We've said it before and we'll say it again: Shopping for credit card processing services can be really confusing and without the right information it can even be intimidating. The following is a quick reference checklist to look over the next time you find yourself shopping for a new merchant services provider.
1. Is my representative telling me the whole story?
It's sad to say, but credit card processors are notorious for leaving out all of the necessary information you need to make an educated decision when it comes to their proposals. Their sales pitch may seem like a great deal, but they may not be telling you about additional percentage rates for certain types of cards. Processors are also ill-famed for failing to list the catalogue of junk fees that accompany their contracts, catching the business owner unaware until the first few statements come in. An easy way to avoid this is to ask to see a sample statement from one of the processors current clients. They can protect the current clients private information while revealing what their charges will actually look like month to month on paper. Once you get the sample statement, ask as many questions as possible about everything on it that you do not understand. If the processors answers are too convoluted and couldn't be easily understood by an 8th grader, chances are, something is foul. If they refuse to provide a sample statement, give serious thought to looking elsewhere.
2. Do I fully understand what the processors profit margin will be?
With the many different pricing options available today due to heavy competition in the payment processing industry, there is no reason for any business owner to process credit cards without utilizing either a 'flat rate' or a "cost plus" processor. We say this simply for the argument of transparency. These two methods allow business owners to know exactly what they are paying for every card that comes across their counter and why they are paying it. Cost plus pricing allows the business owner to know their processors fully disclosed profit margin, for instance with the OGroup our profit margin is fully disclosed and comes in the form of a flat fixed fee. Flat rate credit card processing may not allow you to know the true profit margin for your pricing but it simplifies the fee structure so you can easily understand exactly what you will pay for every single transaction. If you don't hear one of these two methods being offered in the credit card processors sales pitch, then move on, or your going to be on the raw end of the deal.
3. Is the credit card processor underwritten by a credible bank?
A credit card processors essential function is to act as liaison between you and the major credit card issuers like Visa and Master Card. Since their is so much financial information being managed on any given day, the money from your customer that just bought that $350 appliance from your store can't be immediately transferred to your account. The credit card processor, through their underwriting bank, fronts that money to you either on the day of the transaction or the next day. Through a monthly batching of your businesses swiped credit cards, the processor collects what they are owed from those customers at the end of the month. A good processor gets you your money on time and they themselves wait to get paid. That's essentially the service you are paying for when it comes to credit card processing. If you're dealing with a merchant service provider that can't get money into your account within 1-2 days of the transaction, they're not worth your time.
4. What does exceptional customer service from a credit card processing look like?
We all know this truth: The bigger the company, the more machines and red tape you will have to trudge through in order to get the information you need to keep your business running smoothly. Who has time for that? There is so much competition out there for your business that there is no reason you should accept any proposal from a credit card processor if they cannot provide you with a 24/7 support line AND the direct line of your merchant services representative. If something goes wrong with your card swiper, or problems, like frozen funds, arise with your account, you should have solutions immediately. You work hard to keep your business running, so why should you accept anything less?
Having a difficult time finding a processor that satisfies all of these questions with integrity? Let us help.
In the world of merchant services there are basically three common methods used to process credit cards. This post is meant to quickly define those methods and hopefully come to some conclusions about which one will be most effective for your business.
1. The most commonly used system for payment processing is known as the Tiered, or, Bucket pricing structure. This system is widely and almost ubiquitously used by the largest credit card processing companies and the major nationwide banks. It is so popular among these Goliath's because it means potential for their highest revenues. Remember, those revenues come from your sales at your counter. With this system, the processor seperates every credit card that comes across your counter into 3 to 4 categories; hence tiers, or, buckets. They then assign those categories a rate, i.e. [ Tier 3: 2.75%, plus 15 cents per swipe ] and will process every card in that category at that rate, even if the true cost to them is 1%. The remaining 1.75% is taken directly from your pockets, without you every having a true way of knowing how much profit they are really collecting from your businesses account at the end of the day. This system is absurdly unfair to business owners and is completely outdated, due mostly to its lack of transparency and ruthless price gouging. Unfortunately, choosing a tiered pricing sturcture is the most common mistake business owners make when signing up for credit card processing. If you are currently doing business under this system, get out of it now. You are undoubtedly paying far to much for this simple service.
