A merchant account monthly minimum fee really isn't a fee by itself — it's more like a benchmark.

What is a merchant account monthly minimum fee?
Lisa B.

A monthly minimum fee is one of the more confusing credit card processing fees because it's not really a fee at all. A monthly minimum is more accurately described as a benchmark that may result in a fee, rather than as a fee by itself.

A monthly minimum indicates the minimum amount in fees that a processor will collect in any given month. If actual fees resulting from processing activity don't meet or exceed the minimum amount, the processor will charge however much is necessary to meet the minimum.

A catch with monthly minimums is that processors determine which fees count toward the minimum and which don't. For example, one processor may count all discount and transaction fees toward the minimum while another may only count its discount rate.

Very rarely will any processor count fixed monthly or annual fees toward a minimum.

Here are a few examples to illustrate how a monthly minimum fee works and when a business would incur charges as a result of not meeting the minimum.

Example A:

In this example, let's pretend that Business A is using a processor that counts all but monthly charges toward a $25 monthly minimum fee.

During its first month, Business A processed $3,000 in credit card sales resulting in charges of $20. In this case, the processor will charge $20 in fees plus another $5 “out of pocket” to bring Business A's total fees up to the $25 monthly minimum fee.

During its second month, Business A processed $6,000 in credit card sales resulting in charges of $40. In this case there will be no additional charge resulting from the minimum because the actual charges of $40 are greater than the $25 monthly minimum fee.

Example B:

In this example, let's pretend that a business is using a processor that counts only the net discount fee toward the minimum. The business' rate is interchange plus 0.25% (twenty-five basis points) with a $20 monthly minimum fee.

If Business B processes $5,000 in credit card sales the resulting discount fee will be $12.50 ($5,000 * .25%). In this case, the processor will charge an additional fee of $7.50 to bring fees to the monthly minimum of $20.

Basis points are the basis for credit card processing fees, so they're not something to take lightly.

The term basis point is thrown around a lot in the credit card processing industry, but many sales people fail to realize that most people aren't quite sure exactly what a basis point is, or what it means in terms of credit card processing fees.

This article explains what a basis point is, how to calculate fees using basis points, and finally the role basis points play in credit card processing — specifically having to do with a processor's markup.

If you found this article looking to learn how to calculate or convert basis points, you may want to skip on over to our basis point calculator.

What is a basis point?

A basis point is a unit of measurement that is equal to 1/100 of one percent, or 0.01%. A basis point expressed numerically as a decimal is equal to 0.0001.

Basis points are often abbreviated as simply "bp," which is pronounced as "bip," and more than one basis point is abbreviated a "bps," pronounced as "bips." For example, people will often say "thirty bips" instead of "thirty basis points."

The term basis point is particularly common in financial fields where small percentages often play a role in fees or charges, such as in credit card processing.

With credit card processing, basis points are most often used to refer to a processor's markup on an interchange plus pricing model.

In fact, we've posted a table that shows the decimal and percentage representation of five through one hundred basis points in our article about whether a certain basis point markup is competitive.

How do you calculate basis points?

The easiest way to calculate and convert basis points is to use our basis point calculator. The calculator will convert basis point to a decimal and a percentage, and it also shows you the charge resulting from a certain number of basis points over sales volume.

When looking to calculate basis points people usually want to know how much in fees a given number of basis points will yield over a given (sales) volume of money.

The first step in the calculation process is to convert the basis point in question to a decimal keeping in mind that one basis point represented as a decimal is 0.0001. To perform this conversion using an equation, simply divide the number of basis points by 10,000.

For example, 25 basis points shown as a decimal is 0.0025 - (25 / 10000 = 0.0025)

After converting basis points to a decimal, the next step is to multiply the decimal by the dollar volume in question.

For example, let's assume that your business processes $20,000 a month in credit card sales volume, and a processor offers you a rate of 25 basis points over interchange fees.

The processor's fee of 25 basis points will yield a charge of $50 over $20,000 - (0.0025 * 25000 = 50).

The battle for the micro mobile market heats up as PayPal Here enters the ring in direct competition with Square.

PayPal Here has taken the mobile payments market by storm with a smartphone processing solution that in several ways gets the better of the current market leader, Square.

Boasting live customer support, immediate funding and support for multiple payment channels including free check acceptance, it seems as though Square has some catching up to do despite the company's rapid growth.

It's way too early to call a winner, especially since PayPal Here's blue triangle hasn't even started shipping, and the war between Square and PayPal Here will likely rage back and forth for some time. However, as we've outlined below, PayPal Here sure is making a grand entrance into mobile payments with many out-of-the-box advantages over Square.

