The Merchant Processing Guru

The Merchant Processing Guru Tip#20: What is the flow of a credit card processing transaction?

When you process a transaction what really happens in those few seconds that you are waiting for an approval or decline on that card? Well, whether you swipe the card or key it in on some other system the flow is the same. A line of communication is opened up and information is sent to the acquiring bank to say that a transaction for this amount on this card holder’s card is being requested for this merchant account. Then the acquirer’s computer will then contact the issuing bank to verify the account information and that the card holder has enough credit for the transaction to be approved. Then the approval is sent back to the acquirer from the issuing bank and the acquirer issues an approval number for the transaction. A receipt is then generated with this information and the transaction is complete. This is called the “front end” of the process.

The “back end” of this process happens at the end of the day where all the transactions from that day are grouped together “batched” and settled through the acquiring bank for deposit into your account. The Acquirer also sends transaction information to MasterCard and Visa on a daily basis, which will reconcile the incoming information and route them to the appropriate card issuers overnight. The card issuer will then post the transaction to the cardholder’s account for payment.

The Merchant Processing Guru Tip#13 continued: Credit card processing “Chargebacks” What are they and how to avoid them!

“Chargebacks” not only cost you the money you should have made from the sale but the processor has to charge you for the involvement they have in dealing with the issue, the processor will charge you anywhere from $15.00 to $35.00 as what is called a “chargeback fee”. Whether you win or lose the dispute then there is still that chargeback fee to cover the costs of the processor getting involved to handle this issue. So treat your customers right and you will avoid chargebacks!

You may also be charged what is called a “retrieval fee” of approx. $5.00 – $25.00 for the processor to “retrieve” the funds from your account that were disputed should you lose the dispute. It gets worse! Should you have excessive “chargebacks” of more than 1% of the transactions you process then according to Visa & MasterCard’s terms you are an unacceptable risk to them and their card members and will most likely be dropped by your credit card processor. A processor can also be penalized for having anyone on their books who has more than a 1% “chargeback” history and you will find it very hard for any processor to accept you as a merchant after being dropped for this reason. As you can see, you want to avoid this unpleasant occurrence at all costs, so always have proof and signature for every transaction. The good news is that “chargebacks” in most traditional industries are a rare occurrence, so as long as you stick to the guidelines of accepting credit cards you won’t have anything to worry about. If you have questions or concerns just get in touch with me and I will be happy to help.

Contact me at: theGuru@theMerchantProcessingGuru.com

The Merchant Processing Guru Tip#12: Credit Card Processing with Mobile Solutions continued – wireless terminals. I do not suggest buying a used system or even a new one from anyone other than the processor you intend to use for the service as they will be the one to program your terminal and if anything is different at all with the machine from what they are used to then you could have warranty issues to deal with. This is one area where it is always better to pay a little more than to save a buck today and have potential issues that could end up costing you in the long run.

Does it make sense to use a wireless terminal in your business you ask? Great question! Here is my general rule of thumb:

You must process at least $3-5,000 a month to even consider a wireless terminal. (more is preferable)
Your transactions must almost all be swiped to take advantage of the system.
The higher the volume of sales the more this will make sense. Let me explain: If your business is lower ticket items but high volume of sales like a food vendor at a farmers market where you have people standing in line for your products, you will want the speed of a terminal that gives you quick transaction & approval times. If you have high ticket items and process a high dollar volume throughout the month, you may want to consider this option because the swiped rate could make the additional wireless fees worthwhile and to have peace of mind that your transactions are approved and that you have a customer signature on the receipt.

The costs associated with owning a wireless terminal:

First of all the purchase of a wireless terminal may disqualify many and make it cost prohibitive. A wireless terminal will generally cost anywhere from $600.00 – $1,800.00 and up. You should not need to spend more than $1,000.00 on the right terminal.

You will typically find that there is always a wireless set up fee, generally around $50.00. This is a one-time fee to set up the account with a wireless service provider. Then you will have a monthly wireless service fee of approximately $20-$25.00 per month.

