Let’s face it… negotiating merchant services agreements is a headache, and the statements aren’t easy to comprehend. Rates aren’t clear, fees look endless, and you have to sign your life away just to get started. Do you know all the details of your agreement? In 2013, companies incurred an average of $2.2 million in swipe fees per $1 billion of revenue. As credit card processing is a major business expense, it’s important to be fully aware of the typical gimmicks and games merchant services providers play.
Hidden Charges
These can be endless, so ask up front for a list of all of the ancillary fees you may get charged. Some of the most common charges to look out for are application fee, set up fees, annual fees, PCI compliance fee, IRS fees, statement fee, batch fee, and monthly minimums. All of these terms sound like they are necessary for the merchant service to function – fact is: they are not! All of these fees should be disclosed to you before signing an agreement. If any of the fees come as a surprise to you at the end of the month, think about using a different credit card processor, one that is completely transparent about what they charge you for their service.
Contracts
Make sure you know the term of contract before signing the deal. What is the process for terminating - do they need advanced notice? Is there a cancellation fee, or an early termination fee? Be sure to ask if your contract auto-renews. A lot of merchant contracts have a “fine print” auto-renewal clause that will lock you in for another couple of years. Other services operate on a month to month basis, giving you the right to cancel at any time – no hassle, no cancellation fees.
Rates
Ensure you fully understand the pricing of the plan you’re signing up for and the charges that you have options for. Everyone has to pay interchange, i.e. the direct cost of credit card transactions from the credit card companies. Interchange is the same across the board, no matter who the provider is. The tables turn when it comes to paying the percentage markup above interchange. Make sure to determine and understand the exact percentage above interchange your provider is charging you. The markup rate is completely up to the providers; it generally ranges anywhere from 0.1% to 3%. This charge could be labeled on your statement as markup, basis points, or discount rate.
To give an example: Your customer is paying his $100 purchase with his MasterCard . Let’s say the markup rate of your credit card processor is 2% on top of the 1.5% interchange rate from MasterCard; that means this transaction would cost you an additional $3.50 – $2.00 of which goes directly to the merchant services provider. The higher this markup rate is, and the greater your volume, the more money the credit card processor makes on your variable income. The merchant services industry is currently undergoing a change that is very similar to the development in the phone industry just a few years ago. The phone industry in previous years nickel-and-dimed customers with tons of line-item fees. Eventually someone came to market offering a bundled package of unlimited minutes and messages, all included.
Comparing offers will help you figure out which provider has the best deal to offer. Going with a subscription-based service that doesn’t charge you any markups, only a flat monthly fee can save you a lot of money since you’re the only one profiting from your success this way.
Equipment
If you are getting physical credit card machines or equipment, ask if the devices are new or refurbished. Are you buying them outright, or are you paying to lease them and how much will that cost you? If you are getting a credit card terminal for your business, double check that the model you get is already EMV compatible. By October 2015, all merchants need to have updated equipment to accept the new chip-card technology. Don’t waste money on outdated equipment and look out for a merchant service that comes with free, up-to-date equipment.
Customer Service
Be sure to get the name, email, and direct phone number to an actual representative that can help you if you have any questions. You’re running a business and don’t have the time to waste shouting at your phone articulately in hopes that the automated answering service will comprehend your requests. Get a customer service rep’s name, number, office hours, and ask if there is a 24/7 support team answering your requests and handling your problems.
Don’t just sign with the first credit card processor that comes your way. Compare offers, ask for explanations of every fee and rate, and consider changing to a different service. It might save you up to 40% each month!