Dec 29

Involves Much More Than Your “Rate”

A few articles ago I mentioned how there is a complete disconnect between what you should be looking for in a merchant account provider, and the way merchant accounts are marketed (and understood) by business owners.

The disconnect?

Focusing on rates and fees to the exclusion of everything else.  And there are two main reasons why I say that:

  1. most merchant account providers actually hide the true cost of processing by focusing on “rate” (as if there is only ONE rate)…
  2. most business owners think that the only way to evaluate different providers is to ask about their rate (as if there’s nothing more to ask)…

And that’s a problem.  Or a potential problem for your business.

Why?

Well, if you’re like most of my clients, 85 to 99% of your revenue comes from accepting credit cards at your business.  Any problems with your merchant account will have a bottom line immediate impact on your business.

Big time.

In other words, if your account was “frozen” and you couldn’t get access to your money for 90 days (or more) because it was being “held” would you be able to keep the lights on?

Believe it or not, this does happen from time to time.  And for most people I know the answer is simple.  They just couldn’t survive very long with a significant portion of their cash flow tied up in red tape for no good or understandable reason.

Now, in the above scenario, what’s a few fractions of a percentage point (real or imagined) when you can’t even get access to your money.  What, in essence, did you really save?

Hey, don’t take my word for it.  Here’s a brief quote from an actual email I recently received from someone who is NOT a client (yet - we’re working on it):

“It’s been a hell of a ride. Some bad things happened this year too including:
-motorcycle stolen
-wheels stolen off my car
-hit and run side swipe
-PayPal holding 100’s of thousand of dollars without explanation
-merchant account shut down without notice, etc.”

This can happen to anyone.  And it occurs more often then you might think or imagine.

So when it comes to choosing someone to help you accept credit cards (online or off), or if you already accept credit cards but are unhappy with the service you’ve received to date, there ARE alternatives.

Basically, you can choose some “mega-processing” company and deal with sales reps needing to fulfill their quota on the “front end,” with “back end” support provided by a call center and hours on hold.  OR, you can choose to work with a business owner who will fight FOR you to keep your account open and running smoothly.

It really is that simple.  The choice is yours to make.

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Dec 10

Choosing a merchant account provider, whether you’re just getting started or are a seasoned pro, can be overwhelming.  So what should you look for when wanting to set up a merchant account? Well, since I get asked this question all the time, I’ll share a few thoughts with you here.

Rate Games

For starters, don’t be fooled by rates. In a previous post (which my buddy Rob said was a bit “dry” - not to mention better suited to the Wall Street Journal), I tried to explain how one type of rate structure works. Well, let’s just say that it does get complicated. And more than you can imagine.

So why do I warn you against focusing on rates? There are 3 reasons:

  1. most merchant account providers do NOT guarantee their rates
  2. most sales people do NOT fully disclose all the rates, fees, and rate classes to you
  3. some rate classes will NEVER apply to your account

Bottom line, before signing up solely on rate, you need to know what your true costs for accepting credit cards will be. And working with someone who is willing to educate you about the process is the best way to go.

Sales Pressure

Next, resist the sales pressure to “sign up.” Simply put, most sales reps for the banks and large merchant account providers are paid based on quota.

Which means, they need you to sign up quickly so they can move on to “the next.” In my opinion, this does not put your best interests first.  If you think this is a bit of an exaggeration, read this quote from an  article by John (you can read the entire article by following the link)…

“Here’s what bugs me. I think the choice of a merchant account vendor, a credit card processing company is a big deal. Once selected, I’m pretty well locked into their technology and system not so much by contract as by momentum….  I will say that one of the other people that I’ve made inquiries to called me today with a lets-get-this-thing-signed attitude. I asked a few questions about how the technology interfaces and was told that I could speak to technical support after I signed the contract.”

Why the rush to sign you up?  To lock you into a contract and meet quota, of course.  So, resist the rush to sign up. And look for merchant account providers that do NOT have contract.

Focus on service

The “service gap” depends on who you decide to sign up with. Since the majority of merchant account providers use sales reps on commission with quotas, you can expect that they will NOT be stopping by if you have a problem. If you sign up with them, you’re left is an 800 number and hours left on hold.

Good luck.

So what options are left to you? Using an ISO.