With the additional monthly fee you may not save enough money with retail rates to make the additional cost worthwhile. You would need to process approximately $5,000.00 per month or 500 transactions to just break even. This is approximate but a good rule of thumb. Tune in next time when I will talk about the “Dial Pay” option.

The Merchant Processing Guru Tip#5: How Interchange works… The foundation of the credit card processing industry is Interchange. Understanding Interchange is the first step to truly grasping how this industry works. As I mentioned in my last post, Interchange is set by the Associations; Visa & MasterCard. It is comprised of the fees that the issuing bank (the bank who issues the credit card) and Visa or MasterCard charge the merchant for taking that card. It is from here that the processor marks up those fees, how they do that is what makes all the difference to you, the business owner.

When you run a transaction in your business you probably have no idea what card type you are running, you just run it. It could be any number of the 70+ rates that Visa or MasterCard have in the interchange system. The key is not to pay too much for any of these card types. In a tiered rate account, as an example, you could run a card that costs 2.39% to the processor but because they treat it as a Non-qualified transaction you will actually pay 3.29% a whole 0.9% more than their cost. This adds up fast and is far more important to reign in than any of the miscellaneous fees associated with a merchant account. By using a processor who gives you a true pass-through of interchange, with a standard “across the board” markup you can guarantee that you will not pay too much for your processing. Take for instance a markup of 0.2% across the board on interchange. On $10,000 you know that 0.2% of that is $20.00 that you will pay to the processor on top of interchange. You have to pay interchange no matter what! It is how much you pay above interchange that matters.

A typical 3 tiered rate structure could look something like this for example:

Qualified rate: 1.63% + $0.25
Mid-qualified rate: 2.49% + $0.25
Non-qualified rate: 3.29% + $0.25

This means, anything that falls between the 1.63% & 2.49% will be charged the 2.49%. I call these buckets. As another example of this and to demonstrate this point a “Rewards 1” level credit card is 1.74% cost but you will pay 2.49% because it falls between the qualified and mid-qualified rate tiers.

If you paid an average of 0.50% – 0.75% on $10,000 with a tiered rate structure because of the constant downgrading to a higher “bucket” called mid-qualified and non-qualified you would pay $50.00 – $75.00 instead of the $20.00 with a true interchange system. That is $30.00 – $55.00 more than you should be paying in this area alone. This of course is only an example but used to demonstrate the difference having the right set-up can make to the fees that you will pay for processing cards. It is also only one of the areas that make a difference to those fees. Stay tuned and I will share more tomorrow, or call me if you are ready to see a true analysis of your merchant statement: 888–368-4878

The Merchant Processing Guru Tip#4: What is Interchange? Visa & MasterCard, known in the credit card processing industry as the Associations, set the wholesale pricing that all processors must pay to the Associations and the issuing banks for each transaction processed. The complexity of this interchange system makes it next to impossible for most business owners to decipher what is being offered to them by the processing company.

To make things worse, many processors today still don’t offer merchants the advantages of the full interchange program. One example of this is the 3 tiered system where you have a, typically low “qualified rate”, a higher “mid-qualified” rate and an even higher “non-qualified” rate, this guarantees a higher income for the processor and so they still prefer to use this method if they can.

Even if you are offered a full interchange program, it is very difficult to know if you are set up in the most cost effective way for you, the business owner. This has been my mission for the passed 6 years, to educate you and set you up with the right processing strategy so that you never have to switch again. Many of those using my services today tell me of how they have given out their statements to other reps for a comparison, only to have them returned with a reply like this: “Sorry, but we can’t save you any money”. That is music to my ears. It is my intention that you will process with me for the entire time you are in business and my small contribution to helping you stay in business is to ensure that your merchant processing fees are the lowest they can be.

For a comprehensive comparison email or fax me your most recent statement to: theGuru@theMerchantProcessingGuru.com or fax: 1-888-726-9267 and I will analyze it and get back to you with a full explanation of where you can improve what you are being charged and how I can help you accomplish that.