2. The slightly modified version of the Tiered System is the Flat Rate pricing structure. This is the same famous pricing structure that the company, SquareUp, uses in its business model. They, like many other processors, offer one flat rate of 2.75%, for example, and lump all of the aforementioned tiers into this one rate. Of course these rates vary from on processor to another, but the idea is to stay slightly above the processing rate curve as dictated by the major card issuers like Visa and Master Card. Sure, they may actually lose money on high cost corporate credit cards, or American Express cards that may run as high as 4% per transaction, but they are banking on making their money on the inflated rate on cards of lesser cost such as personal credit cards and debit cards, typically processing from .68% - 1.29% at cost. The best thing about Flat Rate processing is that you as a business owner know exactly what you are paying for every card that comes across your counter. However, that doesn't mean you could still be losing big from your bottom line. With Flat Rate processing transparency is still problematic.
3. We keep talking about the COST of credit card processing; how can you get a piece of that action? When you hear, cost, you think of paying bare bones for a product. Like any of the other overhead in your business, wouldn't it be great if you could pay straight cost for a good or service? This brings us to the newest and least utilized method of payment processing available: Cost Plus Pricing. The reason Cost Plus pricing is so largely under utilized is because it means less profits for the credit card processor; market demand is changing that. Business owners are fed up with paying literally thousands of dollars a month to process credit cards when they could be paying a fraction. Cost Plus pricing puts them in the driver seat to do just that. With the Cost Plus method, the processor passes the cost, which is the same for everyone across the board, directly to you, the business owner. The "Plus" is the processors profit margin. The "Plus" could be in the form of another rate, added onto the back end of the cost, or it could be in the form of a Flat Fee. Either way, Cost Plus Pricing, will always give you the best bang for your buck. It also gives you the best opportunity to stay fully informed about your merchant service account, which allows you more control to negotiate what the actual "Plus" will be with your processor because of the inherent transparency.
Credit card processing is a confusing world, when it really doesn't need to be. A good rule of thumb is this: the more convoluted a pricing structure is, the more money you're going to lose. Guaranteed. When it comes time for you to make the decision to sign up for merchant services, just remember, the more you know, the more you'll save. Happy shopping.
Over the last few years, the credit card processing industry has seen a new, simplistic form of merchant services grow at an exponential rate in a new company called, SquareUp. While observing this new phenomena in our industry, we at The OGroup asked ourselves, "Is the SquareUp business model sustainable?" and, "Who is this right for?"
We actually do recommend SquareUp to some potential clients who come to us for help. The SquareUp idea seems to be perfect for selling small ticket items and for vendors that sell infrequently, i.e. an egg vendor at a farmers market, a home made jewelry vendor at an arts festival, or even an ice cream truck. We have found that the majority of businesses operating on any larger scale are experiencing ever systemic problems with the SquareUp model. Here are the top 3 reasons why:
As you may have seen advertised, SquareUp charges a flat rate of 2.75% on every transaction, when the card is actually swiped; 3.50% if the card is not present (an outrageous rate for you online vendors, or anyone taking transactions over the phone). As previously stated, that 2.75% on small ticket items may not seem bad if you are facing a quick and impulsive crowd that is short on cash, but what if you're selling hundreds of cups of coffee (another small ticket item) a day, everyday, all year, and not just at sporadic events? That 2.75% starts to add up, and quickly. This is where we see convenience take the place of competitiveness. That convenience, which can be a plus, is really only found in the mobility and the virtually instantaneous start up of Square. For any serious business, waiting 1-3 days to sign up to accept credit card payments is no laborious matter, especially if it means getting your hard earned money deposited on time and decent customer service, not to mention getting a competitive rate.