Independent business owners probably represent 5% of the merchant account industry. But the difference for you and your account is huge.

Since their revenue is tied up with your business success, they often provide personal service if/when a problem arises. And the reason is simple…

  1. if your account is down, they’re not making any money
  2. if you are unhappy and switch to another company, their monthly income is cut

Final Thoughts

I hope this was helpful. Bottom line, do your research, ask questions, resist sales pressure, and look for a merchant account provider who will be there in the long run.

As one business consultant mentioned in a coaching program, think of your “vendors” as business partners who will be there for you over the long-term.

It just makes good business sense.

Be sure to GET your FREE REPORT, “How to Open a Merchant Account… Without Getting Ripped Off”

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Dec 3

A Case Study

What is 4-Tier pricing?  And what does this mean to you?  Check out this offer many business owners receive in the mail:

Typical offer

Fig 1: A typical offer

How do you know this offer involves 4 Tier Pricing?  Well, take a look at the rate. Numbers that low can only mean 4 Tier pricing.

Now, most business owners don’t know that.  And of course, that’s just what they are counting on.  So how is this a problem?

Well, for starters, let’s take a closer look at what is NOT included in the offer.  No where on the offer sheet does it reference the other 3 rates classes.  To me, this is a serious problem for the business owner.

And the reason is simple…

This postcard mailer above implies that this will be the processing rate for all transactions.  But nothing could be further from the truth. And this, in my opinion, is an example of a “bait and switch.”  You’re shown one rate, but it doesn’t apply all the time (or at all).

Why is that?

Because this rate category ONLY applies to transactions that are classified as “Qualified Debit.”  Qualified Debit only happens when your customer uses a Check Card (issued from their bank, but with the Visa or MasterCard logo on it) , AND they use their card for swiped transactions (called “card present”).

What does this mean in plain language?  That this rate does NOT apply to:

  1. Selling a product or service online
  2. Using a virtual terminal to process transactions
  3. Keying in transactions
  4. Anyone using a corporate card
  5. Anyone using a rewards type card (a credit card with miles, for example)

In my experience, face to face transactions that fit the “Qualified Debit” category averages out to roughly 20% of your total processing volume.  Possibly 30% if you own a liquor store or deli.

Okay, that’s problem #1.  And here’s problem #2…

Now let’s take a closer look at the offer itself.  Note the “plus 25 cents.” The reason for 25 cents per transaction, as opposed to 20 cents (or some other, lower amount) is because 4 Tier pricing includes a higher than average per transaction charge.  That’s the way it works.

Now here’s the problem.  You’re offered a lower rate that applies to maybe 30% of your total processing volume, but you have to pay the higher per transaction fee to ALL transactions.

Not a bad deal for the merchant account provider, right?  And I haven’t even discussed that the other 3 price tiers are NOT revealed to you, and who knows how much you’ll pay on those.

And here’s a little tip.  They aren’t going to tell you.

Now, let’s take a look at a quick example of 3 Tier versus 4 Tier pricing for a comparison:

Say the average transaction size for a business is $8.00.  Let’s assume swiped transactions with a “Qualified Debit” card.

3 Tier pricing: 1.71% and 20 cents
4 Tier pricing: 1.15% and 25 cents

Here’s the projected cost for this transaction:

3 Tier: $0.137 + $0.20 = $0.337 cents total
4 Tier: $0.092 + $0.25 = $0.342 cents total

Okay, not a big deal. The low rate of the offer didn’t save you any money, but it didn’t cost much either.

But here’s the thing.  Let’s say you have 1000 transactions per month.  Paying an extra 5 cents, across the board, amounts to $50 per month more.  As you could see in the example, the reduced rate (which only applies to a small percentage of transactions) doesn’t offset the increased per transaction charge.

Meaning?  The 1.15% rate saves you nothing on an $8.00 transaction.  And, the increased per transaction charge across ALL rates classes means that you’re overpaying by $50 per month.

So where’s the deal?

The above case study is the reason why I called this type of offer (and the marketing used to promote it) an example of “bait and switch” earlier.

So what’s the point?  Well, processing credit cards is more complicated that most business owners realize.  Just because it seems like you’re getting a deal, doesn’t mean you really are.

For more information, you can get a copy of my free report (just enter your name and email address for more tips), or check out my merchant account guides.