	Square	PayPal Here	Advantage
Credit & Debit Card Processing Rates	Swiped: 2.75% Manually Entered: 3.50% plus $0.15	Swiped: 2.70% Manually Entered: 3.50% plus $0.15
	A main competitive advantage that has allowed Square to hold the top spot in the mobile market has been the company's ability to offer a flat processing rate with no transaction fee. Until PayPal Here, competing mobile solutions relied on traditional merchants accounts often paired with a third-party mobile application like ROAMpay where transaction fees can range upwards of $0.25. PayPal Here has laid waste to what is perhaps Square's most powerful competitive advantage by entering the market at 2.70% and $0.00 opposed to Square's 2.75% and $0.00. PayPal's deep pockets and established market presence make PayPal Here a formidable adversary, the likes of which Square hasn't yet had to deal with.
Check Processing Rate	Check Processing Not Offered	Free
	Checks aren't exactly mainstream these days, and the future of the check printing market is looking pretty bleak. But PayPal has been around a while, and the infrastructure to process and settle checks is already in place, so why not add another bullet point to the PayPal Here feature list? PayPal has added check processing and settlement at no cost to Here's list of features making it literally a free shot at Square.
Start Up Cost	Free	Free
	Square and PayPal Here both supply free card readers and apps. The readers for both Square and Here plug in to the microphone of an electronic device.
Payment Channels	Credit and signature debit cards: Visa, MasterCard, American Express and Discover) Pay with Square (Formally called Card Case)	Credit and signature debit cards: Visa, MasterCard, American Express and Discover) Checks PayPal Electronic Invoices
	The main payment channel of both Square and PayPal Here is credit and signature debit (non-PIN) cards. Each company also offers a proprietary first name payment service that displays nearby customers on a vendors payment screen allowing vendors to charge customers by name or image. Square's service is called Pay with Square, and PayPal Here identifies users through their PayPal account. Both services offer similar functionality, but PayPal's user base is significantly larger. Looking past a somewhat dead heat with first name payment services, PayPal edges ahead with check processing and electronic invoicing.
Funds Availability	Next Day	Immediate*
	PayPal Here boasts the immediate availability of funds, and while this is faster than Square's next day funding, Here doesn't deposit funds directly into a user's checking account. Instead, Here makes funds immediately available in a user's PayPal account where they can access for purchases or withdrawn via an ATM using a PayPal debit card. PayPal Here users that want to transfer funds to their own bank account must initiate a transfer from within their PayPal account, and the transfer process typically takes three days. Square doesn't make its users jump through a proprietary hoop to get their money. Square deposits funds directly into a user's checking account the next day.
Fraud Protection & Security	Encrypted Card Reader, Data Transmission, Etc.	Encrypted Card Reader, Data Transmission, Etc.
	Although Square hit the market with an unencrypted card reader, the company has since cleaned up its act and both Square and PayPal Here are serious about security and fraud prevention. Both companies provide encrypted card readers and other security and fraud protection features.
Supported Devices	iPhone/iPad, Android	iPhone/iPad, (Android coming soon)
	Square has been in the game longer and has established support for iPhone/iPad and Android devices. PayPal Here is hitting the market with support for the iPhone/iPad and will be adding support for Android devices in the near future.
Market Availability	United States	United States, Canada, Hong Kong, Australia
	Square hasn't ventured outside of the lucrative U.S. market claiming that, "There is no specific timeline for our international rollout..." Square's U.S. exclusivity likely doesn't affect most users, but those on the northern fringes of the country may be happy to hear that PayPal Here is hitting the market will support for Canada. Less applicable to the U.S. market is Here's support for Hong Kong and Australia.

Intuit uses opaque tiered pricing and excessive downgrades to inflate credit card processing fees.

Based on the countless Intuit merchant account statement analyses we have done here at CardFellow, we have found Intuit's credit card processing charges to be 40% - 50% greater than the rates businesses receive in our free marketplace.

Intuit is best known as the maker of the popular Quickbooks accounting software, and as the provider of the GoPayment mobile processing application. If the company's credit card processing keeps going as it is, Intuit will also become know for exorbitant credit card processing charges and excessive downgrades.

• Convenience of Quickbooks is Expensive
• Opaque Pricing
• Excessive Downgrades
• Save Money by Switching from Intuit

Convenience of Quickbooks is Expensive

Intuit's popular Quickbooks accounting software makes it possible for users to process and record a credit card transaction in one easy step, but this convenience comes with a very hefty price tag.

Intuit knows that competition from other credit card processors will drive processing costs down, so the company designs Quickbooks so it will only work with Intuit's own credit card processing service. By eliminating competition Intuit is able to charge excessive fees.

Opaque Pricing

Quickbooks enables Intuit's exorbitant fees, but tiered pricing is what makes it possible for the company to advertise rates that appear far more competitive than they actually are. To understand how Intuit uses tiered pricing to conceal high rates we first need to look at the wholesale cost of credit card processing.

Interchange fees are the rates charged by banks that issue credit cards. Interchange fees are the same for all businesses and processors, and they represent the lowest possible rate for a given transaction.

If you've strolled through the blog here at CardFellow, or better yet, used our service to compare credit card processors in minutes, you know there are two basic forms of credit card processing pricing called interchange plus and tiered.

