The Top Processing Schemes Following are the inside secrets about how the banks deceive businesses with credit card processing schemes as well as the steps merchants can take to protect their businesses. 1.The Incredibly Low Teaser Rates Fact: There is not one rate for Visa and MasterCard. Visa and MasterCard list their rates which are called interchange. The interchange schedule has over 300 rate categories. Solution: Ask for a schedule of rates. 2.Enhanced Bill-back †Processors promise low rates and then add high surcharges for non-qualifying transactions. Fact: Card types and transaction types (swiped or key in) qualify at different Visa and MasterCard Interchange Solution: Ask for full disclosure of all rates and fees for all card types and transaction types. 3.Low Flat Rate or Flat Fee Pricing †The processor takes the average pricing for your industry and adds a surcharge. This is above average pricing. Fact: Visa and MasterCard do not have a one rate plan. They have an interchange plan. Interchange has over 300 rate categories. Solution: Avoid this pricing plan. 4.Rate and Fee Hikes Fact: Visa and MasterCard periodically raise interchange rates which is passed on to you by your processor. Solution: Review each monthly statement. Know your contractual rights when your processor breaches your agreement. (Usually you can get out of the contract without an early termination fee.) 5.Bin Number manipulation Fact: Processors have some control over what tier a transaction may qualify. Solution: Request, in writing, to know at what tier each card and transaction types may qualify. (Interchange Plus pricing does not have tiers. Processors can not manipulate the bin numbers.) 6.Holds on your deposits Fact: Processors can hold your transactions for a variety of reasons. Solution: When deposits are made, ask if there are any ACH holds and if there are limits on transaction amounts or monthly volumes. 7.Non-Compliant Equipment, Free Terminals, and Leasing Fact: If you have passed your PCI compliance with your current processor, then your equipment is compliant. Solution: Rarely is the equipment the issue. Below is a link to processing compliance: https://www.pcisecuritystandards.org/documents/PCI SSC Quick Reference Guide.pdf Please keep in mind, free terminal offers usually include built in fees or penalties if you breach your agreement or fail to return the equipment on time. 8.Early Termination Fee Fact: Nearly every processor has an early termination fee. Solution: It is almost impossible to avoid these fees so make sure you negotiate a great deal using these tips and your free quotes. If your processor arbitrarily raises your rates and you realize it in time, you may be able to switch companies without an early termination fee. Please remember to get everything in writing when talking to a processor agent. By law, the agent and company can say anything and not be held liable. It is to your advantage to have it in writing because, in most situations, the processor will give in to your demands and requests. Now that you have the ways processors try to make more money, find out what to do to protect yourself against each of the schemes. 1.The incredibly low teaser rate: Banks, Club Stores, and sales reps like to simplify the sales process by selling you on a low teaser rate. Don’t be fooled. Visa/Mastercard have over 300 rate categories called Interchange that a transaction could qualify. If you add Discover there are over 440 different rate categories. (Click on the link to download Visa’s interchange rates.) http://usa.visa.com/merchants/operations/interchange_rates.html To protect your business, ask your agent for an interchange schedule. Blindbid breaks down the rates and fees for you. Embedded in your Blindbid quotes email is a link that will give you a details on the interchange rates you are likely to pay at your business. Finally, ask your agent to estimate what your effective rate will be. The effective rate is all your processing costs divided by your volume. The rate is what got you when you signed up. The effective rate is what you actually pay. For example, if you process $10,000 a month and pay $300 to your processors, then your effective rate is 3%. $300/$10,000. That was probably much more than your bank promised you when you signed up. Even Costco offers 1.64% + $0.19, yet the effective rate is much higher. Please review your Blindbid quotes email. We estimate each processor’s effective rate for you. 2.Enhanced Bill-back †Enhanced bill-back is a favorite term for processors. This is the most expensive pricing plan for businesses. For processors, it is also the most profitable. Enhanced bill-back is a fancy term for one rate plus surcharge. An agent may offer you a low rate of 1.64% + 0.20 on all your cards. Many times they add a surcharge or bill-back which can be as high a 2.99% or as low as 1.00%. This surcharge is pure profit for the processors as the surcharge is added on top of the qualifying interchange. This is a bit confusing, but Visa and MasterCard charge different rates for different types of cards. The processor adds that difference to your rate of $1.64 + $0.20. Let’s say you process a business card transaction and the interchange rate is 2.05%. In the enhanced bill-back pricing plan, you also pay that 0.41% plus the 1.64%, 2.99% and the transaction fee of $0.20 Example: Enhanced Bill-back for Business Cards 1.64% + 0.41% + 2.99% = 5.04% + $0.20 Rewards cards, travel and entertainment cards, purchase cards, keyed in transactions qualify for the enhanced bill-back. Unless you know the exact card type and the transaction type at your business, avoid enhanced bill-back pricing. 