Why Transparency Matters

No matter how knowledgeable a merchant may be in respect to credit card processing, without transparent pricing and reporting it is very difficult, if not impossible, to effectively reduce costs.

Introduction to Transparent Pricing

There are a number of ways a credit card processing merchant account can be priced. The two most common ways are:

1. Categorizing and Bundling (Tiered): This pricing convention bundles the various 270+ Interchange Rates into three Rate categories (Qualified, Mid-qualified and Non-Qualified transactions). How a transaction is categorized (as Qualified, Mid-qualified and Non-Qualified transactions) is typically the decision of the Merchant Service Provider (MSP). Appropriate practice would require the MSP to bundle lower Interchange Rate transactions into a “Qualified” category and higher Interchange Rate transactions into “Mid-qualified” and “Non-qualified” categories. However, this is not always done and in some cases MSPs will classify transactions in certain ways to earn substantial mark-ups on common transactions. As a result, it is extremely important that you know exactly how your transactions are categorized. Click here to learn more about every bank and processor's base expenses.

2. Interchange-Plus: This pricing convention bases pricing directly to the Interchange Rate associated with the transaction. Typically, the Merchant Service Provider will mark-up each individual interchange transaction (either a basis point or transaction-based mark-up, or both) in a similar amount. Transparency is typically more easily accomplished when this pricing convention is used although it will usually require a detailed understanding of Interchange Rates for a Merchant to analyze reports and monthly statements. Click here to learn more about every bank and processor's base expenses.

Transparent Reporting

Merchants must rely on the reporting given to them by their service provider for a number of reasons. Most often, this reporting comes in the form of a merchant statement and is used primarily to reconcile credit card processing activity to bank deposits. Some services providers now offer online merchant account reporting which gives businesses access to processing data on a daily basis. Besides just being able to access data, it is important for a merchant to be able to understand the data and use it to help manage their accounting and customer inquiries. Reporting should be provided in a format which clearly details all fees being charged and how those amounts were calculated. Following are three ways in which reporting can positively impact your bottom line:

1. Proactive Rate Analysis: Regardless of the pricing convention, when a transaction is run a Merchant can still be billed a higher rate if certain actions are not completed at the time a transaction occurs. For instance, by verifying a customer’s address at the time of sale the Merchant may receive a lower rate. However, without the cooperation of the MSP, the Merchant may never know if they can improve their actions and reduce costs. When choosing a MSP it is important to find one that will monitor qualification and provide detailed reporting on why some transactions are charged a higher Interchange Rate. Even more valuable is a MSP that will proactively analyze transaction activity and recommend actions at the point-of-sale that will reduce processing costs.

2. Reduced Accounting Workload: Understanding credit card processing statements and reconciling them to bank deposits is a daunting task for many businesses. The problem revolves around the fact that there are several different ways to deposit your credit card processing funds into your bank account and collect the corresponding processing fees. For example, you may currently receive one deposit per day regardless of the number of batches you run, or you may receive one deposit per batch. Even more confusing is the way processing fees are collected. For example, you may have your fees automatically withheld from your credit card deposits or you may have them debited on a daily basis from your account. While the above examples list just a couple of ways funds can be deposited and fees can be collected, the point is that you and your MSP must understand your options so that you know how to reconcile your account. In addition, at your request, your MSP should provide you with one on one assistance and training on how to best reconcile your processing to the bank and you should have access to online reporting tools to assist you with this task.

3. Service Provider Accountability: Understanding your processing statements are paramount to insuring you are being billed properly by your credit card processing service provider. Some common practices we see (some from prominent banks) include billing for fees incurred in the previous month, listing total interchange expense without showing the calculation for the fee, charging for fees which are not understood or properly disclosed to the merchant, and inappropriately categorizing processing volume to unfairly increase profit margins (see Categorizing and Bundling above). While many merchants simply give their MSP or Acquiring Bank the benefit of the doubt, there is really only one reason why the fees listed on your merchant account statement are not disclosed in a transparent manner. THE SERVICE PROVIDER IS HIDING THEIR MARKUP. By understanding your merchant account statement, you insure you are being billed fairly and your credit card processing service provider is providing you with competitive rates and fees.

To further your understanding of the credit card processing industry we suggest that you contact one of our educational representatives to discuss the important factors your business should consider when evaluating a service provider. Click here to have the appropriate Payment Logistics personnel contact you.