If you get a call from someone saying they caught an error on your account, or they need to get you new compliant equipment, etc...get their name and number, then hang up! They will act like they are calling from your processing company, but they could be crooks. They trick people into switching to their company for credit card processing...then you are locked in to a new contract with what will likely be huge fees and even bigger fees for cancelling.  I have even seen similar situations where they do not switch your processing, but they do empty your bank account and disappear.

This scam can cost you a lot of money. One company almost got one of my clients last week with their fraudulent trickery. The rep called my client saying they found an error on their bill, that they were double charged for their monthly fee and they already corrected the error.  This was partially true.  There was an error, but it was fixed by my company immediately and it had nothing to do with this company calling my client. 

These bottom feeders listen for an issue with a large processor then they get on the phones randomly calling businesses using the same line every time until they get someone that falls for their trick.  By the time it is over the business is now in a new contract that gives this fraudulent company full legal access to the business’ bank accounts and revokes the business’ right to sue said fraudulent company.  It is a genuine nightmare that commonly costs the business many thousands of dollars.

Always call your processing company or your rep before giving anyone information about your merchant account. Do not call the number provided by the person calling you.  You will just be led back into the hands of the same crooks that called you.  The number for your real credit card processor is on your statement, but you should also have your reps cell number if you have a good rep. 

 
 
First, let me start of by saying nothing is free…nothing.  Everything has a cost.  The last time I checked manufacturers did not go through the trouble of creating and manufacturing a product to give it away for free.  Credit card terminals are no different.  They have a cost and the manufacturer will get paid.

So why do some companies offer free equipment while others sell, lease and/or rent the same equipment?  The company that offers free equipment is hiding the cost of that equipment in your processing fees…plain and simple.  If they are offering you free equipment and the rates look great, something is wrong.  They are hiding fees from you, and/or they plan to jack your rates up soon after getting you to sign a contract which could be expensive to break.

Why not lease then?  You are paying for the equipment right?  In addition they will swap out the equipment whenever needed right?  Both of these statements are true, but it will cost you a lot of money to lease that equipment compared to buying it at a reasonable price.  A standard credit card terminal costs your processor between $175 - $250 while more feature rich terminals can cost around $350 - $550 and on the very high end you have wireless terminals which cost around $675 - $725.  That is your processors cost. 

An average lease payment is around $45/month for an average terminal.  It is a 48 month lease which cannot be broken for any reason, which means you are paying that 48 months x $45 (plus tax, but to keep it simple we will leave the tax out) = $2,160.  If you can get that same terminal for say $200 you could have bought it over 10 times.  How many do you think you would go through?  Most businesses keep the same terminal for years and years.  I have seen terminals that have been used for over 10 years.  Never lease, it is a big rip-off!

So what about renting equipment then?  Renting is still not as preferable as purchasing the terminal, but with a rental there is normally no contract attached to the rental so you can return it at any time.  I still think it is a big waste of money.  If you are unsure if you will be taking cards for long and are thinking of renting consider this… If you buy a terminal for around $175 - $250, you will be able to resell that terminal to another business and recoup all or most of your money if needed.  Just make sure you clear out the memory prior to selling it.

Without a question, the best option is to purchase the equipment.  Make sure you get a good price.  Yes, you can buy equipment on the shopping sites, but you must be careful there too.  There are sites that trick you into signing up for their merchant services by getting cheap equipment.  There are also people selling equipment that is broken or that will not work with your processing company.  The best option is to buy it through your processor at a reasonable price.  Ask them if they have any kind of swap program if something happens to the terminal and how long it will take to get the replacement.

Personally, I sell equipment at my wholesale cost.  I also have a swap program so that if something happens to the terminals, other than intentional damage, I can swap the terminal out with a like model for $75.  It is a deal I worked out with my equipment supplier.  That saves my clients from having to buy a new terminal in the unlikely event something does happen to their equipment.

 
 
As discussed in the post about interchange cost, there are many different fees associated with interchange.  There are also many fees being charged that are not part of interchange, but part of lining the pockets or your processing company and yes, the rep that “sold” you.  So how can you tell the difference between what is an interchange cost, legitimate processing fees and fluff?

The first step is to make sure you are on interchange plus pricing.  This is the most transparent, cost effective pricing model.  When you are on interchange plus pricing, you pay the processors cost plus their processing fees which are the fees they charge you to do your processing for you.  Bundled pricing setups will cost you too much, no matter what your rep or “banker” says.

The second step is to watch your statements monthly, especially around April and October.  The card associations make their adjustments every April and October so this is when you will notice the majority of changes to your account…rate hikes or “the creep.”  Watch for the small print warning of upcoming changes to your pricing structure.  Some changes are legitimate.  For example if you are on interchange plus and your statement message says something like the rate for Visa Rewards 1 transactions is being adjusted from 1.65% + $0.10 to 1.67% + $0.10…then it is likely to be legitimate.  You can always go to the Visa site and look for yourself.  It is posted. 

If you take the same scenario, but you are on bundled pricing…your statement message would likely say “…due to card association price adjustments your rates will be adjusted by +0.15%.  This means all of your cards will get a 15 basis point increase, not just the card that changed…rip off! The message may even just make a vague statement of upcoming rate increases “due to an interchange adjustment.”  Yes they will raise your fees even if their cost does not go up.  Think they can’t, read your contract.

