101 Credit Card Processing Tips

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Ignorance is blissfully expensive when it comes to credit card processing. It’s safe to assume that you are paying too much for processing if you are not familiar with the components of processing cost, such as interchange, assessments, and markup. These handy credit card processing tips will help you avoid common pitfalls.


Interchange pass through pricing is best.

The pricing model known as interchange pass through (also called interchange plus pricing) is the least expensive, most transparent credit card processing pricing model, and it’s the one you want. Interchange plus separates interchange and assessments, which are the actual costs of processing, from the processor’s markup. As a result, you pay a lower markup, you can see where your money is going, and your processor can’t meddle in your charges to increase costs. For these reasons, interchange pass through is the only form of pricing we allow processors to quote in CardFellow’s marketplace.


Interchange pass through is just one piece of the puzzle.

Interchange pass through pricing has the potential to be the least expensive pricing model, but processor can still overcharge. Don’t assume that a processor is offering a great deal based simply on the pricing model. Interchange pass through is the just once piece of the puzzle, and you still need to ensure that the interchange markup and other fees are competitive.


Monthly discount is better than daily discount.

Daily discount is when credit card processors take charges throughout the month. Monthly discount is when processors take charges in one lump sum at the end of each month. Monthly discounting is less expensive, easier to reconcile, and better for cash flow. Processors quote monthly discount here at CardFellow unless a business specifically request daily discount. Our article about daily discount versus monthly discount will give you more information on the topic, and it will show you how to decipher charges on a daily discount processing statement.


The sum of interchange and assessments is “wholesale.”

Card-issuing banks charge interchange fees when businesses accept their credit cards. Visa, MasterCard, and Discover generate income by charging assessments. Interchange and assessment charges are the same for all credit card processors. For this reason, it’s easiest to think of the sum of interchange and assessments as the “wholesale” cost of credit card processing.


Never ask a sales representative “what’s your rate?”

It’s natural to ask a sales representative for her rates when comparing offers. After all, it’s the rate that matters the most, right? Wrong. The pricing model on which rates are based matters more than the actual rate. The first and most important question to ask is “what’s your pricing model.” Once you know that pricing is based on interchange pass through (see tip #1), you can inquire about rates with confidence. FYI – we make things easy here at CardFellow by requiring processors to quote exclusively interchange pass through pricing.

Read more about this topic in our article about the best credit card processing rates.


Issuing banks collect all income generated from interchange fees.

Visa, MasterCard, Discover and your credit card processor do not receive any income from interchange fees. Interchange fees go directly to the banks that issue credit and debit cards. Banks are the big winners in the small business credit card processing game. Banks charge businesses interchange fees to accept credit cards, and they charge cardholders interest on their purchases.


CardFellow will save you time, money and headaches.

CardFellow delivers multiple quotes from leading credit card processing services instantly. Once you choose the best processor for your business, we monitor your rates for life to ensure they never increase. CardFellow will save you time and money. This is just a little something to keep in mind as you are reading the next ninety or so tips.


Refuse to pay a cancellation fee.

There are plenty of credit card processors that waive cancellation fees. To prove that point, we do not allow any processors to charge a cancellation fee here at CardFellow. If a processor tries to lock you into a long-term processing agreement that has a cancellation fee, simply insist that it be waived or find a more competitive processor that doesn’t need to hide behind cancellation fees.


Quality trumps quantity with credit card processing quotes.

You don’t need to get quotes from fifteen different credit card processors to find the best solution for your business. Instead of calling a ton or processors for quotes, focus only on processors that advertise interchange plus pricing without cancellation fees. This will ensure each quote has the potential to be truly competitive, and that you are able to compare apples to apples.

Five or six competitive quotes are more than enough. We find that quotes in our marketplace differ by only hundredths of a percent. Getting more than five or six quotes just wastes time and creates redundancy.


Be wary of affiliate “comparison” sites.

Avoid websites like TopTenREVIEWS that claim to help you find the best credit card processor by using flashy comparison charts. Web sites like this don’t hold processors to any sort of standard, they don’t offer you any support while you’re considering offers, and they don’t provide any support once you’re processing. If you choose a processor through a review site, you’re on your own once you realize you’re being overcharged and under-serviced.


Only the markup over interchange and assessments is negotiable.

The only portion of credit card processing cost that you can negotiate is the markup over interchange and assessments. Don’t give too much consideration to total cost estimates when you are comparing credit card processors, because this figure is an educated guess at best. Instead, focus on the processor’s markup portion of cost. The markup is the most important area of expense because it’s the only one that will differ from one processor to the next. Using a service like CardFellow that separates the three main areas of cost (interchange, assessments, and markup) for each processing quote makes comparing offers easy.


Quickbooks credit card processing is expensive.

The popular Quickbooks solution only works natively with the company that creates the software, Intuit. While Quickbooks is convenient for keeping your books, if you use Intuit merchant services for credit card processing services, you will pay premium rates. Inuit does not offer interchange plus pricing because they assume people will be willing to pay expensive tiered rates in order to use its software. Many processors offer software plug-ins that interface with Quickbooks, but plug-ins work to varying degrees. Many plug-ins require you to enter transaction information twice. So, give careful thought to how much the convenience of Quickbooks is worth, because you will pay higher fees if you use Intuit for credit card processing.