3.Low Flat Rate or Flat Fee Pricing Some processors try to simplify hundreds of Visa and MasterCard interchange rates by reducing them to one rate or one flat fee. This is done by taking a weighted average of the probable transaction types in your industry. Although this is plan is certainly better than enhanced bill-back, it is a hedge against the higher rate transactions. But, you will still end up paying more than an Interchange Plus plan. The reason is that the processors are giving you one rate based on skewed weighted averages that favor them. If the processor is wrong, then they will simply adjust your rate higher so that they do not lose money. Check out the fees: A typical credit card processing agreement may have over 60 fees. Not all the fees apply every month. Some fees are periodic like chargeback or ACH rejection fee. Others are annual, like PCI compliance fees. Review all the possible fees on your agreement to make sure there are no surprises. If you just concentrate on the rate when setting up your plan, the agent may overload your agreement with fees. Although you got a great rate, you are paying hundreds or thousands of dollars a year in fees. Single Monthly Fee: For lower monthly volume accounts, processors have developed a pricing scheme to remove the headaches of all these rates and fees. They’ve bundled all the rates, transaction fees and other fees into single monthly fee. Let’s say you process $1000 in credit cards. You might be offered a flat $35 fee which sounds good. What happens if your business grows and does $5,000? The processor has a clause in the contract that allows it to charge a certain percentage over the stated amount, or in this case $1,000. Now, you might have to pay $250 or 5% in fees plus the $35 dollars. That is not so good. What if you do less than $1,000? You still pay $35. So unless you know for certain what your monthly volume is, you should avoid this single monthly fee plan. 4.Rate Hikes All businesses raise their prices over time for various reasons. Some businesses such as the oil business are more volatile than others and the increases are quite dramatic. There are situations where processors take advantage of merchants by arbitrarily raising their rates. For this reason, it is imperative to review your merchant statement every month to ensure that your processor is not arbitrarily raising your rates. Most raises will occur each year during April and October. During these months, Visa and MasterCard review their interchange schedule and propose rate increases. When Visa and MasterCard issue a rate increase, processors have no choice but to pass the increase on to you. Although some processors may claim that they never raise rates, this is simply not the case. How much the processors raise your rates is all together another issue. In terms of the amount of the increase, it varies from company to company. They may decide to pass on the rate increase at cost or may add an extra increase. Processors, by law, have to inform you of the rate increase. However, it is not necessary to inform merchants by an email or by phone. Instead, merchants receive a message in fine print paragraph on the monthly statement. As a merchant, how do you protect yourself? Be sure to review your statement each month and read the notices. You should also keep up with your effective rate each month. The formula is simple. Take your monthly statement and divide it by your processing volume. Example: $300 bill and $10,000 monthly volume. Divide $10,000 into $300 and you get 0.03 or 3.00%. The effective rate is 3.00%. By tracking the processing percentage over time, you will notice a significant increase. Should this occur, you should immediately call your processor’s retention department and insist that they lower your rates. If they do not honor your request, be prepared to switch processors. You may have to pay an early termination fee, but it will be worth it in the long run. If you do not notice the increase until it is too late, Blindbid suggests you comparison shop. Along with this guide, you should have received several free, no-obligation quotes from our pre-screened and highly rated vendors. If you did not receive your quotes, you can log on to www.blindbid.com and click on â€get quotes†to get more. You can even upload a statement on our site for a free statement analysis. 5.BIN Number Manipulation This trick is pretty simple, but nearly impossible for merchants to detect. Processors have the ability to manipulate rates or assign tiered rates where the transactions qualify. Here’s how this scheme works. A processor’s agent offers you a low qualified rate of 1.59% + $0.20 for credit and 1.14% + $0.20 debit. On the surface this is a great deal. However, the majority of your transactions will not qualify at these rates because the processor has set up the system where 80% of your transactions will qualify at the mid- and non-qualified tiers. This brings the effective rate to well over 3.00%. To protect yourself, you should change to IC plus pricing. Processors cannot manipulate bin numbers. If you must have three tiers, make sure you have the mid and non-qualified rates as well. Ask what cards and transaction types qualify for those tiers. GET THIS IN WRITING. 6.Holds on your money & Limits on your processing Some processors are notorious for placing holds on your money for various reasons. While some holds are valid, many others are excuses to keep money in their accounts to earn interest. The most universal hold is the five-day ACH delay. Another reason to hold is for large transactions. Usually transactions that are three times the average are held until the transaction is verified with the cardholder. This is done to protect the processor in the event that the transaction goes bad. Some processors require a deposit. Processors do not necessarily tell merchants that a deposit is required. If they tell you upfront, you have the option to go somewhere else. If they confiscate your funds after you start processing, that is another matter. They make note that they have the legal right to do it in the fine print. Processors usually require high-risk businesses such as travel agencies to provide a deposit. Simply ask your agent if your business is considered high risk. If it is, then ask him if a deposit will be required. As always, get the answer in writing. Processors take on a certain amount of risk when processing your transactions. If the transactions go bad, they can ultimately be held liable for the transaction. To mitigate this risk, processors may put a limit on the size of a transaction and the monthly volume. Indicate on your application if you will have any high transactions. Also, make sure that there are no monthly processing volume limits. Once you reach that limit, you may not be able to process any more transactions until the next month. Processors protect themselves by imposing holds on funds as well as charging and volume limits. In most cases, they do not tell merchants during the sales negotiations nor do merchants ever think to ask. This leads to frustration. To avoid this, always ask upfront if there are any limits and/or holds. Many reputable companies many have holds on large transactions until you build a solid transaction history †usually three to six months. Make sure you get it in writing that the holds are temporary. 