The only other payment option with SquareUp is a flat monthly fee of... wait for it... $250 a month! And if your business processes over $250K in a year you'll be paying the 2.75% or 3.50% on top of that!
2. Getting your money deposited
SquareUp is not a bank, they are an aggregator, meaning they are a middle man to a middle man. They route your customers credit card information to a traditional merchant service provider, Paymentech, who then provides it to the major card issuers. This aggregator position leaves SquareUp with a substantial lack of underwriting, making them very prone to holding their customer's money. Swings in your companies growth, ticket sizes, or volumes of sales easily triggers the money-sensitive operation at SquareUp to hold deposits of their customers money for investigation. The ability to allow anyone to instantly sign up with their program, without any credit or history checks, has allowed for a good deal of fraud to occur, forcing SquareUp to tighten security on the back end… the back end being the money going into your account for your goods and services. If your money does get held, good luck getting a quick answer beacuse...
3. Customer Service
Imagine it's Friday, after a long week, your ready to go home. You finish reconciling your books to find your account has been frozen due to suspicious activity. What's the first thing you want and demand as a customer? You want to talk with someone. If you're processing with SquareUp, good luck, and buckle up, for a bumpy ride. From what we can tell in reviews that we have read, customer service on the phone is virtually non-existent at SquareUp. Their model necessitates you contact them via email. They claim to respond within 24 hours, but again, from reviews online, many people post that they get see a response more along the lines of 3-7 business days. When it comes to your money hanging in the balance, that is simply unacceptable.
In summation, if you need to accept credit cards en motion, randomly, throughout the year, SquareUp is probably going to work for you. It can be a great tool if you don't want to pass up a sale because someone forget to bring enough cash to your event. But if you run a permanent business that needs reliability in all facets of its existence we suspect that you may run into the same frustrations these other 500+ people have at the BBB.
Earlier this year, U.S. Senate lawmakers signed a bill that set limits on debit-card swipe-fees. Set to go into effect October, 1st of 2011, the new bill will cap profits that banks like Visa, Master Card and Discover can earn on swipe-fees to 21 cents and .05% per swipe instead of the average 44 cents and .65% per swipe they were taking. It was a victory for retailers spearheaded by big box stores and was a hit to the banks who were earning roughly $16 Billion in annual revenues from the fees. That number is estimated to be cut in half, which should mean savings for all retailers, right? It's the retailers that pay those swipe-fees every time a customer runs a debit-card so isn't this good news for everyone, not just the Wal-Mart's and Home Depot's of the world? The simple answer… well, it all depends.
It all depends on what kind of program you use to process credit cards. The big box stores of the world are so big that they use a great program that allows them to pay straight Interchange or Cost. They are so large that Visa, Master Card, Discover, pretty much all of the major card associations, work with them directly. They don't have to hire a credit card processor to represent them to the major card associations. If you unlocked the doors and swept the stoop of your coffee shop on Main Street this morning, proud that the sign above your door does not say, "Starbucks," then you are aware that you do not have the privilege of processing your credit cards for interchange alone. You pay interchange, just like every one else, even the big box stores, but you also pay a credit card processor on top of that to have the funds from your customers credit cards deposited into your account. So how does this new bill effect your credit card processor? Have limits been set on their ability to profit from swipe-fees? The simple answer: No. No, not at all.
In fact, your credit card processor can still charge you 50 cents for every transaction if they like, as long as they pay their cost of 12 cents to the banks, they can profit as much as they want to off of every single transaction. So does that leave the businesses of Main Street out in the cold, unable to take advantage of this new legislation? The simple answer: No. Not at all.
All you need from your credit card processor is the right program. That program is found in Cost Plus Flat Fee Pricing. If you find a credit card processor that offers Cost Plus Flat Fee Pricing without any per transaction fees or swipe fees in their agreement, then you too can pay just 21 cents per transaction, just like the big box stores. Unfortunately, Cost Plus Flat Fee Pricing is still a new and innovative concept that most credit card processors have not caught on to yet, so finding one may be hard. The good news, the blog you are reading right now is run by a company that does just that.