Small businesses can — and should — get competitive rates.

Once upon a time, a business couldn’t get competitive interchange pass through processing rates unless it processed tens of thousands of dollars a month in sales volume. Thankfully, those days are long gone, and services like CardFellow allow even the smallest businesses to get extremely competitive rates in just a few minutes. Skeptical? Get free, instant credit card processing quotes, and see for yourself.


Tiered pricing is garbage!

A common pricing model, tiered pricing (sometimes called bundled pricing) is when a processor quotes three rates, called qualified, mid-qualified, and non-qualified. The tiered pricing structure is expensive and riddled with loopholes and hidden fees that result in expensive surcharges and opaque reporting. Interchange pass through is better than tiered pricing. If you see “non-qualified” rates on your statement, it’s time to look at alternatives.


Don’t shop for processors; let them shop for you.

The best way to shop for credit card processing is to tell processors what you want, don’t ask them what they’re willing to give. People love to break out the trusty spreadsheet and hit the Internet to compare twenty processors based on zillions of rates, fees, and terms. Instead of making a spreadsheet, make a list of what you want.

When contacting processors, tell them what they need to do to earn your business. If they can’t meet your demands, hang up and move on. This is exactly what we do here at CardFellow. We tell processors what type of pricing (interchange plus) and terms (no cancellation fee, etc.) are acceptable. This approach produces competitive, transparent quotes quickly and easily.


Processors determine qualification on tiered pricing.

Tiered pricing allows credit card processors to determine what transactions are considered qualified, mid-qualified, and non-qualified. Being able to control qualification makes it possible for processors to increase your costs without having to raise rates. All they have to do is route more transactions (interchange categories) to the mid and non-qualified pricing tiers. This results in higher charges, and it happens completely behind the scenes. By the time you notice your charges have increased, you will have been overpaying for months or years.


Free merchant accounts do not exist.

Free merchant account

Regardless of how many times you see an ad like this on Google, rest assured, free merchant accounts don’t exist. When processors advertise “free merchant accounts,” they are usually referring to equipment or application fees.

All businesses have to pay interchange fees to card-issuing banks, assessments to the card brands (Visa, MasterCard, and Discover), and a markup of some sort to the processor. Don’t waste time looking for a free merchant account. Instead, use a service like CardFellow to find a competitive merchant account with interchange pass through pricing.


Stay away from proprietary credit card machines.

Some credit card processing machines only work with one particular processor. Buy one of these proprietary machines, and it’s useless if you ever want switch processors. You will have to buy a new machine instead of having your new processor reprogram the credit card machine you already own. First Data is well known for selling its proprietary “FD” line of terminals that will only work its network. Even if you are using First Data for processing, pass on an FD terminal for a newer Verifone or Hypercom model that works with any processor.


Take PCI DSS seriously — you are liable for a breach.

PCI DSS stands for payment card industry data security standard. PCI DSS is a set of guidelines set by the card brands to ensure that merchants are taking the proper steps to safeguard cardholder information. Your business is liable for any loss of cardholder data, and you are looking at huge fines if your business experiences a breach while it is not PCI compliant. Take PCI seriously, and ensure that your business is compliant. More information on PCI is available at the PCI Security Standards Council.


Take credit card processor reviews with a (big) grain of salt.

Many credit card processor reviews are created by people or businesses that are affiliated with the processor(s) they are reviewing. These affiliates write glowing reviews to get you to sign up with a processor they work with, and then the processor pays the reviewer a commission. The best and most useful reviews are from sources that verify reviewers. Check out this article for more information on credit card processor reviews.

The Better Business Bureau is a great resource that verifies claims and complaints submitted about individual processors. The reviews here at CardFellow are also from verified businesses. We don’t allow a business to post a review of a processor until the business has accepted a processor’s quote through our marketplace, and the processor has confirmed the business is using its services.


Interchange rates are available online.

Interchange is the credit card processing industry’s equivalent to wholesale pricing, and the price lists are available online for all to see. Whether you are looking for your first credit card processor, or you are shopping for a new one, get familiar with Visa and MasterCard interchange first.


Bigger isn’t better.

Large credit card processors see your business as just a number and offer no benefit over smaller processors. Smaller independent sales organizations (ISO) offer rates that are just as competitive as those offered by big processors, but they provide more knowledgeable and responsive customer service.

In fact, large processors like First Data and Global Payments contract with ISOs to sell their services. Getting processing services through an ISO of a large processor allows you to use the large processor’s services while benefiting from the superior service of a smaller ISO.


Basis points are the basis for charges.

A basis point is one-hundredth of a percentage point (0.01%), and it’s the basis for credit card processing pricing. For example, an interchange pass through quote of 25 basis points means the processor’s fee will be 0.25% of your business’s total Visa, MasterCard and Discover processing volume.

Interchange fees are also expressed as basis points. For example, Visa’s swiped consumer interchange fee is currently 1.51%, or 151 basis points.