Interchange plus eliminates hidden credit card processing fees and is relatively inexpensive because it separates a processor's markup from the interchange fees charged by banks. Intuit only offers interchange plus pricing to large businesses with substantial processing volume.

Instead, Intuit uses opaque and expensive tiered pricing. Tiered pricing allows Intuit to charge its customers based on its own rates called QUAL, MQUAL and NQUAL while paying interchange fees to banks behind the scenes.

Each one of Intuit's pricing tiers has a corresponding rate. For example, QUAL, MQUAL and NQUAL may carry rates of 1.60%, 2.60% and 3.60%, respectively.

With full control of rates Intuit is able to dictate the pricing tier to which a business's credit card transactions are routed. For example, Intuit may route a regular consumer credit card to the QUAL tier and a reward credit card to the NQUAL tier.

When Intuit processes a transaction at the higher MQUAL or NQUAL pricing tier the transaction is said to have downgraded. While it's true that downgrades happen at interchange (how Visa and MasterCard classify a transaction), in the case of tiered pricing, many downgrades also occur at the processor level (Intuit gets to downgrade any transaction it wants).

Unfortunately, Intuit has failed to disclose its ability to influence downgrades on the company's Web site.

Intuit & Excessive Downgrades

Intuit makes more money when it routes a transaction to MQUAL or NQUAL because these tiers have higher rates than the lowest QUAL tier.

When talking with a prospective customer it's not uncommon for a salesperson to claim that the QUAL rate will apply to most transactions, and only a small number of transactions will downgrade to the higher MQUAL and NQUAL rates.

The countless analyses of Intuit merchant accounts statements that we have done here at CardFellow prove the exact opposite is true. In most cases, Intuit downgrades an excessive number of transactions to the higher MQUAL and NQUAL rate tiers.

In the following examples we will look at actual Intuit processing statements sent to CardFellow by companies that used our free marketplace to get instant credit card processing quotes. Each company reduced credit card processing fees more than 50% by leaving Intuit.

Intuit Excessive Downgrades: Example #1

The snippet below is taken from an Intuit merchant account statement for a medical office. Before switching from Intuit and lowering its fees by more than 50% this business was using Quickbooks to swipe virtually all credit and debit card transactions.

Intuit priced this business with rates of 1.60% QUAL, 2.60% MQUAL and 3.60% NQUAL. Total Visa processing volume for this month was $31,550.03, but Intuit only considered $2,735.02 as QUAL. Intuit downgraded a whopping 90% of gross Visa sales volume to the NQUAL pricing tier!

We checked every conceivable reason for such excessive downgrades such as card type, software issues, delayed batching and more. We later found that Intuit was simply downgrading virtually every type of transaction except those involving a swiped debit or core (non-reward) consumer card.

Intuit Excessive Downgrades: Example #2

This next example of excessive Inuit downgrading is taken from the statement of an online business that also used CardFellow's free service to lower fees by over 50%. Like the business from example #1, this company was processing transactions correctly and should not have experienced this many downgrades as a result of interchange qualification. The excessive downgrades were caused by Inuit routing the vast majority of transactions to the NQUAL pricing tier.

As you can see, Intuit downgraded a staggering $62,460.29 to the NQUAL rate. That's 69% of gross sales volume!

Save Money by Switching from Intuit

Despite Intuit's best efforts other processors are able to offer credit card processing for Quickbooks through software add-ons called plug-ins. Plug-ins are often proprietary and have varying degrees of effectiveness. Some may require double-entry, while others boast functionality that is virtually identical to the native Quickbooks processes.

It may take a little extra homework on your part to weigh the Quickbook plug-in options available, but your wallet and working capital will thank you.

Here comes PayPal Here with yet another smartphone credit card processing option.

Micro merchants and businesses that need to accept credit card payments while on the go now have yet another smartphone credit card processing option. On March 16th PayPal launched PayPal Here, a service that allows iPhone, iPad and eventually Droid users to accept credit card payments through their mobile device.

PayPal Here isn't available yet, but it's pretty clear that PayPal is taking direct aim at Square — the current market leader in the smartphone credit card processing space. Square has a few things to worry about, too, not the least of which is PayPal Here's slightly lower pricing.

The triangle-shaped card readers for PayPal Here haven't started shipping yet, but the details of PayPal's services are outlined pretty well on the company's Web site.

• Pricing
• Features
• Deposit Time/Funds Availability
• Set Up & Operation
• Customer Service

PayPal Here Pricing

PayPal Here Features

PayPal Here Deposit Time

Funds from sales are settled to a user's PayPal account immediately. Users with a PayPal debit card will be able to use the card to access funds immediately either by using the card to make a purchase, or by using the card to withdraw money from an ATM.

Users without a PayPal debit card still have access to funds immediately to make purchases from their PayPal account.

Users that would prefer to withdraw funds from their PayPal account can transfer funds to their bank account in about three business days.

