth of fees for a service I didn't use. I price my services at a level that I make a comfortable profit, even with a 3% CC fee.



Obviously, as my business grows, I am sure my CC needs will change as well.

Agreed all around. : )

 

[WAS]

As Michael said, that's not how it is here and I don't believe it's like that in Canada either. If you lease a car in Canada do you own it when the lease is done? Nope. Just like with terminals you have the option to buy it out or keep leasing. I agree you should check the fine print. Also, Visa and MC have no categories called qualified or non-qualified. These are names processors made up to lump transactions together when they should NOT be. Your numbers above actually prove my point. You had a $300 transaction and you're rate is 1.49% and $.30 for for a closing batch fee which by the way, there is NO COST to a processor when you batch out what so ever. So if you add the transaction fee and the cost to run the transaction, your 1.49% is actually 1.59% which is 10 basis points higher but they know you're going to be focused on 1.49% and $.30 as two separate things. Canada however does have completely different levels on interchange (V/MC cost). Canada is heavy on debit interchange do to the types of cards issued by monopoly banks. You really can't get the full picture off running just 1 transaction. Out of the 100+ different types of Visa's and MC's out there, check/debit cards are the ONLY cards that are just barley over 1%, EVERY OTHER card type is over 1.6325%. Which with detailing the average ticket is obviously going to be on the higher side so we won't see a lot of debit cards because people want rewards points and statistically, once you get over $100 ticket size, the amount of debit cards that we would get drops significantly. This is why when I talk with merchants and they say they are at a rate of 1.5% or something like that, I know it's not possible because the cost for most of those cards to the processor is going to be higher than that and a processor is going to charge you less than it costs them to process the transactions.

My terminal is on a 48-month lease, after which time, I own it. I've double-checked this just to ensure I'm correct in saying it. Qualifying and non-qualifying transactions have never been proposed to me as being a Visa or Mastercard charge, or coming from either or those two entities. I can understand why keyed in transactions would cost more, since there's a much higher risk of fraud when you accept a credit card that isn't "in-person". Let me get this straight, you're angry about it because Visa and Mastercard don't require it, so you see merchant account providers as "ripping you off" because they tack those additional fees on ?



Also, I can batch close once a day, I don't do it after every single transaction, so technically, you can't calculate a set percentage rate since it would always change based on volume (more transactions = less batch closing fee per transaction). And so what if there's no ACTUAL cost to merchant account provider when you batch close ? It's a business and they're free to charge what they like. It would be like flaming a detailer for selling a sealant job for more than a wax job. This all said, do I think merchant account providers are as scummy as used-car dealers ? Absolutely. But I also understand the business aspect, and I understand how to figure out my costs associated to my merchant account. 95% of my customers are paying with a debit or credit card, so not offering that service isn't an option to me.

 

[imported_never gone]

My terminal is on a 48-month lease, after which time, I own it. I've double-checked this just to ensure I'm correct in saying it. Qualifying and non-qualifying transactions have never been proposed to me as being a Visa or Mastercard charge, or coming from either or those two entities. I can understand why keyed in transactions would cost more, since there's a much higher risk of fraud when you accept a credit card that isn't "in-person". Let me get this straight, you're angry about it because Visa and Mastercard don't require it, so you see merchant account providers as "ripping you off" because they tack those additional fees on ?



Also, I can batch close once a day, I don't do it after every single transaction, so technically, you can't calculate a set percentage rate since it would always change based on volume (more transactions = less batch closing fee per transaction). And so what if there's no ACTUAL cost to merchant account provider when you batch close ? It's a business and they're free to charge what they like. It would be like flaming a detailer for selling a sealant job for more than a wax job. This all said, do I think merchant account providers are as scummy as used-car dealers ? Absolutely. But I also understand the business aspect, and I understand how to figure out my costs associated to my merchant account. 95% of my customers are paying with a debit or credit card, so not offering that service isn't an option to me.

Ok, here ya go. You asked "Let me get this straight, you're angry about it because Visa and Mastercard don't require it, so you see merchant account providers as "ripping you off" because they tack those additional fees on ?" I never said I was "angry" but if you really understand how pricing works, YOU should be angry. With the 3 tiered pricing, processors almost always only really talk about the "qualified" rate because it's the lowest but I've never had a merchant tell me in all these years of doing this that a processor told them that VERY LITTLE of their transactions will fall into their so called "qualified rate." When a processor gives you "qualified" "mid-qualified" and non-qualified" pricing, they are basically allowing your transaction to qualify in one of 3 categories instead of allowing each card to qualify on it's OWN merit. Most businesses will get in 8-15 different types of V/MC's every month and each one of those card types have different rates associated with them. How can someone possibly throw all those different card types with different rates into 3 buckets? Aren't some cards going to be at a rate they shouldn't be because you're not qualifying them on their own merit?



You then said "I can batch close once a day, I don't do it after every single transaction, so technically, you can't calculate a set percentage rate since it would always change based on volume (more transactions = less batch closing fee per transaction)." Again, I've been in the industry for almost 14 years so I know this but I was commenting on the example you gave where you said "In my first month of having the machine (I only had 1 day on that billing cycle), I did a single $300 MC transaction." So I was basing off of that so yes you can calculate off just that. I would have done the month on more transactions but you made it sound like there was only 1 transaction for the month you were talking about so those were the numbers I used and they were correct based on 1 transaction. As I said before, some of the structure is different in Canada so some of this might not apply to you but here in the US if you were doing many transactions a month, you take your TOTAL fees a divide them by your TOTAL sales and I would put $1000 cash on the table your overall NET EFFECTIVE RATE would be nowhere near 1.49%. Just plain cost for ALL processors for all the various card types is over 1.49% except for check cards and again, the higher check average you have, the less check cards you see so a processor isn't going to ONLY charge you 1.49% when most of the card types cost them more than that.