Credit card processing cost calculators are hypothetical at best, and comical at worst.

Interchange is responsible for the majority of credit card processing expense, and it’s impossible to predict interchange fees until a transaction actually happens. It is possible to estimate costs using a business’s processing profile to predict interchange, but such estimates will never produce a spot-on figure.

Never choose a processor based on the estimated total cost of processing. Instead, concentrate only on the processor’s markup portion of cost (refer back to tip #11). The estimated markup will be far more accurate and useful than total estimated expense.


Your business pays for cardholder rewards.

Banks pass the cost of their cardholder reward programs to your business by charging higher interchange fees on reward-based cards. Businesses pay banks more to accept a reward card than a non-reward card. These increased fees are used by banks to subsidize the cash-back, airline miles, and various other reward programs that incentivize cardholders to use their credit card.


Rolling reserves can strangle your business.

A rolling reserve is when a credit card processor routes a percentage of your sales into a non-interest bearing account until a certain balance is met. For example, if a processor requires a $10,000, 5% rolling reserve, the processor will keep 5% of daily sales until the balance of the reserve account reaches $10,000. Rolling reserves hurt your business’s cash flow and can severely hinder growth.

Rolling reserves are requested by processors toward the end of the application processes. If you are asked to consent to a rolling reserve, refuse and look elsewhere for another processor that won’t require such an extreme measure in order to approve your business for a merchant account.


An ACH delay is the best-case risk mitigation scenario (within reason).

ACH stands for Automated Clearing House. The ACH system is what credit card processors use to deposit funds from credit card sales into your business’s checking account. In situations where a processor would like to approve your merchant account application, but the risk is a little too high, it may request that you consent to an ACH delay.

An ACH delay simply extends the time that it takes for you to receive deposits from sales. For example, if a processor typically deposits sales in one day, and you are asked to consent to a 5-day ACH delay, you would have to wait six days instead of one for deposits.

An ACH delay is worth considering if you have a high risk business, the processor is offering competitive interchange plus pricing, and the longer deposit time won’t hinder your business’s growth.


Avoid rates that are too good to be true.

Some credit card processors use bait-and-switch tactics by advertising rates too low to be realistic. Ads like this are highly misleading because the advertised rate is lower than the interchange rate for even the cheapest credit category. For example, Visa’s current interchange fee for a swiped consumer credit card is 1.51% plus a $0.10 credit card transaction fee. So, how can a processor advertise 1.05%?

What is not disclosed in the ad is that this 1.05% rate applies to swiped debit card transactions only. All credit card transactions would be surcharged a mid or non-qualified fee.

Additionally, any rate advertised as 1.XX% or higher indicates a tiered pricing model, which is expensive and opaque. Don’t fall for rates that are too good to be true. Instead, shop only credit card processors that offer interchange pass through pricing, like those in CardFellow’s marketplace.


Free credit card machines do not exist.

Ad for Free Credit Card Machine

Ads like this one taken from Google are all over the place, but free credit card machines don’t exist. Processors that offer free machines charge higher rates in order to cover the cost “free” equipment.

For example, this advertisement shows a qualified rate of 1.59%. This is expensive tiered pricing that will result in almost all credit interchange categories being surcharged a mid or non-qualified fee.

Don’t shop for a credit card processor based on whether you can get a free machine. You will pay much less in the long term by going with a processor that charges a competitive price for a machine, in addition to offering competitive interchange pass through rates.


Contract terms do not guarantee rates.

There is nothing good about a merchant account contract term and cancellation fee. That is exactly why we forbid processors from charging cancellation fees here at CardFellow. Contract terms do not guarantee that a processor’s rates won’t increase. The only thing that a contract term guarantees is that you are at the mercy of the processor until the term expires. It is best to shop only processors that are willing to waive cancellation fees. This allows you to cancel the agreement if the processor raises rates and fees.


Failing to use AVS costs money.

AVS stands for address verification service. The card brands (Visa, MasterCard and Discover) require that a customer’s billing address be entered for any card-not-present transaction (keyed-in, online, etc.). Failing to provide AVS information increases costs by causing transactions to downgrade (run at a higher rate).

Don’t press the enter button on your credit card machine to bypass the address prompts when keying-in a transaction. Entering the address information will allow the transaction to run at a lower rate.


Shopping by price alone is expensive.

Getting a low rate and interchange pass through pricing is important, but the best processing solution is not always the one with the lowest rate. A processor’s markup accounts for a relatively small portion of expense when compared to fixed costs (interchange and assessments).

Getting a credit card processor that’s knowledgeable and can ensure your business gets and keeps the lowest interchange charges will save you more over time than shaving a few percentage points off the processor’s markup.

The process of ensuring that transactions qualify for the lowest interchange fee as often as possible is called interchange optimization. Interchange optimization is offered here at CardFellow through our free monitoring service.


Ignorant sales reps can cost you money and/or ruin your business.

Many credit card processors teach sales representatives just what they need to know to make sales, and the information is often vague and erroneous. This practice is of particular concern when dealing with larger processors that tend to have a high turnover rate in their inside sales force.