Contact us at www.ogflatfee.com, right now, to find out how you too can take advantage of this new bill and pay only the federal minimum of 21 cents for every transaction.
Why the Lack of Transparency in Credit Card Processing?
Why are business owners paying more for credit card processing than their sales rep said they would at the end of the month? Why are the statements sent from processing companies so confusing that only a professional can understand what the numbers mean? Is credit card processing really this complicated?
The simple answer: No.
Since the advent of credit card processing there has never been an industry wide pricing standard for this service for small to medium sized businesses to make comparisons with. No two processing companies are alike and there seem to be endless ways that processors can make a profit off business owners.
Think about it this way. When getting your oil changed, you and everyone else getting their oil changed know what a fair deal is. It’s something that everyone does on a fairly regular basis, therefore the widespread public knowledge results in a industry standard. This way, if someone decides to give oil changes for $100, they will soon find themselves closing up shop. Credit card processing is not nearly as simple, but why not?
The public at large does not regularly shop for credit card processing, and even business owners, who are the select few making decisions about it, will only shop for credit card processing 3-5 times throughout the life of a single business. This reduced exposure to the industry drastically effects the average business owners knowledge about this service... and the processing companies know it, exploit it, and make profits to the tune of billions a year because of it.
By keeping the industry complicated these processing companies are making profits from hidden fees, junk fees, embedded rates, leasing equipment, merchant loans, undisclosed profit margins, the list goes on. The point is, most of these fees were never mentioned to business owners or fully explained at the time of the sale; the antithesis of transparency.
So what can you do?
1. Get educated about the industry. The web has exploded with information about payment processing over the last 5 years and there are many business owners that have seen it all and are more than willing to share experiences and advice.
2. Demand “Cost Plus” pricing. Cost Plus pricing has become very popular in recent years because it is the fairest way to handle payment processing for the merchant. If your current company wont do it, find one that will.
3. Demand to know your processors profit margins. Make them be transparent. Your customers demand to know how much they are paying for your goods and services before they pay, why should credit card processing be any different? It shouldn’t. If your current processor will not disclose their profit margins to you, find one that does. Simply asking for cost comparisons from multiple processors will give you a sound idea about what you are actually paying.
As always, we welcome any comments on our blogs and encourage anyone to share experiences. Visit us at www.ogflatfee.com to find out how we are turning the processing industry on end with committed and complete transparency, all disclosed to you in one flat fee.
1. Don’t use your bank for payment processing services.- - - - - Big business means big expenses. Big national banks and even local banks that provide payment processing services typically have the highest rates on the market and burden small businesses with a host of hidden junk fees to cover their big business expenses. Banks rarely do their own in house processing and usually outsource the work to an ISO. With more than one party involved, rates must be higher to make the service more interesting. Talk with an expert at www.ogflatfee.com to start reclaiming profits for your business by working with an Independent Sales Organization directly and leave the middle man out of the equation. 2. Don't do business without a set and locked in price for processing services. - - - - - Why isn't the writing on the wall for credit card processing prices?Payment processing is not a complex service. Processors simply connect businesses to the major card associations and ensure that the connection is maintained. Why should businesses pay hundreds of dollars for this simple service every month? Ask your processor if they will allow you to pay a flat fee every month above their true cost for their service. 3. Never pay unnecessary junk fees.- - - - - They're only good for lining someone else's pockets.Small businesses often pay hundreds of dollars a year in junk fees to their payment processors. If you ever see fees such as statement fees, data security fees, batch header fees, monthly minimum fees, etc., you as a business owner should know that these fees are unnecessary. If your processor will not remove these junk fees, then find out how we at www.ogflatfee.com have done away with junk fees completely.4. Stop paying your credit card processor with percentage rates.- - - - - Percentage rates are like an unfair tax.Most payment processors get paid by percentage rates that are added on above the rates already being paid to Visa/MC/Disc. These rates dramatically cut into profits because the traditional processing philosophy says that the more money a business makes the more a business should pay for this simple service. Instead of using the percentage rate model, find a processor that charges a flat fee above their true cost month to month. 5. Always know what you are paying month to month.- - - - - Know what you pay and why you pay it.An alarming amount of small business owners never know what they are paying month to month for their payment processing services. This is because the payment processing industry keeps their clientele in the dark with confusing statements, fluctuating percentage rates, and hidden fees, which can lead to thousands of dollars in profit loss every year.