Lastly you said "so what if there's no ACTUAL cost to merchant account provider when you batch close ? It's a business and they're free to charge what they like. It would be like flaming a detailer for selling a sealant job for more than a wax job." Sorry but you're still not getting it. Think of it this way, would you charge a customer for a wax job if you didn't wax the car?? That's what a batch fee is to me. Yes it's a business and processors can and do charge whatever they want, it doesn't make it right. You can still be a business and make money and not have to be dishonest to do it. Once again, I've been working in the credit card industry for almost 14 years and I see dishonest dealings from other processors on a DAILY basis and just because they are businesses does NOT mean they have to be dishonest to make a buck. You're the first merchant in all these years I have EVER heard try to justify these things. My whole point in posting any of this stuff was to help EDUCATE people on what to look out for because I see people getting taken advantage of DAILY so if my info can help a merchant add more to their bottom line, mission accomplished.

 

[Barry Theal]

I use flagship merchant services and love it. I think may are fools to not take credit cards. Alot of people live off of credit. Its one more convient thing for you to offer.

 

[D Tailor]

I agree. Not that I take much money these days...but I use Square for Android.



Sent from my DROIDX using Tapatalk

 

[WAS]

Ok, here ya go. You asked "Let me get this straight, you're angry about it because Visa and Mastercard don't require it, so you see merchant account providers as "ripping you off" because they tack those additional fees on ?" I never said I was "angry" but if you really understand how pricing works, YOU should be angry. With the 3 tiered pricing, processors almost always only really talk about the "qualified" rate because it's the lowest but I've never had a merchant tell me in all these years of doing this that a processor told them that VERY LITTLE of their transactions will fall into their so called "qualified rate." When a processor gives you "qualified" "mid-qualified" and non-qualified" pricing, they are basically allowing your transaction to qualify in one of 3 categories instead of allowing each card to qualify on it's OWN merit. Most businesses will get in 8-15 different types of V/MC's every month and each one of those card types have different rates associated with them. How can someone possibly throw all those different card types with different rates into 3 buckets? Aren't some cards going to be at a rate they shouldn't be because you're not qualifying them on their own merit?



Lastly you said "so what if there's no ACTUAL cost to merchant account provider when you batch close ? It's a business and they're free to charge what they like. It would be like flaming a detailer for selling a sealant job for more than a wax job." Sorry but you're still not getting it. Think of it this way, would you charge a customer for a wax job if you didn't wax the car?? That's what a batch fee is to me. Yes it's a business and processors can and do charge whatever they want, it doesn't make it right. You can still be a business and make money and not have to be dishonest to do it. Once again, I've been working in the credit card industry for almost 14 years and I see dishonest dealings from other processors on a DAILY basis and just because they are businesses does NOT mean they have to be dishonest to make a buck. You're the first merchant in all these years I have EVER heard try to justify these things. My whole point in posting any of this stuff was to help EDUCATE people on what to look out for because I see people getting taken advantage of DAILY so if my info can help a merchant add more to their bottom line, mission accomplished.

Again, perhaps it's different in the USA, but here in Canada, there's generally 2 types of transactions, qualifying and non-qualifying. Visa, Mastercard and Amex get their own respective rates, but they're all the same. A Royal Bank Visa doesn't get a different transaction rate than a BMO Visa, or a TD Canada Trust Visa. If that's the case in the USA, then you as a retailer have (or should have, I would assume it's legislated) the right to request all the rates from your merchant provider. I would assume that most reputable merchant providers would give you this in a table format, but I could definitely understand that you'd have to poke around and ask for it, it wouldn't be something the merchant provider would send you without you asking.



No, I would not charge a customer for wax if I didn't wax. Your analogy is flawed here. I said there might not actually be a direct COST to batch closings. I didn't say it was free. There are systems that merchant providers had to invest in, those systems cost money. For me, I can look up my all my transactions online with deposit confirmation numbers within 15 minutes of batch closing. That system, web integration, etc, cost a lot of money (I'm in the IT industry as well, so I don't say this out of ignorance). So while there might not be a direct dollar fee from credit companies like Visa and Mastercard, there is still a "cost" to providing these services. Say you bring your vehicle to a detail shop and the detail is $300 for an interior and a wash and wax. The employee that did it made $50 in wages. Do you really think the employer made the other $250 and can put it in their pocket ? Have you thought about cost of supplies, COA (cost of acquisition), electricity, heat, alarm system monitoring, Workers Compensation Board fees, Employment Insurance fees, etc. ? And even still, you as the retailer understand (or are supposed to understand) the costs associated with your transactions when you sign your merchant account agreement. In other words, read the fine print and ask questions if you don't understand something. I did, I was careful, and I haven't been burned as of yet.



I can appreciate that you're trying to help the folks here, but in all seriousness, all people need to do is shop around, read carefully before signing anything, and ask questions if they don't understand something. What you're doing here is making people afraid of accepting plastic when they shouldn't be.