A sales representative is supposed to serve as a knowledgeable advisor that ensures your account is set up with the proper sales volume and ticket declarations, and that your business will be able to qualify for the lowest interchange rates. Make the mistake of getting your processing through an ignorant sales representative, and you risk a number of serious headaches.

Smaller, owner-operated independent sales organizations (ISO) often provide superior, more knowledgeable service than larger processors. The sales representative’s knowledge will correlate directly with the quality of the service and cost of your processing.


Getting low rates is only half the battle.

Getting a low interchange pass through rate is the first step toward lowering your business’s credit card processing fees — keeping it is the second. It’s absolutely crucial that you read your credit card processing statement each month to catch any pending rate or fee increases. Your processor will notify you of any increases on the first page of your statement. Stopping an increase before it happens is a lot easier and less expensive than reversing an increase after it takes effect.


There is no such thing as a “wholesale merchant account.”

Credit card processors love to advertise that they offer “wholesale” merchant accounts, but such a thing does not exist. Advertising wholesale rates is just a marketing ploy. Interchange fees are the closest thing the processing industry has to wholesale rates, and interchange fees are the same for all processors.


Only one merchant account is needed for both card-present and not-present transactions.

A single interchange pass through merchant account is all that’s needed to process any type of transaction. The only time a business would need separate merchant accounts to process card-present and card-not-present transactions is if it were paying fees on an expensive, opaque tiered pricing model.


Chargebacks: Defense is the best offense.

Stopping chargebacks before they happen is a lot easier and less time consuming than fighting them once they occur. Every business should have a thorough chargeback prevention plan that outlines the steps taken to combat chargebacks.


Processors watch your chargeback ratio carefully, and so should you.

Your business’s chargeback ratio is the percentage of chargebacks received in a given period relative to total transactions. A high chargeback ratio (1% or more) may cause a processor to cancel your merchant account, and perhaps even withhold unsettled funds. Keep a very close eye on your chargeback ratio to ensure it stays at an acceptable level.


Customers have 180 days to issue a chargeback.

Many card-issuing banks allow cardholders 180 days from the time of purchase to issue a chargeback. Your business’s chargeback plan should take this into account, and order information, sales receipts, and delivery confirmations should be held for at least this long to ensure you can defend against any chargebacks issued far after purchase.


Avoid the TMF.

TMF stands for terminated merchant file, and it is the credit card processing blacklist. Credit card processors add businesses and principals to the TMF file when they misuse, or are suspected of misusing a merchant account. For example, suspected fraud is a prime reason for a processor to add a business to the TMF.

Processors check if a business or principal is listed on the TMF before they approve a merchant account application. Getting listed on the TMF will make it extremely difficult, if not impossible to get a merchant account.


Get lower rates with Verified by Visa and Mastercard Secure Code.

Visa and Mastercard have extended verification programs with participating issuing banks. As an incentive for businesses to use the programs to help combat fraud, businesses that participate in Verified by Visa or Mastercard Secure Code programs can qualify for lower interchange fees.


You [typically] don’t have to pay non-qualified rates.

Processors determine which transactions are charged a non-qualified rate, and non-qualified rates only exist on a tiered pricing model. A simple switch to interchange pass through pricing (the only pricing allowed here at CardFellow), and your non-qualified rates are history. Not to mention that businesses typically see a savings of 20-40% when switching from tiered to interchange pass through.

Note that in recent years, Visa has started to use the term “non-qualified” for some downgrades. That means that a “non-qualified” charge on your statement could be from Visa and not from your processor. However, downgrades still indicate that you’re paying more than you could have paid, so that means it’s worth investigating. The more you remove non-qualified charges from your processing, the better.


Never lease a credit card machine.

Reputable processors will never try to lease you a credit card machine. In fact, most processors will sell you a machine at or near cost when you open a new merchant account. Depending on the make and model, machines cost roughly $100-$500 when purchased with a merchant account. The cost will be slightly higher if you don’t need processing, but it is still far less than the $2,000 – $3,000 you would pay to lease the same machine.

We are so against leases here at CardFellow that we make processors sign a legal agreement that bans the practice of leasing credit card machines in our marketplace.


The effective rate is the only one that matters.

The effective rate is calculated by diving total credit card processing fees by net volume. For example, if a business pays $200 in fees in a month where it processed $10,000, the effective rate is 2.00%. The effective rate is the only single rate that can accurately measure the competitiveness of a processing solution.

Never shop for a credit card processor by looking at only one or two fees. Instead, calculate the effective rate. Our software calculates the effective rate for both total cost and the processor’s markup for each quote placed in CardFellow’s marketplace.


Multiple merchant accounts are unnecessary and violate your MSA.

Every now and then we help people who want a second merchant account as a failsafe in case their primary account is cancelled. You have to do something pretty drastic to have a processor cancel your merchant account. As long as you are running an honest business, there is no reason to have more than one merchant account with different processors. In fact, doing so often violates your merchant services agreement.


Avoid holds by declaring correct volume & ticket.

Give a lot of thought to the average sales volume and ticket amount that you declare when applying for a merchant account. Underestimating either of these figures can land you in hot water with your processor, and often at the worst possible time, when sales are great.