PayPal Here Set Up

To get started with PayPal Here simply download the app via the Apple App Store or the Android Marketplace (when available).

PayPal will ship the free triangle card reader once you complete the account registration process, but you can process run transactions in the meantime by manually entering card numbers or by using the Scan Card feature.

Customers do not need to have a PayPal account in order to make a purchase from a vendor using PayPal Here to accept payments.

PayPal Here Customer Service

Poor customer service is a well know sticking point with other smartphone processing services such as Square. PayPal Here is positioning itself above the competition with expanded customer service contact options that include telephone support, e-mail support, and also an in-app help feature.

Visa will be adding a Transaction Integrity Fee to the lineup of new fees set to take effect April 2012.

Effective April 13, 2012, Visa will begin charging a Transaction Integrity Fee (TIF) of $0.10 on transactions involving Visa debit and prepaid cards that do not meet CPS requirements (more on this later). The Transaction Integrity Fee will not apply to Visa credit card transactions.

• When the Transaction Integrity Fee Applies
• Details of the Transaction Integrity Fee
• Transaction Integrity Fee and Your Business
• [Speculation] Reason for the Transaction Integrity Fee

 

When the Transaction Integrity Fee Applies

The TIF will not affect a large number of transactions, as it will only apply to a few specific types of businesses and transactions.

Debit and Prepaid Cards
The TIF applies only to transaction involving a Visa debit or prepaid card. It does not apply to a transaction involving a credit card.

Non-CPS Qualified
The acronym CPS stands for Custom Payment Services. CPS is a qualification that applies to a broad range of Visa interchange fees that represent the lowest rates for a given category. Each time a credit or debit card transaction is processed, the transaction must meet CPS guidelines to qualify under a CPS interchange category.

The Transaction Integrity Fee does not apply to transactions that do qualify for CPS. This means that the most common transaction to incur the transaction integrity fee will be keyed in debit card transactions that are processed without address verification information (AVS). Such transactions will qualify to EIRF or Standard interchange categories instead of CPS.

U.S. Issued Cards
The Transaction Integrity Fee applies only to U.S. issued cards. It does not apply to transactions involving cards issued outside of the United States.

Settle Transactions
The TIF applies only to transactions that are settled. It will not apply to authorization transactions that do not have a corresponding settlement transaction.

Business Types / MCC
A business' merchant category code (MCC) can have an impact on how its transactions qualify at interchange. Businesses classified under MCC codes 5962, 5966, and 5967 (high-risk telemarketing) are not eligible for CPS qualification. Therefore, the TIF will apply to every debit and prepaid transaction processed that involves a U.S. issued card.

Details of the Transaction Integrity Fee

The following is a list of additional important details about the TIF that are not already listed above under When the Transaction Integrity Fee Applies:

Flat $0.10 Transaction Fee
When applied, the Transaction Integrity Fee will be assessed as a flat $0.10 charge regardless of the volume of the transaction.

Separate From Interchange
Although interchange (CPS qualification) is a factor that is used to determine when the Transaction Integrity Fee will apply, the charge for the TIF is not dependent upon interchange.

Durbin and TIF
The TIF will apply equally to both Durbin regulated and unregulated debit cards. Follow this link to learn more about how the Durbin Amendment capped the interchange fee that certain banks were allowed to charge for debit card transactions.

Transaction Integrity Fee and Your Business

The TIF will most commonly be seen by businesses that process card-not-present transactions.

Retail
Businesses that swipe the majority of transactions and that enter AVS information when keying-in transaction will see very little impact from the TIF.

Card-Not-Present: Mail-Order, Telephone-Order, E-Commerce
Businesses that process the majority of transactions in a card-not-present environment must ensure that AVS information is being provided to minimize the impact of the TIF.

Processor Pricing and Billing
The separation of the TIF from interchange will impact how processors pass the cost of the charge to their merchants. Since the TIF is a relatively sizable transaction-based fee, it will likely be billed as a separate line item on both pass-through and bundled pricing models.

Reason for the Transaction Integrity Fee

It's widely speculated that the Transaction Integrity Fee is Visa's response to the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act. We tend to disagree with this viewpoint for a couple of reasons:

The TIF is Not Widely Applicable
The Durbin Amendment had a substantial impact on interchange income across every debit interchange category. The TIF fee is very limited in its application. If Visa's members were intending to recoup interchange losses due to Durbin, the fee imposed would have been of a lesser amount and applicable to a wider array of transactions.

The TIF Encourages... Well... Transaction Integrity
The TIF only applies when a transaction does meet CPS qualification, or in other words, when a transaction does not include complete data. The TIF will most commonly impact businesses that process higher risk card-not-present transactions without the safeguards (AVS) that Visa demands for proper qualification.

The TIF will function more as an incentive for businesses to conform to existing interchange qualification than as jab at Senator Durbin.

