What Are Your Rates? Pt. 2

Always beware of sales reps that start with, “I can lower your rates.”  Chances are, they can, but at what cost?  Costs could be a lower level of service, or less dependable product, but in the merchant services industry, there are usually literal costs over and above the rates.  Less scrupulous reps won’t volunteer this information, and will often get you to sign a long term contract with a high exit fee before you realize you’re actually paying more.  

 

The other costs may be very legitimate, especially if they’re within reason, but sometimes they become excessive, or downright unnecessary.  You’re very likely to incur monthly fees, for example, and they usually range from 6 or 7 dollars, up to 20 or 25.  You may see an annual fee of anywhere from a few bucks, to a hundred or so.  There are usually PCI compliance fees which may be billed monthly, quarterly, or annually, and can range from about $80 a year, to $15 a month.  Transaction fees, batch fees, and equipment rental fees are also very commonly seen on processing statements.  Some other fees that are out there, although less common, include setup fees and tax reporting fees. 

These extra costs are not necessarily bad, especially if they’re offset by reduced costs elsewhere, such as lower rates.  For example; a Square account, with no added fees, may be ideal for a business accepting a few hundred dollars worth of payment cards each month, or processing in some months, but not others.  A business regularly processing a couple grand, or more, however, will almost certainly save money by paying a reasonable monthly fee, and a small transaction fee, in exchange for rate savings of a half percent or more. 

It becomes very difficult to compare the cost of one processor to another when they aren’t charging the same sets of fees, so consider your bottom line effective rate.  There’s usually one deduction made each month to cover a merchant’s processing costs.  (Even that can vary as a small number of processors take a fee from every daily batch or transaction, but you can always add up your total for a one month period.)  Divide the monthly cost by the total gross amount of card payments you accepted that month, and you get the effective rate.  For example; $250 in costs, divided by $10,000.00 worth of card payments accepted, equals 0.025, or a 2.5% effective rate.  The effective rate will vary from month to month, depending on how much you process, what types of cards were used, security features that may or may not have been implemented, or fees that aren’t consistent, such as quarterly or annual fees.  Despite such variances, you’ll have a much more accurate picture of what your processing costs are as a percentage of sales.  Keep in mind, your effective rate will be higher than the rate you were quoted, because it does include all other costs, too.

Be sure to compare all costs, and not just rates.  Also consider whether you may be willing to pay a little more for services and features that may be attractive to you, especially if those features may save money elsewhere.  Card processing is not just a commodity, even though many reps present it as such.