Processors use your sales and average ticket to measure the risk associated with your business. Underestimating these figures leaves you with little leeway when sales start growing. It’s best to conservatively overestimate sales and average ticket when applying for a new merchant account.


You can pass processing fees to customers.

As of January 27, 2013 it is acceptable to charge customers a credit card processing fee, but there are several steps that must be followed when surcharging. For the latest on merchant surcharging, check out CardFellow’s article about checkout fees.


Never pay a “credit card processing consultant” based on the money they save you.

A cottage industry of so-called credit card processing consultants has been taking advantage of unsuspecting businesses. Companies referring to themselves as consultants promise to lower processing fees in exchange for a portion of the savings they produce.

These companies often charge a rate of 50% or more for renegotiating rates with a business’s existing processor. This is highway robbery. Considering that CardFellow save businesses an average of 45% on processing fees for free, paying 50% of potential savings is a pricey proposition.


You are supposed to get fees refunded on returns.

Businesses are supposed to receive an interchange credit each time a debit or credit card refund is issued. Tiered pricing allows processors to intercept this fee credit, essentially stealing it from businesses. Getting interchange pass through instead of tiered pricing will ensure that your business receives interchange fee credits on refunded transactions.


Beware: Some processors will charge you to issue returns.

If stealing interchange credits on returns isn’t bad enough, many processors that use tiered pricing will also charge a qualified discount rate on return volume. This means that a business pays a fee on the original transaction, a fee on the returned transaction, and then the processor pockets the interchange credit. As you can imagine, this is an expensive scenario. Look at refund volume carefully on your merchant processing statement to ensure your processor is not charging a discount fee on returns.


Costco credit card processing is garbage.

Be aware that Costco merchant accounts are actually provided by a processor called Elavon. Costco pushes tiered pricing, and it uses bait-and-switch advertising for rates. It may be a great place to buy bulk groceries, but it is best to avoid Costco for credit card processing services.


Sam’s Club credit card processing is almost as bad as Costco’s!

Believe it or not, Sam’s Club credit card processing is only slightly better than Costco’s, which is like saying being robbed at knife-point is slightly better than being robbed at gun-point. While Costco works with Elavon, Sam’s Club offers processing services through First Data, but pushes the same expensive tiered pricing as Costco, using the same questionable advertising tactics. However, Sam’s Club has been known to offer interchange pass through if you ask for it specifically. It is generally a good idea to avoid big box retailers for credit card processing services.


Failing to clear your batch results in higher fees.

Interchange guidelines require authorizations to be settled within a certain number of days (usually only two days). Holding authorizations longer will cause them to downgrade (be charged at a higher rate) to interchange Standard or EIRF categories. Be sure you clear your batch every day to avoid this expensive and unnecessary downgrade. Gateways such as Authorize.net batch automatically each day, and terminals should be programmed to auto-batch each night.


Watch out for the phrase “Included by reference” in merchant account applications.

As electronic and online merchant account applications become more popular, processors are starting to include a lot of small print by referencing a URL from within the main agreement. An online merchant account application may only be two pages long, but thirty more pages may be “included by references.” Scour the fine print of every merchant account agreement before signing it. If the agreement is online, or in PDF format, look carefully for links to additional information.


Read your statements!

Along with outlining your charges, monthly merchant processing statements inform you about important changes that affect your business. For example, processors often notify businesses about rate increases via a statement notice. Regulatory changes such section 6050W of the tax code are also reported on statements. It’s very important to look at every page of your statement each month.


Square isn’t the only smartphone processing service — others may be cheaper.

Square may have tons of money thanks to their high profile investors (including Visa), but it isn’t the only service that turns a smart phone into a credit card processing machine. Processors here at CardFellow have various solutions that turn any phone into a swipe device. Alternative services to Square are often less expensive unless your business processes very low volume.


There is no such thing as a debit access fee.

Some processor charge a flat monthly fee called a “debit access fee.” Debit networks don’t charge processors an access fee. A debit access fee is pure profit for the processor. If your processor charges this fee, call and ask that it be waived. Or better yet, get instant quotes here at CardFellow and save an average of 45% on your total fees.


Processors can’t (aren’t supposed to) raise your rates without notice or permission.

Credit card processors cannot raise your rates without notifying you first. Most processors will post a notice of any rate increases on the first page of your merchant processing statement. Some processors even require you to sign off on any increases, although these processors are the minority.


Comparing tiered pricing is impossible.

Inconsistent buckets is the term used in the processing industry to describe why it is impossible to accurately compare processing quotes based on tiered pricing. Tiered pricing allows a processor to pick and choose which transactions are qualified, mid-qualified, and non-qualified. Even if a group of processors had the same rates, each one could qualify transactions differently, making an accurate comparison impossible. This is one of the main reasons why we don’t allow tiered pricing here at CardFellow.


On tiered pricing, a processor can raise costs without raising rates.

One of the most infamous and little known aspects of tiered pricing is a processor’s ability to raise costs without raising rates. Processors do this by routing more transactions to mid and non-qualified pricing tiers that have higher rates. Downgrading more transactions allows rates to stay the same while still increasing costs and generating greater profits for the processor.