]]> http://www.cardfellow.com/blog/transaction-integrity-fee-visa/feed/ 0 http://www.cardfellow.com/blog/fixed-acquirer-network-fee-visa/ http://www.cardfellow.com/blog/fixed-acquirer-network-fee-visa/#comments Thu, 15 Mar 2012 13:36:56 +0000 Ben http://www.cardfellow.com/blog/?p=1254 The price for admission is increasing on April 1st for any business that accepts Visa credit or debit cards. Visa’s new Fixed Acquirer Network Fee will increase costs across the board. Continue reading →]]>


The price for admission is increased on April 1st for any business that accepts Visa credit or debit cards. Visa’s new Fixed Acquirer Network Fee increases credit card processing fees across the board.

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Calculate the Fixed Acquirer Network Fee for your business.

Update May 4, 2012: The antitrust division of the U.S. Justice Department has taken notice of Visa’s new FANF. Read more about the Justice Department probe here.

Effective April 1, 2012, Visa began charging a Fixed Acquirer Network Fee (FANF), which was previously communicated as the Network Participation Fee (NPF). The FANF is a monthly fee that will affect all merchants to a varying degree.

For card present businesses like retailers, the amount of the Fixed Acquirer Network Fee will be based on the number of locations a business has. For card not present businesses like e-commerce operations, the FANF will be based on gross Visa processing volume.

FANF Details

• Effective April 1, 2012
  The implementation of the FANF will take effect on April 1, 2012.
• Previously called Network Participation Fee (NPF)
  The FANF was previously communicated by Visa as the Network Participation Fee.
• Monthly Fee Charged Quarterly
  The FANF will be calculated monthly, but charged quarterly for the previous calendar period. For example, the first collection for the first quarter of 2012 will be in July 2012.
• Amount Varies Based on Multiple Factors
  The Fixed Acquirer Network Fee is a bit complicated because the amount of the fee varies depending on the following variables.
  
  
  • Merchant Category Code (MCC)
    The MCC used to classify a business plays a role in the amount of the FANF charged each month. However, the impact of the MCC is very minimal, amounting to a difference of $0.90 - $1.10 for most businesses (less than fifty locations).
  • Acceptance Method
    The main factor in determining the amount of the FANF is whether a business processes the majority of its transactions in a card present or card not present environment.
  • Card Present Businesses (Excluding Fast Food Restaurants / MCC 5814)
    The amount of the Fixed Acquirer Network Fee for card present businesses will be based number of locations. Businesses with one location will be charged $2 - $2.90 a month, up to $85 a month for businesses with 4,000 or more locations.
  • Card-Not-Present Businesses (As well as Fast Food Restaurants / MCC 5814)
    For card-not-present businesses, the amount of the FANF will be based on gross Visa processing volume. Card-not-present businesses will see a greater impact from the FANF than card-present businesses due to the fee being determined by volume.
    
    For example, card-not-present business processing between $8,000 and $39,999 will be hit with a Fixed Acquirer Network Fee of $15 a month opposed to just $2 for a card present business with similar volume and one location.
• Waived for Eligible Charitable / Social Service Organizations (MCC 8398)
  Visa will waive the FANF for charitable organizations classified under merchant category code 8398. Exactly how the fee will be waived isn’t quite clear at the moment, but early indications are that Visa will charge the FANF and then provide a rebate at a later date.
• Visa Income, Separate from Interchange
  The Fixed Acquirer Network Fee is separate from interchange and is more like assessments in that the income generated from the FANF goes to Visa.

FANF & Your Business

At this point, the complexities and varying amount of the FANF lead us to believe that it will be passed by processors and acquirers directly to businesses on both bundled/tiered and interchange pass through pricing models. However, this will become more apparent as we have a chance to see the FANF in action as we review processing statements after April.

]]> http://www.cardfellow.com/blog/fixed-acquirer-network-fee-visa/feed/ 3 http://www.cardfellow.com/blog/q-a-1-54-flat-wholesale-rate/ http://www.cardfellow.com/blog/q-a-1-54-flat-wholesale-rate/#comments Wed, 01 Feb 2012 17:04:41 +0000 Ben http://www.cardfellow.com/blog/?p=1223 I have a question about a specific company — [removed to protect the guilty]. They are saying the rate they can provide is 1.54% on qualified and mid-qualified cards ("flat wholesale rate"). The only other rate is "up to 4.61%" on non-qualified cards. Then they charge 3 cents per transaction and no basis points. Is this true and possible? Continue reading →]]>

I have a question about a specific company — [removed to protect the guilty]. They are saying the rate they can provide is 1.54% on qualified and mid-qualified cards ("flat wholesale rate"). The only other rate is "up to 4.61%" on non-qualified cards. Then they charge 3 cents per transaction and no basis points. Is this true and possible?

Thank You,
Dan H.

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Hi Dan,

Thanks for sending your question along. I've learned that anything is possible after having helped countless business lower their fees here at CardFellow. What this processor is telling you is inaccurate, misleading, expensive and not in the best interest of your company.

