Credit card processing is an unregulated industry. It is electronically based with no short cuts. Pricing is the biggest area of misinformation. It flows like this: The Processor (big computer in the sky) gives “interchange rate”, then to ISO then to merchant. Interchange rate is a risk assignment and has more several hundred lines of rates based on type of card and how it is processed. The ISOs have several levels and each level is slightly more expensive. Level One pricing is the first level of pricing down from processor. They provide pricing to banks, wholesale big box stores, associations, who offer Level Two pricing.
Pricing comes in two kinds. Most typical is TIERED. It is the easiest to sell and the most misleading. You will see this promoted using one “rate” as a come on. The fine print says rewards cards, corporate and foreign cards clear at a higher but unspecified rate.
INTERCHANGE, also known as cost plus, is the lowest rate to the merchant. It takes rate of the credit card actually presents clears at plus a small fixed amount. This system is harder to explain to merchants but assures them the lowest possible rates. The best managed stores insist on “interchange plus’ rate. This is the ONLY rate big box store will even look at!
Processing a charge and money: the charge transaction ALWAYS goes direct to the processor, then VMCD for funding, back the processor for distribution to the merchants account. NO SHORT CUTS, ever.
- LIE: keep all you money in one place. TRUTH: it simply is not possible for the system to work like that.
- LIE: we work directly with the processor. TRUTH only a few Level One ISOs work with pricing direct from the processor but ALL machines, shopping cards, etc., work directly with the processor. Typical sales lie.
- LIE: you don’t need a contract. TRUTH: VMCD will not process a merchant without a contract ever. A three year contract is typical. All have auto renewals and a buy out clause. Read your contract!
- LIE: We will give you a free machine. TRUTH: machines cost hundreds of dollars. They WILL make up the money by increasing in your processing fees and hiding it. No free lunch.
- LIE: the sales person has you best interest at heart. TRUTH: most salespeople are only paid to sign up a merchant and stay in the business a few months. No responsibility or follow up. Find a salesperson that only gets paid if they keep you! They are interested in keeping you happy.
- LIE: The sales person knows what they are talking about. TRUTH: most sales people have no training on anything but the contract. They have no idea about the reality of what they say. While some are intentionally lying, the majority simply do not know what they are talking about. That may be even worse! Ask about their initial and ongoing training. The best have continuous training in this constantly changing industry. They can give you information you need to informed business decisions.
About the Author:
Bear Thomas is the SW Regional Account Rep at Merchant Solutions International – providing low cost credit card processing that really is low cost. They offer all processing methods at cost-plus pricing, like all the big box stores get. His goal is to help merchants keep more of the money they have already earned. Connect with him on LinkedIn.