The Three Price Points of a Merchant Account

How challenging can managing a merchant account be? I review 5 – 10 merchant account statements each week and almost everyone one starts out looking like it is written in a foreign language! Some statements have fees from three separate months! Other statements are extremely vague and seem to be intentionally hiding information. So the answer is that managing a merchant account can be very challenging.

Three Simple Things

Below I have included three price points for you to focus on as you manage your merchant account.

#1 – The “Front Rate”

Also known as your “base rate,” or “advertised rate.” The key thing to understand here is this rate is only good for standard consumer cards that are swiped. You may have noticed every transaction where the credit card is not present or is a rewards or corporate or a world card do not come in at the base rate, right?

As a result, many of my clients, before they come to me, have a low base rate but their effective rate is much, much higher.

Bottom line: The front rate is used to draw you to sign up of for a merchant account. The lower your front rate is the higher your back end fees are.

#2 – The “Back End Fees” or “Surcharges”

This is where most of my clients have the greatest confusion and frustration. Visa and MasterCard have something called “Interchange.” This is a guide for surcharges to be added to your base rate for transactions that do not have a standard consumer card present.

The norm in our industry is to take these surcharges from Visa and MasterCard and add percentage points before they are passed on to you. For example, if you have a retail account and a customer calls in an order with a standard consumer card, Interchange says the surcharge should be .31%. However, what I typically see on a competitor’s statement is surcharges of .81% or .91% or even 1.21%! So the merchant account provider is making an additional .50% or .60% or even .90% on each of those transactions.

You may have noticed this type of fee on the last page of your monthly statement. The list of surcharges is typically confusing to the point of frustration and most of my clients previously just paid the fees because it would take too much time to figure them all out.

So what is the solution? How can you get rid of these hidden fees? The answer is something called “straight pass through.” What this term means is having the Interchange surcharges passed through to you at cost.

What? Is that even possible? You bet it is! That is our niche at Cocard Synergy.

Normally, straight pass through is only made available to large corporations such as Macy’s, Costco and
Wal-Mart. However, we give it to each of our clients.

Bottom line: You either have hidden fees or you don’t - make sure you have straight pass through and watch your fees decline immediately.

#3 – Qualification

If your machine is not programmed correctly or you have employees that skip terminal prompts you are definitely paying more than you should be on many of your transactions.

Here is a classic example; a customer with a standard consumer card comes in and buys some widgets from your company. When the terminal prompts your employee for transaction ID the employee skips to the next prompt with out entering any information. The result? An increase of .76% on your surcharge! Ouch! And that is at straight pass through; what if your surcharges are being padded?

So every statement should be reviewed to see if prompts are being skipped or if the software or terminals need to be reprogrammed. However, if you do not know Interchange well, you will not be able to do this.
Qualification guidelines are just too complex for the person who has better things to do than study the interchange book.

Bottom line: If your merchant account provider does not review your account for qualification problems at least quarterly move on to one that does.

Summary

If these three areas above are in order, then your overall “effective rate” will be as low as it can be.

The interesting thing is that 9 out of 10 people whose statements I review do not have straight pass through and have qualification issues but they love there front rate. When I call them back with an offer to lower there fees by 10% to 55%, sometimes while increasing their front rate, they are surprised. But that is typically how it goes.

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