Almost all processors require a personal guarantee.

Except for a few exceptions, such as non-profit, public, and high volume companies, merchant accounts require a personal guarantee by a business’s principal. Processors use the personal guarantee as an added safeguard against losses.


A monthly minimum fee refers to net fees.

A monthly minimum fee does not refer to gross processing volume. Instead, the monthly minimum refers to net fees payable to the processor. For example, if a processor charges an interchange pass through rate of 0.25%, it would take $8,000 in sales to completely cover a $20 monthly minimum.


Processors are profiting from section 6050W.

The tracking and reporting necessary for processors to comply with section 6050W of the tax code does cost money, but not $20 a month. Some processors are using the regulatory change as an excuse to increase profits. Processors here at CardFellow quote between $1 and $5 a month for 6050W reporting. This price is likely more competitive than you will find outside of our marketplace, but it is proof that anything too far above $5 a month for 6050W reporting is too much.


The Durbin debit cap only applies to large banks.

The Durbin Amendment only caps debit card interchange fees for banks with more than $10 billion in assets. Smaller banks and credit unions are still able to charge pre-Durbin interchange fees.


Some businesses can charge a credit card convenience fee.

The card brands have strict rules against surcharging and convenience fees, but there are a few exceptions. Special convenience fee rules exist for educational and municipal merchants, as well as for businesses or organizations that accept tax payments.


Merchant account comparison charts are a waste of time.

Colorful charts that compare rates and fees offered by different processors are not worth the page they are posted on. Credit card processors don’t have set rates and fees. Processors offer businesses different rates and fees on an individual basis. Similarities may exist among quotes, but not enough to allow pricing to fit neatly into a static chart. The only way to find out the rates and fees a processor will offer your business is to request a quote. Alternatively, you could sign up for free here at CardFellow to get instant quotes tailored to your business.


Level two & Level three data may save you money.

Passing more information to the issuing bank may make it possible for transactions to be assessed a lower interchange rate. This is called enhanced data, and it allows businesses that use it to pay lower credit card processing rates. A typical business passes level one data with its transactions. Businesses that deal primarily with corporate customers will benefit from passing level two data. Businesses that deal with large corporate or government customers will be able to achieve lower rates by passing level three data.


Incorrect TIN or TFN means 28% backup withholding.

Section 6050W of the IRS tax code requires processors to report merchant sales directly to the IRS. If a processor does not have a merchant’s correct tax identification number (TIN) and tax filing name (TFN), the IRS will start mandatory backup withholding beginning in 2012. Your processor should notify you if they don’t have your business’s correct TIN and TFN. It is a good idea to check with your processor if you have not been notified.


Some processors offer seasonal shutdown.

Businesses that shut down for a portion of the year are particularly affected by monthly charges. Many processors, including those that participate here at CardFellow, offer businesses the ability to suspend their merchant account for a portion of each calendar year. Using a processor that offers this option allows seasonal businesses to save on processing fees in months where the account is not needed.


Interchange is updated twice a year.

Visa, MasterCard, and Discover update interchange twice each calendar year, in April and October. Interchange updates include adjustments to rates, fees, and the guidelines that determine under what circumstances a particular interchange category (and corresponding rate) will apply. It is a common misconception that the card brands always raise fees and tightened guidelines when updating interchange. In fact, fees may be lowered and guidelines broadened when interchange is updated.


There’s no such thing as a flat PIN debit fee (anymore).

Once upon a time, PIN debit networks charged a flat fee to process a PIN debit card transaction. This is no longer the case. All PIN debit networks charge a flat transaction fee as well as a percentage-based fee on each PIN debit transaction.


Visa & Mastercard tack on an additional fee for international transactions.

Visa and Mastercard make money by charging assessments on transactions that are routed through their networks. International transactions are hit extra hard, because each brand charges additional assessments on interchange volume.

Check out or article on credit card processing fees for the latest assessment rates and fees.


There is nothing typical about credit card processing fees.

Attempting to judge whether your business is paying competitive processing rates based on average credit card processing fees for a specific industry or acceptance method is a big mistake. Processing fees are based on many different variables, and what is competitive for one business may not be competitive for another — even for businesses in the same industry or market.

Instead of searching for an average fee for your business, use a service like CardFellow to get a comprehensive estimate of costs based on your businesses actual details.


Understanding your statement is critical.

This seems like a no-brainer, but many business owners have given up on trying to understand their credit card processing statement. Statements can be confusing, but understanding them is vital when evaluating whether you have competitive rates and fees. Also, processors typically post important changes (such as rate and fee increases) to your account on the first page of your processing statement.

If you don’t understand your statements, contact your sales representative and have her explain how to read your charges — and don’t be afraid to ask questions.


Think twice about staying with a processor that’s been overcharging you.

Giving your current processor a chance to match lower rates offered by another processor is somewhat common practice. Business is business, and switching to a new processor takes time. Just keep in mind that history often repeats itself. A processor that has overcharged you once will almost certainly figure a way to drive their profit margin back up as soon as you move on to another task. A processor that offers the best rates up front is a better partner than one that has been price-gouging your business for years.