It's important to learn the basics about how credit card processing charges truly function before you start talking with processors. I will outline the general points in my answer below, and I will link to articles here on CardFellow that cover topics in more detail.

By the time you're done reading, you will be able to see exactly what is wrong with what this company is selling.

There is no such thing as a "flat wholesale rate"

The three components of credit card processing cost are interchange fees, assessments and markups.

The sum of interchange fees and assessments is the credit card processing industry's version of wholesale cost. Check out this article for more information about which credit card processing fees are negotiable.

The 1.54% rate that this processor is quoting is about as far from "wholesale" as rates get. The reason is that this rate is not based on interchange. Instead, the rate is based on the processor's qualification.

Check out our article on credit card processing fees to get a complete picture of the components of processing expense.

Avoid tiered pricing like the plague

The qualified, mid-qualified and non-qualified rates that this processor is quoting are based on a tiered pricing structure. Tiered pricing is expensive, opaque and results in hidden fees and surcharges. As we've outline in the following article, non-qualified fees are very much a figment of your processor's greedy little imagination.

There are two main pricing models that credit card processors use to assess fees. The first is called tiered (also referred to as bundled), and the second is called interchange pass through (also referred to as interchange plus).

Tiered pricing allows a processor to inflate your fees through non-qualified surcharges, intercept interchange credits, and raise overall cost without having to raise rates. For these reasons we do not allow processors to quote tiered pricing in the marketplace here at CardFellow.

Unlike tiered pricing, interchange pass through separates the components of credit card processing expense allowing a business's processing rates to be based directly on true "wholesale." Interchange pass through eliminates surcharging, allows for interchange credits, and results in a flat markup over actual cost.

In helping businesses here at CardFellow, we have found that tiered pricing is roughly 42% more expensive than pass through pricing.

You do not want to use the tiered pricing that this processor is claiming to be "flat wholesale rates." This statement is completely inaccurate and misleading.

"No basis points"

A basis point is a financial term that refers to 1/100 of a percentage point. For example, ten basis points are equal to 0.10%. Check out this table here at CardFellow that lists several basis point values: basis points.

This processor couldn't be further from the truth when claiming the markup does not include basis points. In fact, the non-qualified rate of 4.61% is four hundred sixty-one basis points! The processor's representative may mistakenly be mixing terminology for pass through and tiered pricing.

A processor's markup (its rate) for pass through pricing does not include interchange fees, and tiered pricing combines a processor's markup (rate) with interchange. For example, 1.54% is a typical bait-and-switch credit card processing rate for tiered pricing. An example of a typical pass through rate would be 0.25%.

Answer

This processor is attempting to sell you a merchant account that will result in high costs and hidden charges. Ideally, you want a merchant account that is based on pass through pricing that does not have a cancellation fee. That is why we require processors to quote only this type of account here at CardFellow.

You will benefit greatly if you take a moment to sign up here at CardFellow. It's free, private (processors are not shown your contact information), and you will have access to a lot of helpful and accurate information about credit card processing including cost estimates, a comprehensive breakdown of fees, and more.

]]> http://www.cardfellow.com/blog/q-a-1-54-flat-wholesale-rate/feed/ 0 http://www.cardfellow.com/blog/credit-card-processing-fees-negotiable/ http://www.cardfellow.com/blog/credit-card-processing-fees-negotiable/#comments Tue, 31 Jan 2012 15:53:34 +0000 Ben http://www.cardfellow.com/blog/?p=1214 Some credit card processing fees are negotiable, and some aren't. So, please put the spreadsheet aside for a moment and read this article before you call another processor to ask the fateful question, "What's your rate?" Before you can negotiate credit card processing fees, you have to know which fees are flexible. Credit card processing is like any other industry in that there are fixed costs and markups. Fixed costs are those that a processor can't change, and markups are open to discussion. Continue reading →]]>

Some credit card processing fees are negotiable, and some aren't. So, please put the spreadsheet aside for a moment and read this article before you call another processor to ask the fateful question, "What's your rate?"

Before you can negotiate credit card processing fees, you have to know which fees are flexible. Credit card processing is like any other industry in that there are fixed costs and markups. Fixed costs are those that a processor can't change, and markups are open to discussion.

Understanding the components of credit card processing cost is the first step toward negotiating competitive fees. The second step, as we will explain in a moment, is to not negotiate fees before negotiating pricing. It may sound like the same thing, but there is an important difference.

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• Components of Credit Card Processing Cost
• Distribution of Processing Cost
• Negotiate Pricing First
• Negotiate the Rate Second

Components of Credit Card Processing Cost

The three components of credit card processing cost are interchange fees, assessments and markups.

Interchange Fees (Not Negotiable)

Interchange fees remain the same no matter which credit card processor you choose, and no processor can offer you lower interchange rates than another. Interchange fees are charged by the banks that issue credit cards, and only the stakeholders of Visa, MasterCard and Discover (card-issuing banks) can update interchange.

