Credit Card Processing

3 Ways to Tell if You’re Paying Too Much for Credit Card Processing

by Ben Dwyer

Credit card processing is a confusing and frustrating part of business. Have you ever looked at your billing statement and thought you’re paying too much for credit card processing but couldn’t be sure? Or maybe a pushy sales person stops by and promises to save you tons of money, and you’re wondering if you’re really overpaying. Here are 3 quick ways to determine if you’re paying too much and how to lower your costs to take credit cards.

1. You have Non-Qualified Rates

Check your statements. Do you see the word “non-qualified” or any variation? (NQUAL, nonqual, etc.) If so, you’re paying too much for credit card processing. Huge red flag.

1a. Did you search for a processor based on “rates” and then sign up with the lowest, with a rate of 1.5% or less? You’re probably overpaying. Yellow flag.

Non-qualified rates are a problem because of what’s called tiered or “bundled” pricing. With that pricing model, you get opaque, expensive pricing because your processor gets to arbitrarily decide which of your transactions will cost you more.

Note: Visa has begun naming some of its downgrade categories “non-qualified,” which muddies the waters a bit when you’re quickly checking to see if you’re on bundled pricing. However, non-qualified downgrades still mean that your transactions didn’t qualify for their target interchange category, meaning you ultimately paid more. Regardless of why there’s a “non-qualified” rate or fee on your statement, it’s an indication that you’re overpaying.

Solution: Switching to a credit card processor that offers competitive interchange plus pricing is the first step to lowering your processing costs if you’re on a tiered model. If the non-qualified fees are because of Visa, not your processor, you’ll benefit from statement reviews to ensure optimized interchange. You can use CardFellow’s free processor comparison tool to compare interchange plus quotes, and when you choose a quote through us, interchange optimization is included as an ongoing service.

2. You’re Using Square or PayPal

Is your average transaction more than $10 and you process more than $2,000/month…but you use Square or PayPal? You’re probably paying too much and can lower your processing costs. Marketing has made flat rate processors seem appealing, but name recognition isn’t always a good indicator of competitive costs. (I’m not giving this one a warning color because it’s not deceptive on Square or PayPal’s part, but it’s still a common way you may be overpaying and switching to a traditional processor could save you money on taking credit cards.)

Using Square or PayPal when there are other options is only a problem if you don’t know that you’re paying for simplicity. Square and PayPal as well as other flat rate processors are not being deceptive about their pricing – they’re just charging more to make things look simple for you. How? By not passing the true wholesale cost of processing to you and charging a separate markup.

If pricing that looks simple is your primary concern, Square or PayPal (or any flat rate processor) are a great choice. But if low cost is your priority, it’s usually best to look elsewhere.

The Flat Rate in Action

From a flat rate processor’s one rate, they need to pay out interchange and assessments, or the fees that the banks and credit card companies charge. They keep whatever’s left as their profit. If they pay a small amount to process a transaction, they make more profit from you.

By contrast, processors that offer interchange plus pricing with true pass-through will charge you the exact wholesale cost of the interchange and assessments, and then charge their markup as a separate fee. A competitive markup will get you lower costs.

Flat rate processing offers simplicity, but at a price. Unless your average ticket is less than $10 or you’re processing under $2,000/month, there are probably more competitive solutions than flat rate. Additionally, it also conceals the costs of processing so you don’t know how much you’re paying in wholesale costs and how much is profit to the company.

Still not sure? Check out our detailed article of Square reviews and rates. (Be sure to read the comments for other businesses’ reviews of their experience using Square.)

3. You Chose a Processor from a “Top Ten Processors” or “Best Processors” List

In many cases, review sites that offer top ten processors or best processor lists aren’t doing you any favors. The reasons range from the simple fact that processor reviews aren’t helpful because processors set rates and terms on a per-case basis to the more deceptive situation where review sites make money from processors that they recommend. So if you chose your processor from a “best of” list, you may be paying more than you need to for credit card processing.

That’s not to say that you can’t read reviews. Just take them with a grain of salt, and make sure you know the motivation of the site that posts the review. Is the list of best processors coming from a site that has partnerships with the processors and therefore has a vested interest in promoting them?

For more info on why reviews aren’t helpful, you can read our article on credit card processor reviews or check out our explanation of why CardFellow doesn’t rate best processors.

I think I’m overpaying. How do I pay less for credit card processing?

So how do you stop overpaying once and for all? You can learn about processing or just let us handle it all for you.  If you’re doing it on your own, you’ll want to find a competitive interchange plus processor that offers true pass-through pricing, insist on full disclosure of all costs, and don’t accept contracts with a cancellation fee. Also be prepared to go over your monthly statements with a fine-tooth comb, looking for any interchange downgrades that indicate you paid more than necessary, and know how to correct them for the future.

If you want to use CardFellow, it’s free and private, and we do the legwork for you. You can put your spreadsheet away and take advantage of our free comparison tool.You’ll get fully-disclosed quotes from multiple processors (or even invite your own) and see how the costs stack up side by side. All certified quotes in the CardFellow marketplace are legally bound by an agreement with us that prohibits cancellation fees, requires true pass-through pricing, requires a lifetime rate lock, and more. We’ll help you compare apples to apples so you can make an informed decision and start lowering your processing costs.

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