You can impose a $10 minimum on credit card purchases.

Thanks to the Durbin Amendment; it is now acceptable to impose a minimum on credit card purchases of $10 or less.


You cannot impose a minimum on debit card purchases.

It is still not acceptable to impose a minimum transaction amount on debit card purchases. Even if you have a minimum charge on credit cards, debit cards are still exempt from minimums per the card brands’ guidelines.


Be wary of lead mills.

Many online services that claim to help you find the best credit card processor do nothing more than sell your information to processors. They don’t offer support before or after you choose a processor, and they don’t screen the processors that buy your information. We call these types of services lead mills, because they don’t offer any benefits. Lead mills just ensure you will get inundated with sales calls and emails from processors. Popular lead mills are Buyerzone, Quotecatcher, and Vendorseek.


A processor can’t lower your interchange rates.

Interchange rates are set by the card brands, and they are the same for all processors. No processor can get your business lower interchange rates, regardless of what their marketing says. It is possible to optimize interchange charges (see tip #88 — interchange optimization), but that is not the same as lowering interchange rates.


A processor can’t lower assessments rates.

Assessments are like interchange in that they are the same for all processors. Visa, MasterCard and Discover make money by charging all businesses the exact same assessment fees. No processor can lower assessments fees, regardless of what they claim.


Visa & Mastercard do not classify businesses.

A popular and misleading sales tactic that many processors employ when cold-calling businesses is to claim that Visa and Mastercard maintain a list of low-risk businesses. The processor’s sales person will claim that your business is on this mysterious list, and therefore, it qualifies for unusually low rates and fees. This is simply not true, and Visa and MasterCard do not maintain any such list. This is just another misleading marketing tactic.


PCI DSS does not cost $20 a month.

PCI DSS stands for payment card industry data security standard, and processors are supposed to ensure that merchants are PCI compliant. Helping merchants to become compliant, and verifying they stay compliant, does not cost as much as many processors claim. Many processors use PCI as an excuse to inflate profits. For example, some processors here at CardFellow completely absorb the cost of PCI for their merchants, while others charge as little as $1 – $4 a month.


Credit card processing fees are tax deductible.

Your accountant is likely well aware that credit card processing fees are tax deductable, but if you do your own taxes, don’t forget to deduct your processing expense. It is usually a large deduction for any business that accepts cards.


Using PIN vs Signature debit can (still) save money.

The benefits of PIN debit from a cost standpoint were largely erased when PIN debit networks started charging a percentage fee (See tip #71) in addition to a transaction fee. However, PIN debit transactions will still save some businesses money over signature debit. We have a pin debit vs. signature debit calculator here at CardFellow that will show you which type of transaction is cheaper for your business.


Certain businesses enjoy special interchange fees.

Interchange charges account for the majority of credit card processing expense, so it is important to ensure your business is getting the lowest interchange rates possible. Some businesses, such as non-profits, grocery stores, hotels, and gas stations qualify for special interchange rates that are usually lower than standard rates.


“Less Discount Paid” is bad news for cash flow.

Credit card processors charge fees on a daily or monthly basis. In the industry, this is called daily or monthly discounting. Monthly discounting is the preferred method because it is better for your business’s cash flow, and it is easier to reconcile than daily discounting. If you see the term “less discount paid” (or a variation of it) on your credit card processing statement, your processor is charging fees via daily discount. Give your sales representative a call and request monthly discount, or better yet, get quotes here at CardFellow where all quotes are monthly discount unless a business requests otherwise.


The smaller the ticket, the more transaction fees matter.

Businesses that have a small average ticket should focus on getting the lowest transaction fees since they will be the largest contributor to cost. The discount rate (percentage fee) is still important, but far less important than transaction fees.


Keeping processing cost low is a two-part process.

Failing to monitor fees after finding a competitive processor is a common mistake. Ensuring that processing costs remain low is a two-part process. The first step is finding competitive pricing, and the second is making sure rates don’t increase and interchange charges remain as low as possible. This ongoing task is called interchange optimization.


Your local bank is not the best option for credit card processing.

Many local banks outsource credit card processing services to independent sales agents or organizations that work for large processors. You may think that by going to your bank you are going right to the source, when in fact, you are just adding another hand to the pot.


Only one component of processing cost is negotiable.

The only area of credit card processing expense that is negotiable is the processor’s markup over interchange and assessments. Think of the sum of interchange and assessments as wholesale cost that is the same for all processors. Any cost beyond wholesale is the processor’s markup, and the markup is the only area of cost that will change from one processor to the next.


Contract terms often auto-renew.

Many processors use contract terms that auto-renew if they are not cancelled within a small window. Three-year auto-renewing contract terms with a thirty-day cancellation window are typical. Under such an agreement, a business needs to inform the processor that it would like to cancel the agreement within the thirty-day window, or else the agreement automatically renews for another full term.


Flat rate credit card processing does not exist.

All credit card processing charges are based on interchange rates, and interchange rates vary on a per-transaction basis. Processors that offer flat rate credit card processing (such as Square) still pay interchange fees — they just do so behind the scenes. For this reason, true flat rate credit card processing does not exist.