Assessments (Not Negotiable):

Visa, MasterCard and Discover charge various assessment fees when businesses accept one of their credit or debit cards. Like interchange, a business will pay the exact same assessment charges regardless of which credit card processor it uses. All processors pay the exact same assessment fees to Visa, MasterCard and Discover.

Markups (Negotiable):

The only area of credit card processing expense that is negotiable is the markup above interchange and assessments. The processing markup includes the processor's rates, transaction fees, monthly fees, and any fees associated with software, gateways or processing equipment. The markup is where you want to focus your negotiating power because it's the only area of expense you can change.

Distribution of Processing Cost

The goal when negotiating credit card processing fees is to get the markup portion of expense as low as possible in relation to fixed components of cost (interchange & assessments). A markup of 12% - 20% is considered very competitive.

The graph below represents the distribution of credit card processing expense for a business that has competitive pricing. A cost distribution such as this is what businesses can expect to see with the instant quotes received through CardFellow.

As you can see, interchange fees that go to card-issuing banks account for the majority of charges, followed by the processor's markup, and then assessments that go to the card brands (Visa, MasterCard and Discover).


Your goal is to negotiate processing fees so the distribution of cost looks similar to this graph.

The following graph represents the cost distribution of a business that does not have competitive credit card processing pricing. As you can see, the processing markup accounts for the majority of expense, and it is a negotiable area of cost.


This graph represents the typical cost distribution of a business before it uses CardFellow to lower its credit processing fees.

Negotiate Pricing First

Never start negotiations with a processor by focusing on rates and fees. The first step to lower processing costs is to negotiate a favorable pricing model. Interchange pass through is the most competitive form of pricing, and it's the one you want to secure.

Negotiate the Rate Second

Once pass through pricing has been secured, focus on negotiating rates and fees, keeping in mind the most important rate is the effective rate. The effective rate is one number that represents the amount of processing volume paid in fees.

For example, a business that pays $50 in fees in a month where it processed $1,000 in credit card sales has an effective rate of 2.00%.

Focusing on the effective rate ensure that you are negotiating for total cost, not an individual rate or fee.

The effective rate of each quote that you receive through CardFellow is posted in the quote summary panel. This ensures that you can quickly and easily compare various offers. A detailed breakdown of the components of cost is also shown in the detail panel for each quote. This will allow you to compare quotes received within CardFellow to those that you gather on your own.

]]> http://www.cardfellow.com/blog/credit-card-processing-fees-negotiable/feed/ 0 http://www.cardfellow.com/blog/american-express-discount-rate/ http://www.cardfellow.com/blog/american-express-discount-rate/#comments Thu, 26 Jan 2012 14:53:38 +0000 Ben http://www.cardfellow.com/blog/?p=1206 American Express operates on a closed loop network whereby it issues credit cards directly to cardholders and merchant accounts directly to businesses. A credit card processor that claims to offer lower American Express credit card processing fees than its competition is simply being misleading. American Express sets its own discount rates which are exactly the same for all credit card processors. Continue reading →]]>


American Express discount rates are higher due in large part to the company's closed loop system.

American Express operates on a closed loop network whereby it issues credit cards directly to cardholders and merchant accounts directly to businesses.

Since American Express issues merchant accounts directly, the company also governs its own discount rates. Therefore, the rate that a business pays to accept an American Express card will remain the same regardless of the credit card processor it uses to process Visa, MasterCard and Discover transactions.

A credit card processor that claims to offer lower American Express credit card processing fees than its competition is simply being misleading. American Express sets its own discount rates which are exactly the same for all credit card processors.

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• Closed Loop Network
• American Express Discount Rates
• American Express Settlement
• American Express OnePoint
• Should You Accept American Express?
• Opening an American Express Merchant Account
• Transferring an American Express Merchant Account

Closed Loop Network

American Express operates on a closed loop network. This means that American Express issues credit cards directly to its cardholders, and opens merchant accounts directly for business that accept its cards.

The closed loop network of American Express gives the company a competitive advantage over open loop networks like Visa and MasterCard.

Unlike American Express, Visa and MasterCard do not issue or acquire credit cards. Instead, these companies maintain an open network that allows various issuing and acquiring banks to communicate in order to facilitate the credit card processing system.

It's easiest to think of American Express's closed loop network as a dictatorship, and the open loop network of Visa and MasterCard as a democracy.

Since American Express does not have to answer to any other financial institution for issuing or acquiring, the company is free to set its discount rates at whatever level the market will bear. This is why businesses pay significantly more to process American Express credit cards than they do to process MasterCard or Visa credit card transactions.

American Express Discount Rates

American Express discount rates are based largely on a business's merchant category code (MCC). Unlike Visa and MasterCard interchange fees, American Express discount rates have relatively few qualification factors.

American Express discount rates for retail stores and restaurants will downgrade (meaning the rate increases) if a transaction is keyed-in rather than swiping a card, but most rates are the same regardless of transaction method.