Many companies are now choosing processors that offer a fixed flat fee so they know exactly what they are paying when their statement comes in. Your customers demand to know the price of your items and services before handing over their hard earned money, so why should payment processing be any different? Find out more about fixed flat fees at www.ogflatfee.com. What do you think?
If you suspect that your current services violate any of these surefire rules for effective payment processing then then speak with an expert at www.ogflatfee.com for a free and secure consultation to get your company on the right track.
Or call us any time at 877-306-7142.
After being in this industry for over 7 years, we at The OGroup, Inc. have witnessed first hand just how notoriously shady the credit card processing industry can be. From half truths, to hidden fees and even straight out lies, it seems that sales reps from credit card processing companies will do anything just to get small business owners to sign on the dotted line. Any business owner that is familiar with the in's and out's of this industry is every shady credit card processors nightmare. A few key points, like these listed below, can help immensely as you take control of your credit card processing expenses.
The Top 3 Lies of Credit Card Processing
1. One Low Rate
Lie - More often than not when a payment processing sales rep pitches their services they only quote one rate that may sound something like 1.29%. This leads the business owner to believe that this is the only rate that will ever be charged for all payment processing services.
Fact - That 1.29% quoted rate is more than likely the first of three to four other rates that a processor will slip into a contract without you knowing. It's called the tiered pricing structure; an opaque method of processing credit cards that can be manipulated with all types of hidden percentage rates and junk fees. The example quote of 1.29% s probably what the processor will charge for every debit card you swipe, but what about regular credit cards or reward card? Be assured, those cards WILL be processed with other, inflated rates. The tactic is to simply get the business owner in the door with the lowest rate, they fail to leave out that this is just the beginning. These other rates, undisclosed but very real, are applied depending on the types of cards and how those cards are accepted. For example, a corporate credit card will always be charged a higher rate than a personal debit card; therefore there will never be one rate for all payment processing services. Our best advice: Find a Cost Plus Pricing Structure with a flat fee for processing. This pricing method allows you to pay straight interchange (rock bottom cost) and you will always know your processors profit margin. Cost Plus pricing methods are the most transparent way to pay for credit card processing today and it's what we recommend until something better comes out.
2. “Free” Equipment
Lie - Payment processing companies will tell business owners that they will give them card swiping equipment for “free” when they switch to their processing services. They will often make this equipment appear to be worth hundreds if not thousands of dollars to make it look like they are giving the business owner a great deal.
Fact - Most things in this world are seldom free. The reality is, most card swiping equipment can be found at relatively inexpensive prices. Because of high and undisclosed processing rates, hidden fees, and junk fees, many small businesses end up paying for their equipment many times over throughout the term of their contract. Leasing equipment can be a pitfall as well simply because it is just one more way that a processor can bind you to their expensive services Our best advice: After finding a processor that best fits the needs of your business, secure your own, reliable equipment for that will be compatible with your processors software.
3. Junk Fees
Lie - Extra Fees such as statement fees, data security fees, batch header fees, monthly minimum fees, and a host of other hidden fees are necessary administrative costs to keep payment processing services operating.
Truth - There are costs to maintain processing services, however, the majority of hidden fees out there are typically never disclosed by sales reps. These fees are honestly junk fees that are simply lining someones pocket and further cutting into the business owners profits. Take a look at your last statement and scrutinize every charge you see on it. Our best advice: If you're unsure what a charge is for, ask your processor directly. If they give you the classic run around, give us a call. We'll analyze your statement for free and let you know just how much "junk" is really in there.
What do you think?
Do you feel you may have personally experienced one or more of these lies as a small business owner?
Share your experiences or comments below.