For those not well versed in accepting credit cards at their business, this list of rip-offs should serve as a warning, and as a checklist of questions you should use when dealing with the salesperson asking for your business.
Credit Card Terminals Lease
Beware the non-cancelable lease. Rather than proposing the merchant buy a terminal (or receive one for free), some sales people are pushing a $49 per month lease. The problem is you cannot cancel or payoff the lease early. The wholesale cost of a machine? Around $250 (more or less, depends on the type of equipment desired). The term of the lease is 48 months, so the total cost to the merchant will be around $2352. To make matters worse, some processors have free equipment programs for new accounts.
Introductory rates
Beware of rates that sound too good to be true. They usually are, and are not guaranteed. The plan is to hook merchants to sign a contract, and soon after, the rates begin to climb because, they claim, the “monthly volume” (see below) wasn’t what they were expecting. Since the merchant is now under contract, there’s nothing you can do (except change processors).
Early termination fees
Beware of extremely high early termination fees. This rip off is linked to the one above; namely, promising anything and everything to the merchant to get them to sign a contract, and then not delivering. The standard contract term is three years, and termination fees can be based on a flat rate (say $295) or based on processing fees received. Currently there is a class action suit against one processor because their policy for determining early termination fees was based on a pro-rated amount of the fees they would have received until the contract was set to expire.
Rates “subject to change at any time” based on “volume”
Visa and MasterCard do not set rates based on volume, but on transaction type and card type. Period. Some processors policy is that rates are subject to change on thirty days notice. Very few have “fixed rate guarantees.” Look for processors who will offer this guarantee. From time to time Visa and MasterCard do raise their rates, and these are often passed on to the merchant. Some processors, however, take this opportunity to raise their rates even more than Visa and MasterCard just to make up some extra profit.
High “minimum processing fees”
For accounts that do not process a lot of transactions per month or have a low monthly volume, there is something called the minimum processing fee. An additional processing surcharge would be added to the bill. The range of fees for most processors will be around $25 or $30 dollars per month, but you can often work with someone to get this reduced.
Click here to read more in our Credit Card Merchant Buyers Guide
Hidden fees
Most times the full range of fees and costs is not disclosed to the merchant. Is there an annual fee? How much is it and what does it cover? Some processors, in an effort to get their merchants to purchase newer equipment, will impose an additional monthly fee until they do upgrade. This happened to a good friend of mine, who was told that an additional $5.99 per month charge would be added to his bill until he bought that latest equipment for a cost of $650. Do the math. Needless to say, he switched his account.
Additional surcharges
Rates are set by Visa and MasterCard, and are based on two factors: card type (i.e. rewards, corporate) and/or how the transaction is processed (swiped, keyed in, etc.). For retail accounts (where the card is present during the transaction) the rate categories are called discount, mid-qualified, and non-qualified. For e-commerce or accounts that accept payment by phone or fax, there are two rate classes. Swiped (discount) is the lowest rate, with non-qualified the highest. Most processors not only charge you the appropriate rate class, but will also pass along additional surcharges for mid-qualified or non-qualified transactions. Why? Since everyone competes on rate, and the rate typically quoted is discount only, the way to make up the most on profit is with mid and non-qualified transactions and surcharges. And since these rates are rarely, if ever, discussed, the merchant has no idea what the real cost will be.
Conclusion
If you have any questions on the information provided here, or would like a cost analysis of your current provider, feel free to call or email to schedule availability. I hope you found the information provided here useful to you, your business and your bottom line.
Michael Guerin is founder and president of Automated Merchant Processing, LLC, an ISO of United Bank Card. Mr. Guerin can be reached at 877-262-3712 or by email: michael@ampcashflow.com.