7.Equipment Is Non-Compliant †Free Terminals - Leasing Agents use this equipment scheme to convince you to purchase new terminals. This may have been true a few years ago when the industry went through some security upgrades. If your business has been certified as PCI compliant, then your processing equipment is approved. You should be careful when buying equipment online. Many great deals, as on EBay, exist for non-compliant terminals. However, processors will not allow you to process on non-compliant equipment. Another gimmick is to offer a free terminal. Keep in mind, though, that if processors give anything away for free, it still is a cost to his business. "Somehow, the processor has to make up the cost of the terminal usually in the rate, the fees, and/or through a cancellation or early termination fee. In some cases, you may have 10 days from the date of cancellation to return the equipment or be assessed a terminal fee ranging from $500 to a few thousand dollars. Some â€free terminal†offers allow you keep the equipment. However, the equipment is proprietary preventing you using the terminal with your new processor. The main point is that â€free†terminals are just a gimmick. Your business might be better off with a virtual gateway which turns your computer into a credit card processing terminal. Another option is a mobile device that connects to your cell phone. Leasing equipment is a good alternative to purchasing if you know what you are doing. The rule of thumb is not to spend more than two times the purchase price. For example, if the equipment costs $350, don’t pay more than $700 in lease fees. Blindbid’s suggestion is to purchase your equipment or finance it with a credit card. If you can afford it, purchase a POS system. The accounting, inventory control, purchase features, customer database, and other features make it well worth the investment. 8.Early Termination Fee Nearly every processor has an early termination fee which is stated in the fine print of the application. This fee is designed to reduce churn and defray the high cost of merchant boarding. The standard termination fee is $500 although many processors offer $250 or reduce the termination fee to $250. You should not let an early termination fee deter you from changing processors if you are in a bad plan or experiencing poor service. Legally, the competing agent can’t offer to pay your termination fee. But he can offer ways to offset that fee. About Blindbid Blindbid is a small business cost reduction company. We help you negotiate with top processors to get the best deal. We have an online forum which allows the top credit card processors to bid for you business. The Blindbid process saves you both time and money in the following ways: â€Lowest Rates - Multiple processors compete for your business. â€Privacy Protection †Because we take privacy seriously, we conceal the merchant’s contact information from vendors. Only the vendor with the lowest bid will contact you while you will have the choice of multiple vendors. â€Control - There is no haggling with vendors. You decide the number of vendors with whom you want to speak. â€The Most Reputable Vendors -- We pre-screen and assemble the industry’s top processors which saves you valuable due diligence time. What is Interchange Plus Pricing (IC Plus) In the past, IC Plus pricing was reserved for Fortune 500 companies. Today, many small businesses take advantage of IC Plus pricing savings as well. Yet, banks are hesitant and sometimes refuse to give IC Plus Pricing to small businesses simply because they cannot maximize their profits. Instead, they sell you enhanced bill-back or three-tier pricing as it is much more lucrative. However, there are many independent and reputable credit card processing organizations (ISO) offering IC Plus pricing. Blindbid prescreens the best ones and provides them on our site to give you the best deal available. Why interchange plus pricing? As mentioned before, there are 440 different Visa, MasterCard and Discover categories. IC Plus Pricing is the only pricing method that places each transaction in the appropriate category and charges the corresponding rate. For example, the most common pricing method, Three-Tier, places each transaction according to the processors preferences. Processors prefer placing most transactions in the mid and non-qualified tiers as opposed to qualified tier. Yet, these same processors will sell you on the qualified Rate Tier. IC Plus pricing is pretty simple. There are three components that make up the rate. Interchange + Visa/Mastercard/Discover Assessment Fee + Processor Rate Interchange involves the 440 rate categories. For most businesses, only about 60 categories will apply. The range of rates varies widely from 0.95% + $0.10 for debit cards to 3.25% + $0.10 for certain corporate cards. The assessment fee is the rate Visa/Mastercard/Discover charge for each transaction and does not vary by card or transaction type. Currently this fee is 0.11% + $0.02. The processor fee is the rate and/or the transaction fees your processor charges which are the only negotiable part of the interchange fee available to the merchant. As well, this fee does not vary by card or transaction types. To get the final rate, simply add up all the components. For example: A Visa Retail Transaction Rate would look like this 1.54% + $0.10 + 0.11% + $0.02 + 0.10% + $0.13 = 1.75% + $0.25 Please keep in mind that swiped transactions have lower rates than keyed transactions. Swiped or keyed business card transactions have higher rates than swiped or keyed consumer card transactions. Debit card transactions have lower rates than credit card transactions. Pin debit transactions have lower costs when your average transaction is high and signature debit transactions have lower costs when your average transaction cost is low. (To find out the break even point for pin debit click here
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