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How to Know if You’re Paying Too Much for Credit Card Processing

These Five Simple Questions Will Help You Find Out

Regardless of the business you’re in, chances are great that you accept credit card payments. Chances are even greater what you pay for credit card processing is very different from what your neighboring businesses pay. The fact is, the cost for processing credit card transactions vary across different businesses and different payment providers.

One thing is certain, you want to pay the best rate you can for your credit card processing. Notice I wrote “best” rate and not the “lowest” rate. The old adage of “You Get What You Pay For” often accompanies too-good-to-be-true processing rates. In many instances, once you get locked into a contract with a rock-bottom price processor, your rates tend to creep up and timely customer service tends to fall by the wayside.

Related Article: Operating at the Cross Roads of Merchant Services and Low Prices

If service is important to you, a no-frills credit card processing rate may not be the best for your business. At the same time, you want to protect yourself from being overcharged, because often, “You Get What You Pay For” does NOT apply to higher cost processing. For this reason, it’s really important to be confident that you’re paying a fair rate. After all, every penny counts.

To help you discern if you are paying too much for your processing, here are a few simple questions to ask yourself.

1. How often have your rates changed since you signed on with your payment processor?

As noted above, frequent rate increases are often the companion of rock-bottom, introductory pricing. Two words come to mind: “cable company.” We all have been there – attracted by low introductory rates from the cable company – only to see those low rates creep back up over time. This is very common in the cable industry. It has also become very common among some payment processing companies.

To be fair, there are a few scenarios when a rate increase may be warranted:

  • Rate increases from the major card brands. Typically interchange and network fees change twice a year. This is uncontrollable by your processor. But, a good processing partner will pass along those increases at cost rather than marking them up.
  • No rate increase for several years. If your current provider hasn’t raised its rates in the last several years, you may be due for an increase. The cost of providing quality customer service has gone way up and other expenses have risen with inflation. Your rates should reflect the cost of inflation.
  • A change in your transaction types. In the last couple of years, card-not-present transactions have surged to accommodate phone orders, home delivery, and curbside pick-up. Card-not-present transactions carry a higher propensity for fraud and, as a result, are processed at a higher rate to cover the greater risk.

Related Article: Tips to Cost-Effectively Process Card-Not-Present Transactions

2. Do you feel your rates are competitive?

This may be a little tougher question to answer as credit card processing rates can really vary depending on your credit card processor. If you feel like your swipe fees are a little high or you’re not sure if your net effective rate is competitive, it may be time to have your invoices analyzed. One of the free services Wind River provides is statement analysis. Before you start thinking this is a fox guarding the hen house type of deal, let me assure you it isn’t.

We analyze three months of invoices and tell you if your rates are competitive and if there are any added processor fees hiding in vague line item descriptions. We often find the latter is the case. But if we think you’re getting a decent rate and no unnecessary fees have been tacked on, we’ll tell you.

3. Are you being charged a non-compliance fee for PCI?

Many businesses don’t even realize that PCI compliance is required by the card brands. In fact, there are many myths associated with PCI compliance that can be costly to your business if you believe them. One of those costs is a non-compliance fee.

Non-compliance fees are charged by your credit card processor to help offset the risks associated with non-compliant transactions. It is an understandable fee but rather than simply collecting it from you month after month, your processor should be working with you to become PCI compliant. That would save you money while adding greater protection onto your credit card transactions.

4. Has your payment processor talked to you about ways to lower your rates?

The largest portion of your credit card processing fees goes directly to the major card brands (Visa, Mastercard, Discover, and AmEx). Did you know there are over 400 interchange rates charged by the card brands? While their rates are non-negotiable, you may indeed qualify for a lower rate just by passing along specific pieces of information of the transaction. In general, the more information you pass, the lower your qualified rate. Your credit card processor should be working with you to help you qualify for the lowest rates by the card brands.

Another way your processor can help lower your rates is by passing along tips on how to cost-effectively accept credit cards over the phone, online, or on a customer’s doorstep. Just keying in the credit card number means you’re paying a higher rate. The more information you collect and pass along on card-not-present transactions, the lower the fee.

5. Are you paying a monthly terminal lease?

Leasing may seem like a good idea – a smaller monthly fee versus one upfront payment. Your credit card processor may even encourage you to lease rather than buy. But don’t do it. The money you will pay over the life of your lease will exceed what you would’ve paid had you purchased your terminals outright from the start. If you are paying a monthly lease right now, it is a sign that you are overpaying.

Bottom Line: Accepting credit card payments is complicated

With so many different fees from the card brands, rapidly changing payment technology, and shifting consumer preferences and expectation, it’s really hard for merchants to keep up. That’s why it’s important to have a processor that isn’t just a vendor for your business. Rather, what you need is a strategic partner that guides you every step of the way. There are too many costs, too many ways you can overpay, and too much at stake to not work with someone who has your back.

If I can answer any specific questions or help you in any way, please just let me know.

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