The third step is to look at your statements for fees such as regulatory and compliance fee, TIN validation fee, PCI non-compliance fee, monthly PCI compliance fee, customer service fee, annual fee, etc.  Most processors charge a monthly fee of some sort and this is acceptable if your discount rate (the percentage in processing fees you pay) and the authorization fees are reasonable.  Never pay a monthly fee over $10 unless it includes your use of a virtual terminal.

Have a question you would like answered on my blog?  Email me from the contact page and I will either respond individually or I will give the answer in an upcoming post.

 
 
There are three components that make up the credit card processing fees that a business pays.

  • Interchange – Non-negotiable – This is the value Visa/MC/Discover has assigned to every different card type based on the way it is processed.  This portion of the rate paid goes to the issuing bank of the debit/credit cards.  This information is public and can be found at www.visa.com and www.mastercard.com.
  • Assessment Fees – Non-negotiable – This portion of the rate paid goes to Visa/MC/Discover as the Card Associations.  This is where Visa/MC/Discover make money as businesses in the credit card processing industry.  This information isn’t found as easily as Interchange, but your processing company should share that with you.  This is also part of interchange cost…an uncontrollable, non-negotiable cost.
  • Processing Fees – Negotiable – This is the portion of the program that varies from company to company.  This is where the credit card processing company makes its revenue on a merchant.  There is a percentage added on above Interchange and Assessment Fees for the processing company to provide their services.
Interchange Plus pricing is by far the most efficient way for a business to process credit/debit card transactions.  It breaks out all of the “true costs” charged by the processor, and eliminates the ability for any rate manipulation by the processing company.  It also allows you to receive the full benefits of the Durbin Amendment legislation.  The Durbin Amendment drastically reduced the cost of certain types of debit card transactions that come through your business.

There are two different pricing strategies used when setting up a merchant account for a business.


  • Unbundled.  Unbundled pricing is actually Interchange Plus pricing which was just explained.  We are unbundling each of the different factors that make up the total rate paid.
  • Bundled.  Bundled pricing occurs when the processing company takes all of the different rates charged by Visa/MC/Discover, adds the Assessment Fees and their Processing Fees and groups everything together.  They then offer a “Bundled” or “Tiered” program where you as the merchant may be offered only 3 or 4 different rates for all of the different types of cards that come through your business. You may see things on your statement such as Qualified, Mid-Qualified, or Non-Qualified, or Rates 1, 2, 3 or 4.  Very often in a bundled program the processing company may be offering a competitive “Qualified” discount rate for your typical consumer credit cards, but then inflates every other category to make up for being somewhat competitive on the “Qualified” transactions.

A lot of credit card processing companies use “Bundled” pricing because it is more lucrative for them.  They make more money because they can hide their processing costs in many of the rates charged to the merchant.

Unbundled or Interchange Plus pricing is better for the merchant.  It offers complete disclosure.  When set up properly on an Interchange Plus program, a merchant could actually audit the rates charged on the statement to the public information on Visa/MC websites.

 
 
I reluctantly entered the field of credit card processing (merchant processing) about 10 years ago.  I say reluctantly because even then credit card processing reps had a bad reputation…ranking up there with used car salespersons and life insurance salespersons…no offence intended.

I decided that I could still maintain my dignity and keep my moral compass pointing in the right direction so I agreed to join a large processor.  All was good for a while.  I was making very good money and I had great benefits.  But I am a learner.  I yearn for information. I have to be an expert at whatever I am doing.  I have to understand it inside and out.

My employer was not teaching me so I started digging.  I found something called interchange plus pricing.  It seemed like it would be a great selling point so I asked permission to start selling using this model instead of the “bundled pricing” model my employer required us all to use.  Well, that did not go over very well.  I was told no and when I pressed I was told it is not nearly as profitable.

Around the same time my employer started doing massive rate hikes affecting all of my clients…some of which I had just signed up.  When I asked why they did this, I was told my accounts were not profitable.  My next step was to run an analysis on a large portion of my portfolio using their old pricing, interchange plus pricing and the new pricing after the rate hikes.  What did I find you may ask?  I found that the accounts were very profitable under the old pricing.  Not only that, but I also found that we could reduce their rates and still be profitable.  I decided to bring this to the attention of some executives.  That did not go well.

I decided it was time to move on.  I had asked around and it turned out everyone I spoke to within the credit card processing industry was concerned with one thing…themselves and their riches.  After a short break (about 3 months) I decided to go back into credit card processing, but on my terms.  I decided that there has to be someone who will advocate for business owners in the credit card processing industry. I felt that I could still make a fair wage while offering great rates, service and not holding people hostage with contracts.

Well it turns out I was right.  No, I don’t make as much as most other reps in the business of credit card processing, but I do well enough and I still have an unbroken moral compass and my dignity…and I can sleep at night.  Now I am trying to spend more time educating people about credit card processing so they can make better decisions and not get into bad situations with expensive outcomes.

That is why I founded Merchant Owl.  You see, I love owls.  I see them as noble and wise.  One day, not long ago I was trying to figure out a catchy name for my business and I thought to myself, if I were an animal, what would I want to be (a game I play with my kids sometimes) and I thought an owl because they are intelligent and noble…not to mention they look really cool and they can fly!  Welcome to my blog.  Stay posted and get ready to learn about merchant processing.