Flat rate processing at the processor level only makes financial sense for the smallest of businesses. Interchange pass through pricing is the least expensive way to process credit cards for most businesses.


A computer cannot (always) pick your ideal processors.

If anyone has software that can pick your business’s perfect processor out of a hat, it is CardFellow. However, even we know that a little human intervention is often required to fine-tune a credit card processing quote. Don’t expect automated or instant quotes to match your business’s processing needs exactly. It is often helpful to speak with a sales person to ensure a quote reflects the proper and least expensive option the processor has to offer.


Most credit card processors are actually ISOs.

ISO stands for independent sales organization, and ISOs are what most people think of as their credit card processor. ISOs are not banks or processors. Instead, they are the sales and service arm for banks and processors, whose job is to continually obtain new business and service existing clients.


Price-match guarantees are a joke.

Processors that offer price-match guarantees do not offer their best rates first. It makes no sense to take excellent rates from one processor to another, simply to have rates matched. Doing so would require time and effort for no benefit. A price-beat guarantee would be something worth advertising, but you are not likely to find a processor willing to offer that without a multitude of strings attached.


Cancellation fees can be based on lost profits.

Merchant account cancellation fees can be either flat or based on a processor’s lost profits. For example, a flat cancellation fee would be something like $300, but a cancellation fee based on lost profits can be far more. Some processors use a liquidated damages clause in their agreement that bases a cancellation fee on the profits lost if a business ends the processing agreement before the term expires.

For example, if a processor is earning $300 a month from a particular business and the business cancels the processing agreement ten months early — the business would owe the processor a cancellation fee of $3,000 ($300 profit * 10 months). The best course of action is to completely avoid processors that require any sort of term and cancellation fee. Cancellation fees are nothing but trouble, and that is exactly why processors are not allowed to charge them here at CardFellow.

Pivotal Payments is an example of a processor that basis a cancellation fee on liquidated damages.


Never sign a merchant service agreement with blank fields.

It is typical for a sales representative to send a merchant processing application with blank fields. Most of the time, reps leave fields blank because the rates and fees they represent do not apply to a business’s method of processing. But this isn’t always the case.

One of the easiest credit card processing tips we can offer: When applying for a merchant account, make sure that every single field on the application is populated. If a rate or fee is not applicable to your business, put a “n/a” or a “0” in the field so nothing is left to chance.


Cross-outs on a merchant service agreement are ignored.

Merchant processing agreements have a clause that says cross-outs and marks on the application will be ignored. For example, a cancellation fee will still apply even if it is crossed out of the application. The best course of action when amending a merchant processing application is to get a signed letter from the processor outlining any changes.

For example, one processor here at CardFellow provides a letter signed by the company’s CEO guaranteeing that their merchant accounts do not have a cancellation fee.


ISOs often do not have authority to waive a cancellation fee.

ISO stands for independent sales organization, and ISOs are what most people think of as their credit card processor. ISO are not processors, and they often do not have the authority to waive a cancellation fee put in place by a processor. Referring back to tip #97, do not assume that crossing out a cancellation fee on a merchant processing application is good enough. Have the ISO provide a signed addendum that clearly states a cancellation fee will not apply.


Lowest rate guarantees are a joke.

Many processors advertise they pay $100 or more if they cannot beat another processor’s rate. These offers are accompanied by such ridiculous fine print that processors will always avoid paying.

People tell us all the time that they try to collect on such guarantees by taking the quote they received at CardFellow to a processor with a lowest rate guarantee. The quote from CardFellow is always the lowest, but processors always come up with a lame excuse not pay a reward, and $100-$200 isn’t worth the fight. Lowest rate guarantees are nothing more than a weak marketing ploy.


American Express sets its own rates (but maybe not it’s markup).

American Express’s pricing is in a state of flux at the moment. The company is moving merchants (that process less than $1 million annually) to a pricing model called OptBlue, which functions more like Visa and MasterCard’s interchange and less like Amex’s old ESA or One Point pricing.

OptBlue pricing has lower base costs (what Amex collects) than ESA/One Point, leaving room for a processor’s markup. The problem is that, like with all credit card processing pricing, the markup may be exorbitant. The final credit card processing tip: make sure that a processor lists their markup separately so that you can see if you’re getting a competitive markup.

Skip the Nonsense

These credit card processing tips are designed to help you avoid pitfalls when you shop for a processor, but there’s an easier way. CardFellow allows you to quickly compare rates, fees, and terms among multiple processors. It’s free, confidential, and no obligation. There are no high-pressure sales calls, and no nonsense. Just great pricing and as much or as little expert advice as you need. Try it now!

7 thoughts on “101 Credit Card Processing Tips”

  1. I am a newbie when it comes to merchant accounts, so my question is: I have an invoice program that the customer pays online with their card present, but my gateway states that the card is not present. Is this something that needs addressing or it doesn’t matter?

  2. I have a processor who will not fund my account if only a debit card has been processed. I am told I must have a credit card transaction in order for the debit to fund. This seems wrong to me. Anyone have any knowledge of this?

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