American Express does not charge a transaction and a discount rate for every industry category. Many rates consist of a percentage-base charge (discount rate) without a transaction fee (flat dollar amount, i.e. $0.10).

However, virtually all credit card processing services will charge a fee to process American Express transactions through their network. So, even if American Express does not charge a transaction fee directly, a business will inevitably have to pay a transaction fee to its credit card processor for processing American Express transactions.

The following table outlines basic American Express discount rates. Keep in mind that discount rates are subject to change, and you should check with American Express, or your credit card processor for the latest rate information.

Business Type	American Express Discount Rate & Transaction Fee
Fast Food Restaurant	3.50%
Lodging	3.50%
Mail Order & Internet	3.50%
Restaurant *	3.50% plus a $0.05 Transaction Fee
Telecommunications	3.50%
Other Transportation	3.50%
Independent Gas Stations	3.25%
Retail *	2.89% plus a $0.10 Transaction Fee*
Services, Wholesale & All Other	2.89% plus $0.15 Transaction Fee*
Office-based Doctor, Dentist, Orthodontist	2.55%
Healthcare not office-based	2.89% plus $0.15 Transaction Fee
Tuition	2.40%
Supermarket	2.30%
* A surcharge of 0.30% will apply to transactions that are not swiped. For example, keyed-in, e-commerce and other card-not-present transactions will be charged a discount fee of 3.80% instead of 3.50%

American Express Settlement

In addition to charging hefty discount rates, American Express transactions take longer to settle when compared to Visa and MasterCard. This means that deposits for American Express credit card sales take longer to show up in your business checking account than deposits for Visa and MasterCard sales.

Barring a processor-imposed risk hold, Visa and MasterCard transactions are generally settled within 24-48 hours, meaning that deposits will show in your business checking account 24-48 hours after approved authorizations are sent to the processor for settlement.

With the exception of American Express OnePoint, which we will cover in a moment; American Express transactions typically take almost twice as long to settle as Visa and MasterCard transactions. Deposits will generally take three to seven business days to show up in your business checking account.

Check out our article about the credit card transaction process for a more detailed explanation of credit card authorization and settlement.

American Express OnePoint

American Express OnePoint (also referred to as American Express Full Service by First Data) is a program offered by American Express that makes it possible for participating processor to streamline the authorization, settlement and reporting of American Express processing volume.

The main advantages to American Express OnePoint are faster settlement of American Express transactions and reporting that is easier to reconcile.

American Express OnePoint makes it possible for a processor to settle American Express processing volume along with Visa, MasterCard and Discover volume. Instead of receiving a separate, delayed deposit for American Express transactions, all credit card sales are sent in a single deposit in the time it takes to settle Visa and MasterCard volume. This means that American Express volume settles roughly one to four days faster through OnePoint than it does with a traditional American Express merchant account.

OnePoint also streamlines the reporting of American Express volume. Instead of receiving a separate statement for American Express transactions, OnePoint makes it possible for a processor to report the card volume and charges for Visa, MasterCard, Discover and American Express on a single monthly statement.

Accept American Express?

High discount rates and delayed settlement lead many businesses to give careful consideration to the costs and benefits associated with accepting American Express credit cards. In fact, we help many businesses here at CardFellow that opt not to accept American Express citing the increased costs.

Customer demand and cash flow requirements are typically the primary determining factors when considering whether or not to accept American Express.

Businesses that cater to a professional clientele or that operate within the travel and tourism industry will likely be forced to accept American Express due to customer demand.

The following table provides an estimate of the percentage of total charge volume that American Express will account for within a given industry. Businesses that operate within industries with a high percentage of American Express volume should strongly consider accepting the card.

Industry	American Express % of Total Charge Volume
Restaurant / Food Service	35%
Travel & Tourism	35%
Supermarket & Grocery	3%
Retail	15%
E-Commerce & Mail-Order	15%
Entertainment	25%
Business-to-Business Service & Wholesale	15%

Businesses that require steady cash flow should give careful consideration to the extended settlement time associated with American Express processing volume. If cash flow is a concern and customer demand for American Express is high, only processors that are able to offer American Express OnePoint should be considered.

Opening an American Express Merchant Account

It is not necessary to contact American Express directly to open a merchant account. If you choose to accept American Express, the processor that you choose to handle your Visa, MasterCard and Discover volume will be able to open an American Express account on your behalf.

The processor will integrate your American Express merchant account into your credit card machine, gateway or other processing solution so that all card brands can be processed through the same application.

Transferring an American Express Merchant Account

A business cannot have more than one American Express merchant account. If a processor opened an account for your business in the past, a new processor will not be able to open a new American Express merchant account on your behalf.

Instead, you will have to provide the new processor with your existing American Express merchant account number so that they may reference the account when configuring your credit card machine, gateway, etc.

If you have lost your American Express merchant identification number, you will need to contact American Express directly. Processors cannot obtain a lost merchant ID number on your behalf.

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